Registration No. 333-
As filed with the Securities and Exchange Commission on December 23, 1997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Form S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CITICORP MORTGAGE SECURITIES, INC.
(Packager)
(Issuer in respect of the Certificates)
(Exact name of registrant as specified in its charter)
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909 Third Avenue
New York, New York 10043
(212) 559-6727
Delaware (212) 559-6727 13-3408717
(State or other (Address, including (I.R.S. Employer
jurisdiction of zip code, and telephone Identification Number)
incorporation number, including area code,
or organization) of registrant's principal
executive offices)
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CITICORP
(Guarantor)
(Issuer in respect of the Guaranty)
(Exact name of registrant as specified in its charter)
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399 Park Avenue
New York, New York 10043
Delaware (212) 559-1000 13-2614988
(State or other (Address, including (I.R.S. Employer
jurisdiction of zip code, and telephone Identification Number)
incorporation number, including area code,
or organization) of registrant's principal
executive offices)
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<CAPTION>
CITIBANK, FEDERAL SAVINGS BANK CITICORP MORTGAGE, INC. CITIBANK, N.A.
(Issuers in respect of CitiMortgageCertificates)
(Exact names of registrants as specified in their governing instruments)
<S> <C> <C> <C> <C> <C>
United States of United States of
America 94-0472650 Delaware 13-2999081 America 13-5266470
(State or other (State or other (State or other
jurisdiction of (I.R.S. Employer jurisdiction of (I.R.S. Employer jurisdiction of (I.R.S. Employer
incorporation or Identification incorporation or Identification incorporation or Identification
organization) Number) organization) Number) organization) Number)
One Sansome Street 12855 North Outer Forty Drive 399 Park Avenue
San Francisco, California 94104 St. Louis, Missouri 63141 New York, New York 10043
(415) 627-6000 (314) 256-5000 (212) 559-1000
(Address, including (Address, including (Address, including
zip code, and telephone zip code, and telephone zip code, and telephone
number, including area code, number, including area code, number, including area code,
of registrant's principal of registrant's principal of registrant's principal
executive offices) executive offices) executive offices)
</TABLE>
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STEPHEN E. DIETZ
ASSOCIATE GENERAL COUNSEL
Citibank, N.A.
425 Park Avenue
New York, New York 10043
(212) 559-3430
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of this Registration Statement.
If the only securities being registered on this form are to be
offered pursuant to dividend or interest reinvestment plans, please check the
following box.|_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box.|X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration number of the earlier
effective registration statement for the same offering.|_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier registration statement for the same
offering.|_|
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.|_|
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum
Title of Securities Amount to Aggregate Aggregate Amount of
to be Registered be Registered Price Per Unit(2) Offering Price(2) Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates, CitiMortgageCertificates
and Guaranties........................ $5,000,000,000(1) 100% $5,000,000,000 $1,475,000
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</TABLE>
(1) $367,357,066 aggregate principal amount of Certificates,
CitiMortgageCertificates and Guaranties registered by the Registrants
under Registration Statement No. 33-66222 referred to below are
consolidated in this Registration Statement pursuant to Rule 429. All
registration fees in connection with such unsold amount of Certificates,
CitiMortgageCertificates and Guaranties have been previously paid by the
Registrants under the foregoing Registration Statement. Accordingly, the
total amount registered under the Registration Statement as so
consolidated as of the date of this filing is $5,367,357,066.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrants hereby amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
In accordance with Rule 429 under the Securities Act of 1933, the
Prospectus included herein also relates to Citicorp Mortgage Securities, Inc.'s,
Citicorp's and the above-listed Packager's and Originators' Registration
Statement on Form S-11 and S-3 File No. 33-66222.
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EXPLANATORY NOTE
This Registration Statement contains a REMIC Pass-Through Certificates
Prospectus relating to public offerings from time to time by Citicorp Mortgage
Securities, Inc. of pass-through certificates, together with certain separate
pages of a REMIC Pass-Through Certificates Prospectus (the "MBIA Prospectus") to
be used in connection with offers and sales of pass-through certificates where
credit support is provided in the form of a financial guaranty insurance policy
issued by MBIA Insurance Corporation and a REMIC Pass- Through Certificates
Prospectus (the "FSA Prospectus") to be used in connection with offers and sales
of pass-through certificates where credit support is provided in the form of a
financial guaranty insurance policy issued by Financial Security Assurance Inc.
The REMIC Pass-Through Certificates Prospectus follows immediately after this
Explanatory Note. Following such Prospectus are the alternate pages of the MBIA
Prospectus and the FSA Prospectus. All other pages of the REMIC Pass-Through
Certificates Prospectus are also to be used for the MBIA Prospectus and the FSA
Prospectus.
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SUBJECT TO COMPLETION, DATED DECEMBER 23, 1997
PROSPECTUS
CITICORP MORTGAGE SECURITIES, INC.
REMIC Pass-Through Certificates
Citicorp Mortgage Securities, Inc. (the "Issuer") may sell from time to
time, on terms to be determined at the time of sale, one or more series (each, a
"Series") of certificates (the "Certificates") consisting of one or more classes
(each, a "Class") evidencing ownership interests in a trust (the "Trust"), to be
created by the Issuer, with respect to which one or more elections will be made
to treat such Trust, or one or more segregated pools of assets within such
Trust, as one or more real estate mortgage investment conduits (each, a "REMIC")
under the Internal Revenue Code of 1986, as it may be amended from time to time
(the "Code"). The property of each such REMIC will consist of a pool of assets
(for each Series, a "Pool"), or interests in another REMIC consisting of a Pool,
comprised primarily of mortgage loans or mortgage-backed certificates conveyed
to such Trust by the Issuer. Any Class of Certificates may be divided into two
or more subclasses (each, a "Subclass"). The Certificates will consist of one or
more Classes or Subclasses of regular interests (collectively, the
"CitiCertificates"), and of one Class or one Subclass of residual interests with
respect to each Pool (the "Residual Certificates"). Each Class or Subclass of
Certificates will evidence beneficial ownership of a specified percentage (which
may be 0%) or portion of future interest payments and a specified percentage
(which may be 0%) or portion of future principal payments on the Mortgage Loans
or Mortgage Certificates in the related Pool. One or more Classes or Subclasses
of CitiCertificates may be subject to deferred distribution of interest
("Accrual CitiCertificates"). If so specified in the applicable Prospectus
Supplement, a Series (a "Senior/Subordinated Series") may consist of one or more
Classes or Subclasses of Certificates subordinate in right of distributions (the
"Subordinated Certificates") to one or more other Classes or Subclasses (the
"Senior Certificates"). If so specified in the applicable Prospectus Supplement,
in addition to or in lieu of subordination, credit support may be provided for
any Class of Certificates in the form of a guaranty issued by Citicorp or
another guarantor (a "Guaranty"), letter of credit, mortgage pool insurance
policy or another form of credit support as described herein and in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will set forth the specific terms
of each Class and/or Subclass of Certificates offered thereby, including (if
applicable) the aggregate initial Stated Amount, the Stated Rate and the Last
Scheduled Distribution Date for each such Class or Subclass; the terms of
distribution of accrued interest on any Class or Subclass of Accrual
CitiCertificates; the method used to calculate the aggregate amount of
distributions in reduction of Stated Amount of any Class or Subclass of
Certificates required to be made on each Distribution Date and the method of
allocation thereof; the Distribution Dates; the characteristics of the Mortgage
Loans or Mortgage Certificates comprising the Pool; whether more than one REMIC
election will be made; the terms of any special distributions or early
termination applicable to the Class or Subclass; the terms of any credit support
provided for a Class or Subclass; the terms of any subordination provided in a
Senior/Subordinated Series; the method of distribution of the Certificates; the
terms of any distributions on Residual Certificates; and other specific terms of
a Class or Subclass.
Each Pool will consist of (i) fixed or adjustable interest rate
mortgage loans ("Mortgage Loans") (a portion of the interest on each such
Mortgage Loan may be retained by the Issuer or an affiliate of the Issuer)
acquired by the Issuer (a) from Citicorp Mortgage, Inc. ("CMI"), Citibank, N.A.
("Citibank") or Citibank, Federal Savings Bank ("CFSB") or (b) from CitiMae,
Inc. ("CitiMae") or one of its affiliates or a seller-servicer approved by
CitiMae or one of its affiliates (collectively, the "CitiMae Originators") or
(c) from another affiliate of the Issuer specified in the applicable Prospectus
Supplement (collectively with CMI, Citibank and CFSB, the "Affiliated
Originators") or (d) from unaffiliated seller-servicers (the "Third Party
Originators" and collectively with the Affiliated Originators and the CitiMae
Originators, the "Originators"), (which Mortgage Loans may be acquired by CMI
and then acquired from CMI by the Issuer), (ii) mortgage
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- -backed certificates previously issued by the Issuer or an affiliate of the
Issuer and described in the applicable Prospectus Supplement ("Issuer
Certificates"), (iii) certificates backed by Mortgage Loans (together with
Issuer Certificates, "CitiMortgageCertificates"), and/or (iv) GNMA Certificates,
FNMA Certificates and/or FHLMC Certificates (each as defined herein, and
collectively, together with CitiMortgageCertificates, the "Mortgage
Certificates"), together with certain other assets described herein or as
otherwise described in the Prospectus Supplement. The Mortgage Certificates may
be guaranteed as to payment of principal and interest to the extent indicated
herein and in the related Prospectus Supplement. The CitiMortgageCertificates
may have the benefit of credit support to the extent provided herein and in the
related Prospectus Supplement.
THESE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN THE
ISSUER OR ANY OF ITS AFFILIATES EXCEPT AS SET FORTH BELOW. NEITHER THE
CERTIFICATES, THE CITIMORTGAGE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS
ARE INSURED OR GUARANTEED BY ANY AGENCY OR INSTRUMENTALITY OF THE UNITED STATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Certificates may be sold by the Issuer through dealers or agents
designated from time to time, through underwriting syndicates led by one or more
managing underwriters or through one or more underwriters acting alone. See
"PLANS OF DISTRIBUTION." Affiliates of the Issuer may from time to time act as
agents or underwriters in connection with the sale of the Certificates. Specific
information with respect to the terms of offering of the Certificates offered
thereby is set forth in the Prospectus Supplement.
This Prospectus may not be used to consummate sales of Certificates
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is [ ].
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REPORTS TO CERTIFICATEHOLDERS
The Issuer will provide or cause to be provided to holders of the
Certificates (the "Certificateholders") of each Series periodic reports
concerning the Pool underlying their respective Certificates. See "THE POOLING
AGREEMENTS--Reports to Certificateholders."
ADDITIONAL INFORMATION
Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMC's Information Statement and most recent Supplement to such Information
Statement and any quarterly report made available by FHLMC can be obtained by
writing or calling the Investor Inquiry Department at 8200 Jones Branch Drive,
McLean, Virginia 22102, telephone number (703) 450-3777 or (800) 336-FMPC.
Copies of FNMA's most recent Prospectus for FNMA Certificates and FNMA's annual
and quarterly reports as well as other financial information are available from
the Vice President for Investor Relations of FNMA, 3900 Wisconsin Avenue, N.W.,
Washington, D.C. 20016, telephone number (202) 752-7115. The Issuer does not and
will not participate in the preparation of FHLMC's Offering Circulars,
Information Statements or any Supplements thereto or any of its quarterly
reports, FNMA's Prospectuses or any of its reports, financial statements or
other information or GNMA's annual report.
AVAILABLE INFORMATION
The following information is provided if a Guaranty is issued by
Citicorp and is part of a Pool. Citicorp is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith Citicorp currently files reports and other
information with the Securities and Exchange Commission (the "Commission").
Information as of particular dates, concerning directors and officers, their
remuneration, options granted to them, the principal holders of securities of
Citicorp and any material interest of such persons in transactions with
Citicorp, is disclosed in proxy statements distributed to stockholders of
Citicorp and filed with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a site on the World Wide Web at "http://www.sec.gov"
at which users can view and download copies of reports, proxy statements and
other information filed electronically through the Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system. Citicorp files such reports, proxy
statements and other information through the EDGAR system and therefore such
materials should be available by logging onto the Commission's Web site. The
Commission maintains computer terminals providing access to the EDGAR system at
each of the offices referred to above. Citicorp stock is listed on, and copies
of such reports, proxy statements and other information concerning Citicorp also
may be inspected at the offices of, the New York Stock Exchange, the American
Stock Exchange, the Midwest Stock Exchange and the Pacific Stock Exchange.
ADDITIONAL DETAILED INFORMATION
The Issuer currently offers by subscription detailed mortgage loan
information in machine readable format updated on a monthly basis (the "Detailed
Information") with respect to each outstanding Series of
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Certificates. The Detailed Information reflects payments made on the individual
mortgage loans, including prepayments in full and in part made of such mortgage
loans, as well as the liquidation of any such mortgage loans, and identifies
various characteristics of the mortgage loans. For further information regarding
the Detailed Information and subscriptions thereto, please contact Citicorp
Mortgage, Inc., 15851 Clayton Road West, Ballwin, Missouri 63011, telephone
number (314) 256-6446.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
If a Guaranty is issued by Citicorp and is part of a Pool, Citicorp's
most recent Annual Report and Form 10-K and any subsequent reports on Form 8-K
or Form 10-Q filed with the Commission by Citicorp are incorporated as of their
respective filing dates in this Prospectus by reference:
If such a Guaranty is part of a Pool, all reports subsequently filed by
Citicorp pursuant to Sections 13(a) and (c) of the Exchange Act, any definitive
proxy or information statements filed pursuant to Section 14 of the Exchange Act
in connection with any stockholders' meeting and any reports filed pursuant to
Section 15(d) of the Exchange Act prior to the termination of the offering of
the Certificates offered hereby shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof.
All documents filed by the Issuer with the Commission on behalf of the
Pool referred to in the accompanying Prospectus Supplement pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of such
Prospectus Supplement and prior to the termination of any offering of the
Certificates issued by such Trust shall be incorporated by reference in this
Prospectus and be a part of this Prospectus from the date of the filing of such
documents. Any statement contained in a document incorporated by reference
herein shall be modified or superseded for all purposes of this Prospectus to
the extent that a statement contained herein (or in the accompanying Prospectus
Supplement) or in any other subsequently filed document which also is
incorporated by reference modifies or replaces such statement. Any such
statement so modified or superseded shall not, except as modified or superseded,
constitute a part of this Prospectus. Copies of the documents incorporated
herein by reference will be provided to each person to whom this Prospectus is
delivered upon written or oral request to Citicorp Mortgage Securities, Inc.,
909 Third Avenue, New York, New York 10043, telephone number (212) 559-6727.
Citicorp will provide without charge to each person, including any
beneficial owner of Certificates, to whom this Prospectus is delivered, on the
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents).
Written or telephone requests should be directed to Citicorp, 399 Park Avenue,
New York, NY 10043, Attention: Investor Relations Department, telephone number
(212) 559-2718.
Each Series of Certificates will be issued under a separate Pooling and
Servicing Agreement (each a "Pooling Agreement"), between the Issuer and the
trustee for such Series (the "Trustee"), substantially in one of the forms
(each, a "Form of Pooling Agreement") filed as an exhibit to the Registration
Statement of which this Prospectus is a part (the "Registration Statement"). The
summaries of certain provisions of the Certificates and such Form of Pooling
Agreement included in this Prospectus do not purport to be complete and are
subject to, and qualified in their entirety by reference to, all of the
provisions of the Form of Pooling Agreement, and the final Pooling Agreement
executed in connection with the issuance of a Series. Section references herein
are references to the Form of Pooling Agreement. When used in this Prospectus
(as modified by the description in the related Prospectus Supplement), the
summaries of certain provisions of the Form of Pooling Agreement also apply to
the form of Pooling Agreement applicable to a Pool of Mortgage Loans underlying
a CitiMortgageCertificate. Terms used but not defined herein have the meanings
assigned to them in the Form of Pooling Agreement. References herein to the
Trustee or the Issuer include,
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unless otherwise specified, any agents acting on behalf of the Trustee or any
subcontractor of the Issuer, any of which agents or subcontractors may be the
Issuer or one of its affiliates.
The summaries included in this Prospectus generally describe the
Certificates and related matters. Such summaries are subject to, and qualified
in their entirety by reference to, the Prospectus Supplement describing a
particular Series. See "INDEX OF PRINCIPAL DEFINITIONS" for a listing of
principal terms used herein and the page herein on which each such term is
defined.
NO PERSON HAS BEEN AUTHORIZED TO GIVE INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON. THIS PROSPECTUS AND ANY PROSPECTUS
SUPPLEMENT WITH RESPECT HERETO DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES
OFFERED HEREBY AND THEREBY AND DO NOT CONSTITUTE AN OFFER OF THE CERTIFICATES TO
ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
DESCRIPTION OF CERTIFICATES
General
The Certificates are issuable in one or more Series. The Certificates
of each Series will evidence the entire beneficial ownership interest in the
Trust as to which one or more elections will be made to treat all or a specified
portion thereof (as specified in the related Prospectus Supplement) as one or
more REMICs as defined in Code Section 860D. The Trust will consist of (i) such
Mortgage Loans or Mortgage Certificates as from time to time are subject to the
Pooling Agreement; (ii) such funds or assets as from time to time are deposited
in the Certificate Account as described herein under APPENDIX A: "THE MORTGAGE
LOANS AND CITIMORTGAGECERTIFICATES--Payments on Mortgage Loans in Pools"; (iii)
property acquired by foreclosure or deed in lieu of foreclosure of Mortgage
Loans as from time to time are subject to the Pooling Agreement; (iv) any
combination of Guaranty, letter of credit, mortgage pool insurance policy, one
or more reserve funds and other form of credit support provided for such Series;
and (v) any title insurance policy and hazard insurance policy maintained with
respect to the Mortgaged Properties.
Each Series will consist of one or more Classes or Subclasses of
CitiCertificates representing "regular interests" in one or more REMICs within
the meaning of Code Section 860G(a)(1) and one Class or one Subclass of Residual
Certificates representing the "residual interest" with respect to each REMIC
within the meaning of Code Section 860G(a)(2).
Each Series of Certificates will consist of Residual Certificates and
of either (i) a single Class of CitiCertificates, (ii) two or more Classes of
CitiCertificates, one or more Classes or Subclasses (the "Senior Certificates")
of which will be senior in right of distributions to one or more of the other
Classes or Subclasses (the "Subordinated Certificates") to the extent described
in the related Prospectus Supplement (any such Series, a "Senior/Subordinated
Series"); (iii) two or more Classes or Subclasses of CitiCertificates which
differ as to the timing, sequential order, rate or amount of distributions of
principal or interest or both, or as to which distribution of principal or
interest or both on any Class or Subclass may be made upon the occurrence of
specified events, in accordance with a formula or schedule, or on the basis of
certain types of
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collections or from designated portions of the Pool, which CitiCertificates may
be Accrual CitiCertificates; or (iv) other types of Classes or Subclasses of
CitiCertificates as described in the related Prospectus Supplement. Credit
support for a Series of CitiCertificates may be provided by a Guaranty, letter
of credit, mortgage pool insurance policy, special hazard insurance policy,
bankruptcy bond, surety insurance policy or a Reserve Fund as described herein
and in the related Prospectus Supplement, or by the subordination of one or more
Classes or Subclasses of CitiCertificates or Residual Certificates as described
herein and in the related Prospectus Supplement, or by any combination of the
foregoing. See "DESCRIPTION OF CERTIFICATES--Credit Support."
The Issuer may sell certain Classes or Subclasses of Certificates of a
Series, including one or more Classes or Subclasses of Subordinated Certificates
or the Residual Certificates, by means of this Prospectus and a Prospectus
Supplement if, at the time of such sale, at least one nationally recognized
statistical rating organization has rated the Classes or Subclasses of
Certificates of such Series in one of its generic rating categories which
signifies investment grade. Typically, the four highest categories (within which
there may be subcategories or gradations indicating relative standing) signify
investment grade.
The Issuer may sell certain Classes or Subclasses of Certificates of a
Series, including one or more Classes or Subclasses of Subordinated Certificates
or the one Class or one Subclass of Residual Certificates, in privately
negotiated transactions exempt from registration under the Securities Act of
1933, as amended (the "Securities Act").
Unless otherwise specified in the related Prospectus Supplement, the
CitiCertificates of specified Classes or Subclasses of a Series will be issued
in the form of book entries on the records of The Depository Trust Company
("DTC") and participating members thereof.
Interest distributions and distributions in reduction of the Stated
Amount with respect to Certificates of any Series will be made on the
Distribution Dates for such Series (i) by check mailed to holders of such
Certificates registered as such on the applicable Record Date at their addresses
appearing on the Certificate Register, (ii) upon written request of a
Certificateholder to the Trustee (or the paying agent), by wire transfer in
immediately available funds to the account of such Certificateholder provided
that such Certificateholder holds at least the minimum denomination specified in
the applicable Prospectus Supplement and Pooling Agreement, or (iii) by such
other means as are agreed upon by the paying agent and a Certificateholder;
provided, however, that distributions in reduction of Stated Amount which reduce
the Stated Amount of a Certificate to zero will be made only upon presentation
and surrender of such Certificate at the office or agency of any paying agent
for such Series, unless otherwise specified in the related Prospectus
Supplement. Notice will be mailed before the Distribution Date on which the
final distribution in reduction of Stated Amount on any Certificate is expected
to be made to the holder of such Certificate.
The Trustee will include with each distribution on a CitiCertificate a
statement showing, among other things, the allocation of such distribution to
interest and reductions of Stated Amount and the remaining Stated Amount of a
CitiCertificate of each Class or Subclass of that Series in the minimum
denomination (or minimum permitted increment above such denomination, if less)
specified in the related Prospectus Supplement (a "Single Certificate"). On each
Distribution Date before a distribution is first made on a particular Class of
Accrual CitiCertificates, the Trustee will also furnish to each holder of an
Accrual CitiCertificate of such Class a statement showing (i) the interest
accrued during the Interest Accrual Period applicable to such Distribution Date,
(ii) the amount of accrued interest to be added to the Stated Amount thereof and
(iii) the Stated Amount of such an Accrual CitiCertificate after giving effect
to such addition to the Stated Amount thereof, in each case for an Accrual
CitiCertificate which is a Single Certificate. In the case of a Pool that
consists of Whole or Partial Pool Issuer Certificates, such statement will also
show the outstanding and initial principal amounts of each such Issuer
Certificate.
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Distributions to Certificateholders
General
Beginning with the month next succeeding the month in which
Certificates of a Series are originally issued, distributions of principal and
interest thereon at the Stated Rate will be made on the 25th day of each month,
or if such day is not a business day, the immediately following business day
(each, a "Distribution Date"), or on such other date as may be specified in the
related Prospectus Supplement, to the persons in whose names the Certificates
are registered at the close of business on the last business day of the
preceding month, or such other date as may be specified in the related
Prospectus Supplement (the "Record Date"). Alternatively, if the related
Prospectus Supplement so provides, distributions will be made at quarterly,
semi-annual or other intervals, but at least annually. The amount of each
distribution will be determined on the 18th day of the month of the related
Distribution Date or, if such 18th day is not a business day, the immediately
preceding business day (each, a "Determination Date") or such other date as may
be specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions to Certificateholders of a Class or Subclass will be made pro rata
among Certificateholders of such Class or Subclass. The manner in which any
available credit support will be allocated among the Classes or Subclasses of
Certificates in a Series will be specified in the related Prospectus Supplement.
Distributions in reduction of Stated Amount of and in respect of
interest on, the Certificates will be made by or on behalf of the Issuer out of,
and only to the extent of, funds available for such purpose (the "Pool
Distribution Amount") in the Certificate Account of the related Series. All
distributions on the Certificates of each Series will be made on each
Distribution Date for such Series from the Pool Distribution Amount in
accordance with the terms described herein and in the related Prospectus
Supplement, and as specified in the related Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement, for
each Pool consisting of Mortgage Loans, the Pool Distribution Amount for a
Distribution Date will be equal to the aggregate of all previously undistributed
proceeds of payments on account of principal, including amounts received in
respect of credit support, if any, and any payments or other recovery of
principal on a Mortgage Loan which is received in advance of its scheduled due
date and is not accompanied by an amount as to interest representing scheduled
interest for any month subsequent to the month of prepayment (each, a "Principal
Prepayment"), and interest, including any payments made from any related buydown
subsidy account, in respect of the Mortgage Loans received and posted after the
Cut-Off Date and before the related Determination Date, except in each case:
(i) payments which were due on or before the Cut-Off Date;
(ii) any Principal Prepayment received during the month of distribution
and any related payments of interest representing interest for the month of
distribution or any portion thereof (which will be distributed the next
month);
(iii) payments which represent early receipt of scheduled payments of
principal and interest due on a date or dates subsequent to the first day of
the month of distribution;
(iv) that portion of payments on account of interest (including
payments made from a buydown subsidy account established with respect to such
Mortgage Loans) on the Mortgage Loans in the Pool in excess of interest at
the Pass-Through Rate;
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(v) that portion of the proceeds of the liquidation of defaulted
Mortgage Loans which represents servicing compensation to the Issuer and is
to be paid to the Issuer from the related Certificate Account to the extent
described in APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES--
Realization Upon Defaulted Mortgage Loans"; and
(vi) any other amount not to be included in the Pool Distribution
Amount pursuant to the related Pooling Agreement.
Unless otherwise specified in the related Prospectus Supplement for
each Pool consisting of Mortgage Certificates, the Pool Distribution Amount for
a Distribution Date will equal all previously undistributed amounts received as
principal and interest on such Mortgage Certificates in accordance with their
terms on or prior to the related Determination Date (or, for
CitiMortgageCertificates, the Distribution Date).
Distributions of Interest
Unless otherwise specified in the related Prospectus Supplement, each
Class or Subclass of Certificates entitled to a distribution of interest will be
entitled to such interest at a per annum rate (the "Stated Rate") which may be
fixed or, subject to federal income tax requirements, may vary over the life of
the Certificates.
Unless otherwise specified in the related Prospectus Supplement, each
Class or Subclass of Certificates of a Series, other than Accrual
CitiCertificates, if any, will be entitled to receive distributions in respect
of interest on each Distribution Date and will accrue interest on the
outstanding Stated Amount of each such Class or Subclass of Certificates at the
Stated Rate (calculated on the basis of a 360-day year of twelve 30-day months)
and for the periods (each an "Interest Accrual Period") specified in the
Prospectus Supplement. Accrual CitiCertificates will accrue interest as
described above but such accrued interest will not be distributed until the
occurrence of the events specified in the related Prospectus Supplement. Prior
to such time, the interest accrued but not distributed on the Accrual
CitiCertificates will be added to the Stated Amount thereof on each Distribution
Date.
Distributions in Reduction of Stated Amount
Each Certificate entitled to distributions representing principal
payments on the Mortgage Loans or Mortgage Certificates included in the Pool
underlying such Series will have a "Stated Amount" which at any time will equal
the maximum amount in respect of principal which the holder of such Certificate
will be entitled to receive out of the future cash flow on the Mortgage Loans or
the Mortgage Certificates, and out of other assets, if any, included in the
Trust. The Prospectus Supplement will specify the method by which the amount of
distributions in reduction of Stated Amount to be distributed to the
Certificateholders on each Distribution Date (the "Certificate Distribution
Amount") will be calculated and the manner in which the Certificate Distribution
Amount will be allocated among the Classes or Subclasses entitled to
distributions thereof. Distributions in reduction of the Stated Amount of
Certificates will be made on each Distribution Date to the holders of the
Certificates then entitled to receive such distributions until the aggregate
amount of distributions have reduced the Stated Amount of each Certificate of a
Class or Subclass to zero. The initial aggregate Stated Amount of all Classes or
Subclasses of a Series may equal the aggregate outstanding principal amount of
the related Mortgage Loans or Mortgage Certificates as of the applicable Cut-Off
Date and, for each Class or Subclass, will be specified in the related
Prospectus Supplement. Alternatively, the initial aggregate Stated Amount of all
Classes or Subclasses of a Series of Certificates may equal the initial
aggregate Pool Value of the related Mortgage Loans or Mortgage Certificates as
of the applicable Cut-Off Date.
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The aggregate "Pool Value" of the related Mortgage Loans or Mortgage
Certificates will be the Stated Amount of the Certificates of that Series that,
based on certain assumptions and regardless of any prepayments on such Mortgage
Loans or Mortgage Certificates, can be supported by either the future scheduled
payments on the Mortgage Loans included in the Pool or the mortgage loans
underlying the Mortgage Certificates included in the Pool (with interest
adjusted to the applicable Pass-Through Rate), or the proceeds of the Principal
Prepayment of such Mortgage Loans or mortgage loans underlying the Mortgage
Certificates, together with reinvestment income, if any, thereon at the rate and
for the period specified in the related Prospectus Supplement and, if
applicable, amounts available to be withdrawn from any Reserve Fund for such
Series, as further or otherwise specified in the related Prospectus Supplement.
In calculating Pool Values of Mortgage Certificates and Mortgage Loans included
in the Pool, future distributions on a Mortgage Loan will be determined based on
future scheduled payments (after giving effect to any Principal Prepayments
previously received and posted) on such Mortgage Loan, and future distributions
on a Mortgage Certificate will be determined either as if the underlying
mortgage loans constituted a single mortgage loan having the highest mortgage
rate and longest maturity of any mortgage loan underlying such Mortgage
Certificate or separately for each mortgage loan underlying such Mortgage
Certificate. Any similar Mortgage Loans or mortgage loans underlying Mortgage
Certificates or any Mortgage Certificates that are backed by the same pool of
mortgage loans, or similar pools of mortgage loans, may be aggregated into one
or more groups (each, a "Pool Value Group"), each of which will be assigned an
aggregate Pool Value calculated as if all such Mortgage Loans or mortgage loans
in, or all mortgage loans underlying all the Mortgage Certificates in, the Pool
Value Group constituted a single mortgage loan having the highest mortgage rate
and longest maturity of any such mortgage loan for such Pool Value Group. There
are a number of alternative means of determining the Pool Values of a Mortgage
Certificate, Mortgage Loan or Pool Value Group, including determinations based
on the discounted present value of the remaining scheduled distributions thereon
and determinations based on the relationship between the Pass-Through Rates
borne thereby and the Stated Rates of the related Series of Certificates.
With respect to any Series as to which the initial Stated Amount of the
Certificates is calculated on the basis of the Pool Values of the Mortgage Loans
or the Mortgage Certificates, the Prospectus Supplement for each such Series
will describe the method or methods (and related assumptions) used to determine
the Pool Value of the Mortgage Certificates and Mortgage Loans or the Pool Value
Groups securing such Series. In any event, the aggregate of the Pool Values of
all the Mortgage Certificates and Mortgage Loans and all the Pool Value Groups
included in the Pool for a Series of Certificates will always be at least equal
to the aggregate Stated Amount of the Certificates of such Series. The
Certificate Distribution Amount with respect to a Series as to which the initial
Stated Amount of the Certificates is calculated on the basis of the Pool Values
of the Mortgage Loans or the Mortgage Certificates will generally be calculated
on the basis of the decline in the aggregate Pool Values of the Mortgage Loans
or Mortgage Certificates included in the Pool during the related Due Period, or
as otherwise described in the related Prospectus Supplement.
The Stated Amount of a Certificate will decline as a result of
distributions attributable to principal that are made to the holders of the
Certificates and, to the extent described herein and in the related Prospectus
Supplement, as a result of losses on the Mortgage Loans or Mortgage Certificates
in the related Pool, to the extent that the credit support (including the amount
of subordination provided to Senior Certificates in a Senior/Subordinated
Series) provided for such Class or Subclass of Certificate is inadequate to
cover such losses. The Stated Amount of a Certificate may increase in the case
of Accrual CitiCertificates by interest accrued but not then distributable on
such Accrual CitiCertificates, and, to the extent that a Pool consists of
adjustable rate mortgages which provide for limitations on the amount by which
monthly payments by a Mortgagor may be increased and changes in the interest
rate on the Mortgage Loan are made more frequently than changes in the payment,
if an increase in the interest rate on the Mortgage Loan is not covered by the
amount of the related scheduled monthly payment.
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The aggregate amount which will be distributed in reduction of Stated
Amount to holders of CitiCertificates of each Series then entitled thereto on
any Distribution Date for such Series will equal, to the extent funds are
available, the sum of (i) the aggregate Certificate Distribution Amount, (ii)
the amount of interest, if any, accrued on any Accrual CitiCertificates of such
Series during the related Interest Accrual Period but not then required to be
distributed, such amount being added to the Stated Amount thereof, (iii) the
applicable percentage of the Spread, if any, specified in the Prospectus
Supplement and (iv) any amounts in reduction of Stated Amount previously
distributable but not yet distributed.
Unless otherwise specified in the related Prospectus Supplement, in the
case of CitiCertificates of any Series consisting of more than one Class, if the
Amount Available under the credit support (including the amount of any
subordination provided to Senior Certificates in a Senior/Subordinated Series)
provided for such Series is inadequate to cover any loss on the Mortgage Loans
with the result that there are insufficient funds on deposit in the Certificate
Account on the next succeeding Distribution Date to pay the amount then
distributable to any Class of CitiCertificates then entitled to receive
distributions in reduction of Stated Amount (a "Loss Allocation Event"), then
the amount then available for distribution in reduction of Stated Amount on such
Distribution Date and each subsequent Distribution Date will be distributed on
such Distribution Date pro rata to the holders of CitiCertificates of a Class
then outstanding notwithstanding any priorities among Subclasses of such Class
of CitiCertificates set forth in the related Prospectus Supplement and pro rata
to the holders of each Class of CitiCertificates based on the outstanding Stated
Amount of all Classes of CitiCertificates then outstanding. Unless otherwise
specified in the related Prospectus Supplement, any shortfalls of interest will
be allocated on a pro rata basis based on the amount of interest then
distributable (or allocable, in the case of each Class of Accrual
CitiCertificates) to each Class. On or after the Distribution Date on which a
Loss Allocation Event occurs, the Stated Amount of all Classes then outstanding
will be reduced on a pro rata basis, or as otherwise specified in the related
Prospectus Supplement, by the amount of any losses actually incurred with
respect to the Mortgage Loans.
Funds available for distribution from the Certificate Account on a
Distribution Date will include distributions on Mortgage Certificates in the
Pool received in the related Due Period and payments received with respect to
Mortgage Loans in the Pool in the related Due Period, as described herein. See
APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES--Payments on
Mortgage Loans in Pools." Amounts remaining in the Certificate Account which are
available for distribution, as so described, after payment of all amounts due to
holders of CitiCertificates, and after payment of certain expenses therefrom,
will be distributed to holders of Residual Certificates on a pro rata basis.
The "Spread" with respect to a Distribution Date for a Series will be
the excess of (a) the sum of (i) all distributions received on the Mortgage
Certificates or Mortgage Loans (net of (1) any Servicing Compensation, and (2)
in the case of Mortgage Loans, any distributions on such Mortgage Loans
representing the receipt of (A) scheduled payments of principal and interest due
on a date subsequent to the period (a "Due Period") beginning at the close of
business on the last day of the preceding Due Period (or, in the case of the
first Due Period, beginning at the close of business on the Cut-Off Date) and
ending at the close of business on the business day preceding the Determination
Date in respect of such Distribution Date, and (B) Principal Prepayments
received during the month of the applicable Determination Date) included in the
Pool for such Series in the Due Period preceding such Distribution Date, and, in
the case of the first Due Period, any amount deposited in the Certificate
Account on the Closing Date, (ii) income from reinvestment, if any, of such net
distributions and any amount on deposit in the Reserve Fund and (iii) to the
extent specified in the related Prospectus Supplement, the amount of cash
withdrawn from any Reserve Fund or buydown subsidy account since the preceding
Distribution Date for such Series (or since the Closing Date in the case of the
first Distribution Date for such Series) and required to be deposited in the
Certificate Account for such Series, over (b) the sum of (i) all interest
distributed on the CitiCertificates of such Series or added to the Stated Amount
of the Accrual CitiCertificates of such Series on such Distribution Date, (ii)
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the aggregate Certificate Distribution Amount for such Series with respect to
such Distribution Date, (iii) if applicable to such Series, any Special
Distributions in respect of such Series made since the preceding Distribution
Date for such Series (or since the Closing Date in the case of the first
Distribution Date for such Series), (iv) any reimbursements of payments under
any credit support for such Series or Voluntary Advances with respect to such
Distribution Date, (v) any amounts paid to the issuer of credit support and (vi)
any REMIC Servicing Fee payable during the Due Period preceding such
Distribution Date.
Series of CitiCertificates having other than monthly Distribution Dates
may receive special distributions ("Special Distributions") with respect to any
period for which distributions are received on the related Mortgage Loans or
Mortgage Certificates, other than such periods which include Distribution Dates,
if, as a result of principal prepayments on the mortgage loans underlying the
Mortgage Certificates or on the Mortgage Loans in the Pool for such Certificates
or low reinvestment yields, or both, the Trustee determines, based on
assumptions as to timing of receipt of distributions, reinvestment income and
prepayment rates, among others, specified in the Pooling Agreement, that the
amount of cash anticipated to be on deposit in the Certificate Account for such
Series on the earlier of the next Distribution Date or the second succeeding
Distribution Date for such Series may be less than the sum of interest
distributions and distributions in reduction of Stated Amount that would be made
on such date if it were a Distribution Date. Special Distributions on the
CitiCertificates of a Series will be allocated in the same manner as would
distributions on the next Distribution Date for such Series.
Credit Support
General
Credit support may be provided with respect to one or more Classes or
Subclasses of CitiCertificates or with respect to the assets in the related
Trust. Credit support may be in the form of the subordination of one or more
Classes or Subclasses of CitiCertificates of such Series to one or more other
Classes or Subclasses of CitiCertificates, a limited guaranty issued by Citicorp
or another guarantor, a letter of credit, a mortgage pool insurance policy, a
special hazard insurance policy, a bankruptcy bond, a surety policy, the
establishment of one or more reserve funds or any other form of credit support
described in the applicable Prospectus Supplement, or any combination of the
foregoing. Unless otherwise specified in the Prospectus Supplement, credit
support will not provide protection against all risks of loss and will not
guarantee repayment of the entire Stated Amount of the CitiCertificates and
interest thereon. If losses occur which exceed the amount covered by credit
support or are of a type which are not covered by the credit support, holders of
the CitiCertificates will bear their allocable share of such deficiencies as
described in the related Prospectus Supplement.
Subordination
If so specified in the related Prospectus Supplement, credit support
for one or more Classes or Subclasses of Senior Certificates in a
Senior/Subordinated Series may include one or more Classes or Subclasses of
Subordinated Certificates, such that distributions in respect of Scheduled
Principal, Principal Prepayments, interest or any combination thereof that
otherwise would have been payable to one or more Classes or Subclasses of
Subordinated Certificates will instead be payable to holders of one or more
Classes or Subclasses of Senior Certificates under the circumstances and to the
extent specified in the related Prospectus Supplement. Such subordination
provisions will have the effect of accelerating the amortization of the Senior
Certificates and increasing the respective percentage ownership interest
evidenced by the Subordinated Certificates in the related Trust, as well as
preserving the availability of the subordination provided by the Subordinated
Certificates.
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If so specified in the related Prospectus Supplement, delays in receipt
of Scheduled Principal and losses on defaulted Mortgage Loans or mortgage loans
underlying the Mortgage Certificates will be borne first by the various Classes
or Subclasses of Subordinated Certificates under the circumstances and subject
to the limitations specified in the related Prospectus Supplement, which will
have the effect of increasing the respective percentage ownership interest of
the Senior Certificates in the Trust. The aggregate distributions in respect of
delinquent Scheduled Principal and the aggregate losses in respect of defaulted
Mortgage Loans or mortgage loans underlying Mortgage Certificates which must be
borne by each Class or Subclass of Subordinated Certificates at any one time or
over the lives of the Certificates by virtue of the subordination and the amount
of the distributions otherwise distributable to the Subordinated
Certificateholders that will be distributable to the Senior Certificateholders
on any Distribution Date may be limited as specified in the Prospectus
Supplement (the "Subordination Amount"). If the aggregate distributions in
respect of delinquent Scheduled Principal and/or the aggregate losses in respect
of defaulted Mortgage Loans or mortgage loans underlying Mortgage Certificates
were to exceed the total amounts payable and available for distribution to the
Subordinated Certificateholders or, if applicable, were to exceed the specified
maximum Subordination Amount, holders of the Senior Certificates could
experience losses.
The protection afforded to the Senior Certificateholders by the
preferential right of the Senior Certificateholders to receive current
distributions from the Pool may be enhanced to the extent specified in the
related Prospectus Supplement by the establishment and maintenance of one or
more reserve accounts (each a "Subordination Reserve Fund") funded by the
retention of all or any portion of distributions otherwise distributable to the
holders of the Subordinated Certificates on any Distribution Date, by all or a
portion of the Spread and/or by an initial deposit of the Issuer. Unless
otherwise specified in the related Prospectus Supplement, the Subordination
Reserve Fund will be included in the Trust. If specified in the Prospectus
Supplement relating to a Series of Certificates, the Subordination Reserve Fund
may be funded in any other manner acceptable to the rating agencies rating the
Series of Certificates and consistent with an election to treat the Trust (or
one or more segregated pools of assets therein) for such Series as one or more
REMICs (as the case may be).
Eligible Investments for monies deposited in the Subordination Reserve
Fund will be specified in the applicable Pooling Agreement and, unless otherwise
provided in the related Prospectus Supplement, will mature no later than the
next Distribution Date.
Holders of Subordinated Certificates of a Series will not be required
to refund any amounts which have been properly distributed to them, regardless
of whether there are sufficient funds to distribute to Senior Certificateholders
the amounts to which they are later entitled.
Limited Guaranty
If so specified in the Prospectus Supplement relating to a Series of
Certificates, credit support may be provided by a Guaranty of Citicorp or
another guarantor specified in such Prospectus Supplement. The coverage, amount
and frequency of any reduction in coverage provided by a Guaranty issued with
respect to a Series of Certificates will be set forth in the Prospectus
Supplement relating to such Series.
Letter of Credit
If so specified in the Prospectus Supplement relating to a Series of
Certificates, credit support may be provided by the issuance of a letter of
credit by the bank or financial institution specified in the applicable
Prospectus Supplement. The coverage, amount and frequency of any reduction in
coverage provided by a letter of credit issued with respect to a Series of
Certificates will be set forth in the Prospectus Supplement relating to such
Series.
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Reserve Fund
If so specified in the Prospectus Supplement relating to a Series of
Certificates, a reserve fund (the "Reserve Fund") may be established with the
Trustee by the Issuer. The manner of the funding of the Reserve Fund and the
amount required from time to time to be on deposit therein will be set forth in
the Prospectus Supplement.
Pool Insurance Policies
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Issuer will obtain a pool insurance policy for the Mortgage
Loans in the related Pool. The pool insurance policy will cover any loss
(subject to the limitations described in a related Prospectus Supplement) by
reason of default to the extent a related Mortgage Loan is not covered by any
primary mortgage insurance policy. The amount and principal terms of any such
coverage will be set forth in the Prospectus Supplement.
Special Hazard Insurance Policies
If so specified in the related Prospectus Supplement, for each Series
of Certificates as to which a pool insurance policy is provided, the Issuer will
also obtain a special hazard insurance policy for the related Pool in the amount
set forth in such Prospectus Supplement. The special hazard insurance policy
will, subject to the limitations described in the applicable Prospectus
Supplement, protect against loss by reason of damage to Mortgaged Properties
caused by certain hazards not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties are
located. The amount and principal terms of any such coverage will be set forth
in the Prospectus Supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, losses
resulting from a bankruptcy proceeding relating to a mortgage affecting the
Mortgage Loans in a Pool with respect to a Series of Certificates will be
covered under a mortgagor bankruptcy bond (or any other instrument that will not
result in a downgrading of the rating of the Certificates of a Series by the
rating agency or rating agencies that rated such Series). Any mortgagor
bankruptcy bond or such other instrument will provide for coverage in an amount
meeting the criteria of the rating agency or rating agencies rating the
Certificates of the related Series. The amount and principal terms of any such
coverage will be set forth in the related Prospectus Supplement.
Draws Under Credit Support Other Than Subordination
The obligation of the issuer of credit support to make payments under
such credit support for the benefit of holders of Certificates shall be limited
at any time to the amount available (the "Amount Available") at such time. The
initial Amount Available shall be equal to the percentage specified in the
Prospectus Supplement of the aggregate Adjusted Balance of the related Mortgage
Loans as of the applicable Cut-Off Date (the "Credit Support Percentage"). The
Amount Available to be paid under any credit support may be subject to reduction
commencing at the times and in the amounts described in the applicable
Prospectus Supplement and Pooling Agreement. In addition, the Amount Available
to be paid under any credit support for losses or delinquencies arising from
certain causes may be limited to the extent set forth in the related Prospectus
Supplement. To the extent set forth in the applicable Prospectus Supplement and
in the event that more than one series of CitiMortgageCertificates underlies a
Series of Certificates, credit support may cover two or more of the series of
such CitiMortgageCertificates. This may be accomplished by the credit support on
the individual series of CitiMortgageCertificates being consolidated or by
credit
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support which relates to more than one of the series of CitiMortgageCertificates
and provides coverage for all such series of CitiMortgageCertificates up to the
Credit Support Percentage specified in the Prospectus Supplement of the
aggregate Adjusted Balance of the Mortgage Loans underlying such
CitiMortgageCertificates.
The Issuer or the Servicer will be required to determine as of each
Determination Date whether a payment under any credit support will be necessary
on the next Distribution Date. The Issuer or the Servicer will advise the
Trustee of such determination and make a demand for payment under the credit
support to the issuer of credit support in accordance with the provisions of the
credit support and the applicable Pooling Agreement, as described in the related
Prospectus Supplement. The proceeds of such payments under the credit support
will be deposited into the Certificate Account. Unless otherwise specified in
the related Prospectus Supplement, payments received under the credit support
will be applied first to reimburse Voluntary Advances.
Payments made by an issuer of credit support pursuant to its
obligations under the credit support to cover delinquencies will be allocated on
a loan-by-loan basis to specific Mortgage Loans, and the payments will be
reimbursed, as the specific Mortgagors make their delinquent payments, by
monthly withdrawals from the Certificate Account as such delinquent installments
are received. Remaining obligations under the credit support will be increased
as such payments are reimbursed. In addition, payments made under the credit
support to cover amounts in respect of interest distributed (but not received)
with respect to Principal Prepayments will be reimbursed to the issuer of credit
support from Servicing Compensation otherwise payable to the Issuer or the
Servicer. The credit support will be increased to the extent of such
reimbursement.
If any Mortgage Loans become Liquidating Loans, the issuer of credit
support may, if so specified in the related Prospectus Supplement, be obligated
to purchase from the Trustee such Liquidating Loans up to the amount of the
remaining obligation under the credit support. The Servicer may make an advance
of a payment (a "Purchase Amount Advance") in respect of a Liquidating Loan on
behalf of the issuer of credit support in order to avoid demands or draws under
such credit support. If at any time the issuer of credit support makes a payment
or the Servicer makes a payment on its behalf in the amount of the full
outstanding principal balance of and accrued interest on a Liquidating Loan
(less any unreimbursed payments previously made under the credit support in
respect of such Liquidating Loan), the issuer of credit support (or its
designee) will be entitled to receive an assignment of such Liquidating Loan,
and the issuer of credit support (or such designee) will thereafter own such
Liquidating Loan free of any further obligation with respect thereto. Payments
made with respect to such a Liquidating Loan will be reimbursed only from the
proceeds (net of liquidation costs) of such Liquidating Loan. The remaining
obligations under the credit support will be increased to the extent such
payments are so reimbursed. To the extent the proceeds of liquidation of any
Liquidating Loan acquired by the issuer of credit support in the manner
described in this paragraph exceed the amount of payments made with respect
thereto, in the case of a Guaranty issued by Citicorp, Citicorp will be entitled
to retain such proceeds and in the case of other credit support, the Servicer
will be entitled to such proceeds unless otherwise specified in the related
Prospectus Supplement.
The term "Liquidating Loan" means: (a) each Mortgage Loan with respect
to which foreclosure proceedings have been commenced (and the Mortgagor's right
of reinstatement or redemption has expired), (b) each Mortgage Loan with respect
to which the Issuer or the Servicer has agreed to accept a Transfer Instrument
in lieu of foreclosure and in whole or partial satisfaction of the Mortgage
Loan, and, if the Pool contains Cooperative Loans, Liquidating Loan will mean
not only each Cooperative Loan as to which (a) or (b) is applicable but also (c)
each Cooperative Loan with respect to which none of the interest or principal
installments which became due and payable during the previous six months have
been paid and (d) each Cooperative Loan with respect to which a court of
competent jurisdiction has entered a final judgment
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reducing the scheduled monthly principal or interest installment payable on such
Cooperative Loan. See APPENDIX A: "THE MORTGAGE LOANS AND
CITIMORTGAGECERTIFICATES--Realization Upon Defaulted Mortgage Loans."
If any Mortgage Loans become Liquidated Loans, the issuer of credit
support may, if so specified in the Prospectus Supplement be obligated to pay
the amount of any loss on such Liquidated Loan up to the amount of the remaining
obligation under the credit support. The amount of any loss on a Liquidated Loan
is equal to the excess of (a) the unpaid principal balance of such Liquidated
Loan plus accrued interest thereon over (b) the liquidation proceeds, net of
liquidation expenses, received with respect thereto. In the event that the
amount of such a loss is not covered, in whole or in part, by any credit
support, the loss will be allocated among the Certificates as specified in the
related Prospectus Supplement.
The term "Liquidated Loan" means a Mortgage Loan with respect to which
the related Mortgaged Property has been acquired, liquidated or foreclosed and
with respect to which the Servicer or the Master Servicer, as the case may be,
determines that all liquidation proceeds which it expects to recover have been
recovered, or a Mortgage Loan with respect to which the related Mortgaged
Property is retained or sold by the Mortgagor and for which the Servicer or the
Master Servicer, as the case may be, has accepted payment from the Mortgagor in
consideration for the release of the Mortgage in an amount which is less than
the outstanding principal balance of such Mortgage Loan as a result of a
determination by the Servicer or the Master Servicer, as the case may be, that
the potential liquidation expenses with respect to such Mortgage Loan would
exceed the amount by which the cash portion of such payment is less than the
outstanding principal balance of such Mortgage Loan. See APPENDIX A: "THE
MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES--Realization Upon Defaulted Mortgage
Loans."
Prospective purchasers of Certificates must, in the event of default by
Mortgagors, look to the credit of the issuer of credit support, to the extent of
its obligations under the credit support. If the Amount Available under a credit
support is exhausted, the Certificateholders of the related Series will bear all
risks of delinquency and loss resulting from defaults by Mortgagors (including
losses not covered by primary mortgage insurance) and from hazard losses not
covered by the standard hazard insurance policies required to be maintained by
the Mortgagors, and the Certificateholders must look primarily to the value of
the properties securing defaulted Mortgage Loans for recovery of the outstanding
principal and unpaid interest. See APPENDIX A: "THE MORTGAGE LOANS AND
CITIMORTGAGECERTIFICATES--Certain Legal Aspects of the Mortgage Loans." None of
the issuer of any credit support, the Issuer nor the Servicer intends to advance
its own funds with respect to any Series of Certificates or series of
CitiMortgageCertificates, except (i) in the case of the issuer of credit
support, to the limited extent of its obligations under such credit support and
(ii) in the case of the Issuer or the Servicer, in certain circumstances
involving recoverable costs of restoration of damaged property, as described
under APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES--Realization
Upon Defaulted Mortgage Loans," and certain other costs as described therein
under "--Servicing and Other Compensation and Payment of Expenses," and to make
Voluntary Advances to the extent set forth in the related Prospectus Supplement.
Last Scheduled Distribution Date
The "Last Scheduled Distribution Date" for each Class of
CitiCertificates of a Series is the latest date on which (based on the
assumptions set forth in the related Prospectus Supplement) the Stated Amount of
such Class is expected to be reduced to zero. Since the rate of distributions in
reduction of Stated Amount for each Series will depend on, among other things,
the rate of payment (including prepayments) of the principal of the mortgage
loans (which include, for purposes of this subsection, Mortgage Loans included
directly in the Pool and mortgage loans underlying Mortgage Certificates) in the
Pool for such Series, the
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actual last Distribution Date for any Class of CitiCertificates could occur
significantly earlier than its Last Scheduled Distribution Date.
The rate of payments on the Mortgage Loans in the Pool for any Series
will depend on their particular characteristics, as well as on the prevailing
level of interest rates from time to time and other economic factors, and no
assurance can be given as to the actual prepayment experience of such mortgage
loans. See APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES
- --Prepayment Experience."
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a Certificate until the Stated Amount of
such Certificate has been reduced to zero. The weighted average life of the
Certificates of a Series will be influenced by, among other things, the rate at
which principal on the mortgage loans (which include, for purposes of this
subsection, Mortgage Loans included directly in the Pool and mortgage loans
underlying Mortgage Certificates) underlying or included in the Pool for such
Certificates is paid, which may be in the form of scheduled amortization or
prepayments (including prepayments and liquidations due to default, casualty,
receipt of insurance proceeds, condemnation and the like).
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. Each Prospectus Supplement for CitiCertificates of
any Series consisting of more than one Class of CitiCertificates will describe
the payment standard or model used for the related Series and will contain
tables setting forth the projected weighted average life of each Class of
CitiCertificates of such Series and, to the extent distributions are not made
pro rata among all Classes of CitiCertificates of such Series, the percentage of
the Initial Stated Amount of each Class of CitiCertificates of such Series that
would be outstanding on specified Distribution Dates for such Series based on
the assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the mortgage loans underlying or included in the Pool are made at
rates corresponding to various percentages of the prepayment standard or model
specified in such Prospectus Supplement.
There is, however, no assurance that prepayment of mortgage loans
underlying or included in the Pool for any Series of Certificates will conform
to any prepayment standard or model. The rate of principal prepayments on pools
of mortgage loans is influenced by a variety of economic, geographic, social and
other factors. In general, however, if prevailing interest rates fall
significantly below the interest rates on the mortgage loans underlying or
included in the Pool for a Series of Certificates, such mortgage loans are
likely to be the subject of higher principal prepayments than if prevailing
rates remain at or above the rates borne by such mortgage loans. It should be
noted that certain Mortgage Certificates included in a Pool for a Series of
Certificates may be backed by mortgage loans with different interest rates.
Accordingly, the prepayment experience of these Mortgage Certificates will to
some extent be a function of the mix of interest rates of the mortgage loans
underlying such Mortgage Certificates. Furthermore, the stated pass-through rate
of certain Mortgage Certificates may be two or more percentage points less than
the Note Rates of the underlying mortgage loans. Other factors affecting
prepayment of mortgage loans include changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the properties securing the
mortgage loans and servicing decisions.
Residual Certificates
The Residual Certificates will represent "residual interests" in a
REMIC within the meaning of Code Section 860G(a)(2). See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES." A Class of Residual Certificates with respect to a Pool will
be issued simultaneously with the CitiCertificates of a Series. Such Residual
Certificates may be sold together with or separately from such CitiCertificates
or may be retained, in whole
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or in part, by the Issuer or the related Originators and will represent the
right to receive distributions as specified in the related Prospectus
Supplement. In addition, at such time as the Stated Amount of each Class of
CitiCertificates of such Series has been reduced to zero, the holders of the
Residual Certificates will be the sole owners of each Pool and will have sole
rights with respect to the Mortgage Certificates, Mortgage Loans and other
assets included in such Pool, including the right to liquidate such Pool.
The Servicer
For each Series of Certificates, the Issuer will act as servicer (in
such capacity, the "Servicer" or "servicer") with respect to Mortgage Loans
purchased, directly or indirectly, by the Trust from CMI, Citibank or CFSB or
their affiliates (the "Affiliated Originators" and such Mortgage Loans being
herein referred to as "Affiliated Mortgage Loans") and, as master servicer (in
such capacity, the "Servicer" or "master servicer") with respect to Mortgage
Loans purchased, directly or indirectly, by the Trust (a) from CitiMae or its
affiliates who purchased such mortgage loans from seller-servicers approved by
CitiMae or from such seller-servicers ("CitiMae Originators" and such Mortgage
Loans being herein referred to as "CitiMae Mortgage Loans"), or (b) from Third
Party Originators, and will perform such functions as are described in the
Pooling Agreement. The Issuer may delegate any of its duties under the Pooling
Agreement to any corporation, including a corporation more than 50% of the stock
of which is owned, directly or indirectly, by Citicorp. Unless otherwise
disclosed in the related Prospectus Supplement, if the Mortgage Loans are
included directly in the Pool, the Issuer intends to subcontract its duties as
servicer with respect to the Affiliated Mortgage Loans to CMI (or its designated
subservicer) and its duties as master servicer (a) with respect to the CitiMae
Mortgage Loans, to CitiMae and (b) with respect to Mortgage Loans originated by
Third Party Originators ("Third Party Loans") and sold by them on a
servicing-retained basis, to a designated master servicer to be determined. Such
delegation does not relieve the Issuer of its responsibility with respect to
such duties. The Trustee may remove the servicer for failure to perform any of
its duties under the Pooling Agreement if such failure continues unremedied for
60 days after written notice from the Trustee. The Issuer may not resign from
its obligations and duties as servicer under the Pooling Agreement except upon
the determination, evidenced by an opinion of counsel, that its performance of
such duties is no longer permissible under applicable law, or with the consent
of the Trustee and of the holders of 662/3% of outstanding Certificates. The
servicer will be entitled to servicing compensation for each Series as specified
in the related Prospectus Supplement, which may include (i) a fee payable from
the Certificate Account (a "REMIC Servicing Fee"), (ii) if Mortgage Loans are
included directly in the Pool, a specified servicing rate equal to the
difference between the Note Rate for each such Mortgage Loan and its Pass-
Through Rate, as well as late payment charges, assumption fees, reinvestment
income, if any, and other similar amounts set forth in the related Pooling
Agreement and/or (iii) in the case of the CitiMae Mortgage Loans and Third Party
Loans acquired on a servicing-retained basis, a master servicing fee ("Servicing
Compensation"). To the extent specified with respect to a Series in the related
Prospectus Supplement, Servicing Compensation may be divided between "normal
servicing compensation" and "additional servicing compensation." In the case of
the CitiMae Mortgage Loans and Third Party Loans acquired on a servicing-
retained basis, a fee may also be paid to third party subservicers or servicers
(a "Servicing Fee"). The Pooling Agreement generally provides that the servicer
shall not be subject to any liability to holders of Certificates other than by
reason of its willful misfeasance, bad faith or gross negligence in the
performance of its duties set forth in the Pooling Agreement. See "THE POOLING
AGREEMENTS."
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THE POOLS
General
Each Pool will consist of (i) Mortgage Loans and/or Mortgage
Certificates or other "regular interests" in another Pool to the extent
specified in the related Prospectus Supplement, (ii) the amount of any assets
including cash, if any, initially deposited in the Certificate Account, (iii)
amounts deposited in any Reserve Fund described in the Prospectus Supplement,
(iv) distributions on such Mortgage Certificates and/or Mortgage Loans (net of
any servicing compensation) (v) any real estate acquired through foreclosure or
similar proceeding and (vi) reinvestment earnings, if any, on such net
distributions and deposits. Any Pool including Mortgage Loans among its assets
will also include the interest of the Certificateholders in certain credit
support and any insurance policies with respect to such Mortgage Loans. Pools
for Series having monthly distributions are generally expected not to receive
reinvestment earnings on distributions that are held in the Certificate Account.
The Mortgage Certificates will be held by the Trustee or its nominee, and any
Mortgage Loans included in any Pool will be held for the Trustee by a custodian,
solely for the benefit of the related Series of Certificates.
The following summaries of characteristics of the Mortgage Loans and the
CitiMortgageCertificates are subject to and qualified by reference to APPENDIX
A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES."
Mortgage Loans
The Mortgage Loans included directly in a Pool or underlying
CitiMortgageCertificates in a Pool will be mortgage loans secured by first liens
on one- to four-family residential properties, and may be fixed rate or
adjustable rate loans, or participations or other beneficial interests in such
loans, which may provide for full amortization of principal, deferral of a
portion of interest, balloon payments of principal or have such other
characteristics as set forth in the related Prospectus Supplement. Properties
securing Mortgage Loans may include leasehold interests in residential
properties, the title to which is held by third party lessors. The Mortgage
Loans may also contain cooperative apartment loans evidenced by promissory notes
secured by security interests in shares issued by private, non-profit,
cooperative housing corporations and in the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specified dwelling
units in such cooperatives' buildings. Each Mortgage Loan will be selected and
purchased by the Issuer for inclusion in the related Pool, or will be selected
by the Originator in connection with the issuance of a CitiMortgageCertificate,
from among those originated or acquired by an Originator in the ordinary course
of business activities of the Originator or acquired from an affiliate of an
Originator or from a Third Party Originator. Mortgage Loans in a Pool may be
covered by a guaranty or certain other credit support, as described in the
related Prospectus Supplement.
The Mortgage Loans will have original individual principal balances of
no more than $2,500,000 and, except as otherwise set forth in the related
Prospectus Supplement, original maturities of from 10 to 30 years. Fixed rate
Mortgage Loans will be of a type specified in APPENDIX A.
Adjustable rate Mortgage Loans will bear interest at a rate which will
be adjusted from time to time to equal (to the nearest eighth of a percent) a
certain number of basis points over an index interest rate, as specified in
APPENDIX A or the related Prospectus Supplement. Adjustments may be subject to
limits on the magnitude of any one adjustment and on the magnitude of aggregate
upward adjustments during the life of the Mortgage Loan. Adjustable rate
Mortgage Loans may provide for deferral of a certain portion of interest and
increases to the principal balances in order to limit the amount by which the
scheduled monthly payments will increase following an increase in the rate of
interest. The amount of the difference between
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the scheduled monthly payment and the monthly interest accrued at the Mortgage
Rate is added to the unpaid principal balance of the Mortgage Loan and interest
accrues on such added principal at the then-applicable Mortgage Rate from the
date of such addition. Such an adjustment is referred to as "negative
amortization". Negative amortization tends to lengthen the weighted average life
of the Mortgage Loans and may cause payments near the maturity of the Mortgage
Loan to be larger than the previously scheduled monthly payments unless the
terms of the Mortgage Loan permit its maturity to be extended. The impact of any
such negative amortization on Certificateholders will be set forth in the
Prospectus Supplement.
If specified in the related Prospectus Supplement, adjustable rate
Mortgage Loans included in a Pool may convert at some future time to fixed rate
mortgage loans. The details of such conversion features and the effect on the
Pool will be described in the related Prospectus Supplement.
At the Cut-Off Date for a Pool that includes adjustable rate Mortgage
Loans, the Pool may contain adjustable rate Mortgage Loans which are newly
originated and adjustable rate Mortgage Loans as to which one or more
adjustments have occurred. Adjustable rate Mortgage Loans that have not had
their first rate adjustment will generally bear interest at rates that are lower
than the rate that would otherwise be produced by the sum of the applicable
index and the number of basis points over such index used to compute the
applicable mortgage rate for such Mortgage Loan.
If provided for in the applicable Prospectus Supplement, the Mortgage
Loans in a Pool or the Mortgage Loans underlying CitiMortgageCertificates
included in a Pool may be subject to temporary buydown plans ("Buydown Mortgage
Loans") pursuant to which the monthly payments made by the Mortgagor during the
early years of the Buydown Mortgage Loan will be less than the scheduled monthly
payments on the Buydown Mortgage Loan, the resulting difference to be made up
from buydown funds contributed by the Mortgagor, the Mortgagor's employer, the
seller or the builder of the related Mortgaged Property or another source (i) at
the time of origination of the Buydown Mortgage Loan or (ii) in some cases when
buydown funds are contributed by an employer, on an annual basis. Unless
otherwise specified in the applicable Prospectus Supplement and except for
Buydown Mortgage Loans funded in accordance with clause (ii) above, the buydown
funds will be placed on the Closing Date (as defined in the related Prospectus
Supplement) in an account established and maintained with a depository by the
Issuer or the Originator (or in the case of CitiMae Mortgage Loans, with the
related subservicer), and amounts will be withdrawn monthly from such account
promptly following receipt of the Mortgagor's monthly payment and deposited in
the related Certificate Account. See "DESCRIPTION OF CERTIFICATES--Distributions
to Certificateholders." Buydown funds with respect to any Series may be held in
the same deposit account as buydown funds for all buydown mortgage loans
serviced by the Issuer, the Originator or any subservicer. In the case of
buydown funds contributed on an annual basis by the Mortgagor's employer, such
buydown loans will generally have a buydown period of three years but may have a
buydown period of up to five years. The employer may or may not be required to
guarantee the payment of buydown funds even if the Mortgagor were no longer
employed by such employer.
Unless otherwise specified in the related Prospectus Supplement, the
original principal amount of each Mortgage Loan will be not more than 90% of the
Original Value of the property securing such Mortgage Loan. Each Affiliated
Mortgage Loan having an original principal amount exceeding 90% of the Original
Value of the Mortgaged Property will be covered by primary mortgage insurance
against losses from default on such Mortgage Loan in an amount ranging from 12%
to 30% of the principal amount of the Mortgage Loan outstanding from time to
time. Such insurance will be in effect at least until the principal amount of
the Mortgage Loan is reduced to 80% of its Original Value. Each CitiMae Mortgage
Loan having an original balance exceeding 80% of the Original Value of the
Mortgaged Property will be covered by primary mortgage insurance against losses
from default on such mortgage loan in an amount ranging from 12% to 30% of the
principal amount of the Mortgage Loan outstanding from time to time. Third Party
Loans
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will be covered by primary mortgage insurance to the extent specified in the
related Prospectus Supplement. See "LOAN UNDERWRITING POLICIES--Loan
Underwriting Policies of the Affiliated Originators" and "--Loan Underwriting
Policies of the CitiMae Originators."
The properties securing Mortgage Loans may consist of detached houses,
attached houses, row houses, individual units in planned unit developments,
individual condominiums or other types of one- to four-family residences or
interests in cooperatives (as defined in APPENDIX A). Although it is anticipated
that such properties will be predominantly primary residences, they may include
investment properties and vacation and second homes as well. Such properties may
be located in any of the fifty United States, the District of Columbia or the
Commonwealth of Puerto Rico.
When the related Series of Certificates is issued the Issuer will
assign the Mortgage Loans without recourse to the Trustee for the benefit of the
Certificateholders. The Issuer will, however, be required to repurchase any
Mortgage Loans or Mortgage Certificates that do not conform in one or more
material respects to the representations and warranties in the Pooling Agreement
("Non-Conforming Loans") within 180 days after notice from the Trustee that they
are Non-Conforming Loans. The Issuer may substitute conforming Mortgage Loans or
Mortgage Certificates for Non-Conforming Loans on or before the day that is 180
days following the Startup Day of the REMIC with respect to such Series. If,
however, any NonConforming Loan would affect the status of the REMIC or subject
the REMIC to tax, the Issuer must repurchase such Non-Conforming Loan or
substitute a conforming Mortgage Loan therefor within the earlier of 90 days
after notice from the Trustee that the Mortgage Loan is a Non-Conforming Loan or
180 days following the Startup Day. See "--Substitution of Mortgage Loans"
below. The Startup Day generally will be the Closing Date (as defined in the
related Prospectus Supplement). As servicer, the Issuer is responsible for
administering and servicing the Mortgage Loans and Mortgage Certificates.
In connection with assignment of the Mortgage Loans to the Trustee, the
Issuer will deliver to the Trustee (or a custodian acting on its behalf, which
may be an affiliate of the Issuer) the Mortgage Note, the Mortgage with evidence
of recording thereon, any other mortgage related documents, and assignments of
the Mortgage by the Originator to the Trustee. Such assignments will generally
be recorded after the Closing Date. See APPENDIX A: "THE MORTGAGE LOANS AND
CITIMORTGAGECERTIFICATES--Assignment of Mortgage Loans."
Mortgage Certificates
CitiMortgageCertificates
This summary of CitiMortgageCertificates is subject to and qualified by
reference to APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES."
Certificates evidencing fractional undivided interests in trusts will
be created by each of the Originators with respect to which an election may be
made to treat such trusts as REMICs under the Code. The property of such REMICs
will consist of pools of Mortgage Loans originated or acquired by one of the
Affiliated Originators or acquired by the Issuer. Such certificates will consist
of one or more classes of regular interests and one class of residual interests.
It is expected that the issuer of any CitiMortgageCertificate will be the
packager of the Mortgage Loans underlying such CitiMortgageCertificate and will
act as the servicer or master servicer (in such capacity, the "Servicer" or
"servicer") of such Mortgage Loans (or will subcontract with an affiliate to act
as subservicer). The Mortgage Loans may be covered by certain credit support
described in the Prospectus Supplement.
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The form of pooling and servicing agreement pursuant to which the
CitiMortgageCertificates will be issued will be substantially the same as the
Pooling Agreement with respect to a Pool in which the Mortgage Loans were
originated or acquired by an Affiliated Originator. The terms and provisions of
the relevant Pooling Agreement described in this Prospectus (including the
descriptions of distributions) would be applicable to any
CitiMortgageCertificate except that references to the Issuer will be deemed
references to the relevant Affiliated Originator and references to the Pool will
be deemed references to the Citibank Pool, the CMI Pool or the CFSB Pool, as the
case may be.
The pool underlying a CitiMortgageCertificate will consist of the
Mortgage Loans, such funds as from time to time are deposited in the Certificate
Account for such CitiMortgageCertificate, property acquired by foreclosure or
deed in lieu of foreclosure of a Mortgage Loan or Transfer Instrument (as
defined below) as from time to time may be subject to the related Pooling
Agreement, any credit support and any insurance policies with respect to the
Mortgage Loans. For purposes of this Prospectus, a "Transfer Instrument" is a
deed transferring an interest in property subject to a Mortgage or any
assignment or other instrument of transfer transferring an interest in
collateral (including shares of a cooperative and the related occupancy
agreement or proprietary lease) securing a Mortgage Loan. Any default by any
insurer under any such policy, any loss in excess of policy limits or any
uninsured loss may adversely affect distributions on the
CitiMortgageCertificates to the Trustee for the related Series of Certificates,
and may thus adversely affect distributions on such Certificates to the
Certificateholders. Each Pooling Agreement with respect to the same Originator
will contain substantially the same terms and conditions, except for the
Pass-Through Rate or Stated Rate (as defined therein), the date of issuance of
such series, the aggregate initial Adjusted Balance of Mortgage Loans evidenced
by such series, the minimum fractional undivided interest represented by each
CitiMortgageCertificate, the identity and address of the Trustee, the amount of
the credit support and other minor variations. Pursuant to each Pooling
Agreement, the Servicer will be responsible for servicing and administering the
related Mortgage Loans, but may at any time subcontract its duties as servicer
under any Pooling Agreement to any entity, including an entity more than 50% of
the stock of which is owned, directly or indirectly, by Citicorp. With respect
to Mortgage Loans acquired by the Trust from Citibank or CFSB, each of Citibank
and CFSB intends to subcontract its duties as servicer under each Pooling
Agreement under which it acts as servicer to CMI. CitiMortgageCertificates
contained in a Pool may represent all or some of the regular interests in a
REMIC. It is expected that CitiMortgageCertificates will be issued pursuant to
participation or pooling and servicing agreements entered into from time to time
between the related seller and the related certificate trustee or custodian. In
addition, an affiliate of such seller or of the Issuer may be a servicer for
such pool of mortgage loans. The mortgage loans underlying the
CitiMortgageCertificates may be subserviced by one or more loan servicing
institutions under the supervision of the servicer.
It is expected that all collections received by the servicers on the
mortgage loans (net of servicing fees to be retained by the servicers and such
other amounts as may be specified in the related pooling and servicing
agreement) will be deposited with the certificate trustee. Monthly distributions
of the principal and interest components of such collections (adjusted to the
stated rate or pass-through rate (as the case may be) borne by such
CitiMortgageCertificate) will be made to the Trustee for the
CitiMortgageCertificates of the related Series for deposit into the Certificate
Account for such Series.
The Issuer will provide to any Certificateholder, without charge, on
written request, a copy (without exhibits) of the Pooling Agreement for any
series of CitiMortgageCertificates included in a Pool. Requests should be
addressed to: Citicorp Mortgage Securities, Inc., 909 Third Avenue, New York,
New York 10043.
Distributions of principal and interest on each series of
CitiMortgageCertificates will be made by the Trustee or a paying agent on the
25th day (or if such 25th day is not a business day, no later than the business
day immediately following the 25th day) of each calendar month to the Trustee as
the person in
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whose name such CitiMortgageCertificates are registered at the close of business
on the last business day of the preceding month. The first such distribution
date for each series of CitiMortgageCertificates will be specified in the
applicable Prospectus Supplement. The Pool may also contain a certificate
evidencing an undivided interest in a trust comprised of Mortgage Loans as to
which trust an election has not been made to treat the trust property as a
REMIC. The terms and provisions of such certificate and any Pooling Agreement
pursuant to which any such certificate is issued will be set forth in the
related Prospectus Supplement.
Issuer Certificates
This summary of Issuer Certificates is subject to and qualified by
reference to APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES."
The Pool with respect to any Series of Issuer Certificates may consist
in whole or in part of Issuer Certificates initially issued to the public by the
Issuer or an affiliate of the Issuer, and which represent all or a portion of
the regular interests in a pool of mortgage loans originated or acquired by one
or more of the Affiliated Originators or acquired by the Issuer ("Whole or
Partial Pool Issuer Certificates"). Whole or Partial Pool Issuer Certificates
included in a Pool may represent all or a portion of one or more classes or
subclasses of one or more series of previously issued Issuer Certificates.
Each Whole or Partial Pool Issuer Certificate will have been issued
pursuant to a pooling and servicing agreement between the related issuer, which
is expected to be the Issuer, one or more Originators and/or affiliates of the
Issuer, and the trustee for such series of CitiCertificates (the "Underlying
Trustee"). Unless otherwise specified in the Prospectus Supplement, the terms of
such pooling agreement will generally conform to those provided in the Pooling
Agreement with respect to such Series of Certificates. See "THE POOLING
AGREEMENTS."
Certain of the mortgage loans underlying a series of Whole or Partial
Pool Issuer Certificates may be covered by (i) individual policies of primary
mortgage insurance insuring against all or a portion of any foreclosure losses
on the particular mortgage loans covered thereby, (ii) subordination or guaranty
arrangements and/or (iii) such other policies of insurance and other forms of
credit support (including, without limitation, obligations to advance delinquent
payments) as may be specified in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, no Whole or Partial
Pool Issuer Certificate will be so insured or guaranteed.
Unless otherwise provided in the related Prospectus Supplement, it is
expected that all collections received by servicers with respect to the mortgage
loans underlying each series of Whole or Partial Pool Issuer Certificates (net
of servicing fees to be retained by such servicers and such other amounts as may
be specified in the related pooling and servicing agreement), including monthly
distributions of the principal and interest components of such collections
(adjusted to the stated rate or pass-through rate (as the case may be) borne by
such Whole or Partial Pool Issuer Certificate) will be distributed directly to
the related Underlying Trustee.
The Prospectus Supplement will specify, to the extent relevant and to
the extent such information is reasonably available to the Issuer and the Issuer
reasonably believes such information to be reliable, (i) the aggregate
approximate principal amount and type of each class or subclass of Whole or
Partial Pool Issuer Certificates to be included in the Pool; (ii) certain
characteristics of the mortgage loans which comprise the underlying assets for
each Whole or Partial Pool Issuer Certificate, on a pool by pool basis,
including (a) the aggregate Adjusted Balance of such mortgage loans and the
years of origination thereof, (b) if Converted Mortgage Loans with an aggregate
Adjusted Balance exceeding 10% of the aggregate
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Adjusted Balance of all mortgage loans in any pool underlying a Whole or Partial
Pool Issuer Certificate were delivered, the aggregate Adjusted Balance of any
such Converted Mortgage Loans, (c) the original loan-to-value ratios of the
mortgage loans of each such pool, (d) the types of Mortgaged Properties securing
the mortgage loans, (e) the geographic distribution of the Mortgaged Properties,
prepared on a state-by-state basis for states where mortgage loans having an
aggregate Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of
mortgage loans in the related Pool are located, (f) if Buydown Mortgage Loans
with an aggregate Adjusted Balance exceeding 10% of the aggregate Adjusted
Balance of all mortgage loans in the related Pool were delivered, the aggregate
Adjusted Balance of Buydown Mortgage Loans in the related Pool, (g) if loans on
residential leasehold properties ("Leasehold Loans") with an aggregate Adjusted
Balance exceeding 10% of the aggregate Adjusted Balance of all mortgage loans in
the related Pool were delivered, the aggregate Adjusted Balance of Leasehold
Loans in the related Pool and (h) if 15-year, fixed rate tiered-payment mortgage
loans originated by CFSB's California branches and providing for a prepayment
penalty during the first 12 months following origination with an aggregate
Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of all mortgage
loans in the related Pool were delivered, the aggregate Adjusted Balance of such
mortgage loans in the related Pool; (iii) the maximum original term- to-stated
maturity of each series of Whole or Partial Pool CitiCertificates; (iv) the
weighted average term-to- stated maturity of each series of Whole or Partial
Pool Issuer Certificates; (v) the pass-through rate for each class or subclass
of Whole or Partial Pool Issuer Certificates; (vi) the weighted average
pass-through rate of each Whole or Partial Pool Issuer Certificate; (vii) the
servicer of the mortgage loans underlying each Whole or Partial Pool Issuer
Certificate and the Underlying Trustee with respect to each Whole or Partial
Pool Issuer Certificate; (viii) certain characteristics or credit enhancement,
if any, such as reserve funds, insurance policies, letters of credit or
guarantees, relating to the mortgage loans underlying each Whole or Partial Pool
Issuer Certificate; (ix) the terms on which underlying mortgage loans for each
Whole or Partial Pool Issuer Certificate may, or are required to, be repurchased
prior to stated maturity; and (x) the terms on which substitute mortgage loans
may be delivered to replace those initially deposited with each Underlying
Trustee.
More specific information concerning each Whole or Partial Pool Issuer
Certificate, the mortgage loans underlying each such Issuer Certificate, and
related servicing, insurance, subordination and/or other credit support
arrangements, if any, will be set forth in the related Prospectus Supplement.
Agency Certificates
This summary of Agency Certificates is subject to and qualified by
reference to APPENDIX B: "THE AGENCY CERTIFICATES."
The Issuer may acquire for any Pool "fully-modified pass-through"
mortgage-backed certificates ("GNMA Certificates") issued by private issuers and
guaranteed by the Government National Mortgage Association ("GNMA"), Mortgage
Participation Certificates ("FHLMC Certificates") guaranteed by the Federal Home
Loan Mortgage Corporation ("FHLMC") and Mortgage Pass-Through Certificates
("FNMA Certificates") guaranteed by Fannie Mae ("FNMA").
GNMA is a wholly-owned corporate instrumentality within the United
States Department of Housing and Urban Development. GNMA is authorized to
guarantee the timely payment of the principal of and interest on GNMA
Certificates, which guarantee is backed by the full faith and credit of the
United States. Any issuer which is unable to make payments on such GNMA
Certificates as they become due is required to promptly notify GNMA and request
payment by GNMA, whereupon GNMA will make such payment directly to the holders
of such GNMA Certificates.
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FNMA is a federally chartered and privately owned corporation organized
under the Federal National Mortgage Association Charter Act. FNMA purchases home
mortgage loans with funds acquired in part from the sale of its Guaranteed
Mortgage Pass-Through Certificates. FNMA guarantees that it will distribute to
holders of FNMA Certificates their proportionate interests in passed-through
payments of principal of and interest on the underlying loans (including
principal prepayments).
FHLMC is a corporate instrumentality of the United States created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended.
FHLMC purchases mortgage loans and participation interests in mortgage loans
that meet certain statutory standards, and resells them in the form of FHLMC
Certificates. FHLMC guarantees that it will distribute to holders of FHLMC
Certificates their proportionate interests in passed-through payments of
principal of and interest on the underlying loans.
The guaranties of FNMA and FHLMC are backed only by the credit of FNMA
and FHLMC, respectively. The full faith and credit of the United States is not
pledged to payments that may be required under such guaranties. Neither the
United States nor any agency thereof is required to finance FNMA's or FHLMC's
operations or to assist FNMA or FHLMC in any manner.
Certificate Account
The Trustee will, as to each Series of Certificates, establish and
maintain a separate account or accounts, including any such account maintained
by a paying agent (collectively, the "Certificate Account"), for the benefit of
the Certificateholders. The Certificate Account may bear interest. Except with
respect to the CitiMae Mortgage Loans and the Third Party Loans acquired on a
servicing-retained basis, all payments (net of servicing fees) on the Mortgage
Loans or Mortgage Certificates will be deposited directly into the Certificate
Account as soon as practicable after receipt thereof but in any case within two
business days of receipt and posting. The Pooling Agreement for each Series may
authorize the Trustee to invest at the Issuer's discretion distributions
received on the assets in a Pool (including Voluntary Advances and payments
under the credit support) in certain investments ("Eligible Investments") that
will qualify as "permitted investments" under Code Section 860G(a)(5). Eligible
Investments may be made by the Trustee upon instructions from the Issuer and, if
made, will generally mature not later than the day preceding the next
Distribution Date for such Series (or on such Distribution Date in the case of
Eligible Investments which are the obligations of the Trustee). Eligible
Investments include, among other investments, obligations of the United States
or of any agency thereof, certificates of deposit, federal funds, time deposits
and bankers' acceptances sold by eligible commercial banks (including affiliates
of the Issuer such as Citibank), any other demand or time deposit or certificate
of deposit fully insured by the Federal Deposit Insurance Corporation (the
"FDIC") either through the Bank Insurance Fund (the "BIF") or the Savings
Association Insurance Fund (the "SAIF"), commercial paper carrying the ratings
specified in the related Pooling Agreement of each Rating Agency rating the
Certificates of such Series that has rated such commercial paper, certain
repurchase agreements of United States government securities with eligible
commercial banks and certain guaranteed investment contracts.
Unless otherwise set forth in the related Prospectus Supplement, all
payments on Mortgage Loans and Mortgage Certificates, together with any
reinvestment income thereon and any amounts withdrawn from any Reserve Fund for
such Series and deposited into the Certificate Account for such Series, will be
available to make distributions on the Certificates of such Series on the next
succeeding Distribution Date or Special Distribution Date for such Series. Any
funds remaining in the Certificate Account immediately following a Distribution
Date (other than amounts representing early payments of installments of
principal and interest on Mortgage Loans directly held in the Pool which are due
on future Due Dates or Principal Prepayments) will be promptly distributed to
the holders of the Residual Certificates.
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In the case of Mortgage Loans participating in a "prepayment program"
(as described in APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGE
CERTIFICATES--Payments on Mortgage Loans in Pools"), payments on such Mortgage
Loans received under such a program will not be remitted to the Certificate
Account until released for payment under the terms of such program.
Minimum Prepayment Agreement
The Issuer may enter into an agreement (a "Minimum Prepayment
Agreement") with an institution meeting the criteria of the Rating Agency rating
the related Series to enable the Trustee to make distributions of principal on
the Certificates of such Series in accordance with a schedule set forth in the
related Prospectus Supplement. Funds would be provided under the Minimum
Prepayment Agreement in the event that aggregate scheduled principal payments
and prepayments on the Mortgage Loans and/or Mortgage Certificates included in
the related Pool were not sufficient to make distributions in reduction of the
Stated Amount of such Certificates in accordance with such Minimum Prepayment
Schedule. Such Minimum Prepayment Agreement may obligate the institution to
purchase, from time to time, Mortgage Loans and/or Mortgage Certificates
included in the Pool pursuant to a selection process set forth in such agreement
for an amount specified in the related Prospectus Supplement.
The related Prospectus Supplement will describe the terms and
conditions of any Minimum Prepayment Agreement if a Minimum Prepayment Agreement
is to be a part of the Pool.
Minimum Reinvestment Agreement
The Issuer may enter into an agreement (a "Minimum Reinvestment
Agreement") with an institution meeting the criteria of the Rating Agency rating
the related Series. Amounts required to be deposited in any account or fund for
a related Series will be invested pursuant to such agreement. If a Minimum
Reinvestment Agreement is entered into with respect to a Series of Certificates,
reinvestment earnings on funds in the Certificate Account will not belong to the
Servicer as additional servicing compensation but will be available to make
distributions on the Certificates in accordance with their terms. The applicable
interest rates for funds invested under such agreement will be described in the
related Prospectus Supplement if a Minimum Reinvestment Agreement is to be a
part of the Pool.
Collection of Payments
The Mortgage Certificates included in a Pool for a Series of
Certificates will be registered in the name of the Trustee or its nominee or, in
the case of Mortgage Certificates issued only in book-entry form, with a member
of the Federal Reserve System, so that in each case all distributions thereon
will be made directly to such Trustee. The Mortgage Loans included in a Pool
will be assigned to the Trustee and the related Mortgage Notes, endorsed to the
Trustee or in blank, will be delivered to the Trustee or its custodian. The
obligation of such Trustee to make distributions on the Certificates is limited
to the amount of payments (net of servicing compensation) on the Mortgage
Certificates and Mortgage Loans that were actually received by it unless the
Issuer enters into a Minimum Prepayment Agreement. The Trustee may not assign,
transfer, pledge or dispose of any assets in the Certificate Account for such
Series, except to a successor Trustee with respect to such Series, the holders
of the Residual Certificates or the holders of CitiCertificates for such Series
as set forth in the Pooling Agreement and except as permitted under the Pooling
Agreement in connection with foreclosures and other realizations in defaulted
Mortgage Loans. See "--Substitution of Mortgage Loans" below.
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Substitution of Mortgage Loans
Subject to the limitations set forth in the Pooling Agreement, the
Issuer may, on any day prior to 180 days after the settlement date of the
related Series of Certificates (the "Startup Day") (or, if such day is not a
Business Day, on the next previous Business Day) (or 90 days after discovery, if
earlier, if the defect affects the status of the Mortgage Loan as a "qualified
mortgage" for REMIC purposes), but solely in lieu of any obligation it may have
to repurchase a Non-Conforming Loan, deliver to the Trustee other Mortgage Loans
in substitution for any one or more Mortgage Loans included in the Pool. Any
such substitute Mortgage Loan will be fully paid up on the substitution day and
will have a principal balance on the substitution day that is at least equal to
the principal balance on the substitution day of the Non-Conforming Loans for
which it is substituted, an interest rate equal to or greater than that of such
Non-Conforming Loans, an original term to maturity equal to that of such
Non-Conforming Loans and a maturity date not earlier than one year prior to, and
in no event later than, that of such Non-Conforming Loans. Substitutions of
Mortgage Loans and/or Mortgage Certificates will be permitted in the event of
breaches of representation and warranties with respect to any original Mortgage
Loan and/or Mortgage Certificate or in the event the documentation with respect
to any Mortgage Loan is determined by the Trustee to be incomplete. The period
during which such substitution will be permitted generally will not exceed two
years for pools from the date the related Series is issued.
The related Prospectus Supplement will describe any other conditions
upon which Mortgage Loans and/or Mortgage Certificates may be substituted for
Mortgage Loans and/or Mortgage Certificates initially included in the Pool.
CITICORP MORTGAGE SECURITIES, INC.
The Issuer was incorporated in the State of Delaware on March 17, 1987
and is an indirect wholly owned subsidiary of Citicorp. It is not expected that
the Issuer will have any business operations other than offering Certificates
and related activities.
The principal executive offices of the Issuer are located at 909 Third
Avenue, New York, New York 10043. Its telephone number is (212) 559-6727.
THE ORIGINATORS
Citicorp Mortgage, Inc.
CMI is an indirect wholly owned mortgage banking subsidiary of
Citicorp. CMI, with headquarters in St. Louis, Missouri, was incorporated under
the laws of the State of Delaware on September 24, 1979. Since its formation,
CMI has engaged in mortgage banking and other housing-related financing
activities, and in July 1980, CMI commenced making mortgage loans. CMI derives
income primarily from interest on mortgages which it owns, secondary mortgage
market sales and mortgage loan servicing fees and mortgage origination fees and
charges.
CMI has been approved as a mortgagee and seller/servicer by several
agencies and instrumentalities, including the FHA, the Veterans Administration
("VA"), FNMA, GNMA and FHLMC. CMI's origination operations are subject to the
operational guidelines and regulations of, as well as audits by, certain of
these agencies.
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The principal executive offices of CMI are located at 750 Washington
Blvd., Stamford, Connecticut 06091. Its telephone number is (800) 285-3000.
Citibank, Federal Savings Bank
Citibank, Federal Savings Bank ("CFSB") is a federal savings bank with
its executive offices in San Francisco, California. It was formed in 1982 in
connection with the acquisition of Fidelity Savings & Loan Association. As of
the end of December 31, 1990, Citibank, Federal Savings Bank (formerly Citicorp
Savings of Illinois, A Federal Savings and Loan Association) and Citibank,
Federal Savings Bank (formerly Citicorp Savings of Washington, D.C., A Federal
Savings and Loan Association), both wholly owned indirect subsidiaries of
Citicorp, were merged into CFSB. As of March 31, 1993, Citibank, Federal Savings
Bank (formerly Citicorp Savings of Florida, A Federal Savings and Loan
Association), a wholly owned indirect subsidiary of Citicorp, was merged into
CFSB. As of May 1, 1993 CFSB acquired the branches of Citibank (Maryland), N.A.
and as of January 3, 1994, CFSB acquired the branches of Citibank (Florida),
N.A.
The deposits of CFSB are insured by the FDIC to the extent provided by
law. Since 1982, CFSB has been either a direct or an indirect wholly owned
subsidiary of Citicorp. CFSB has been an active one- to four-family residential
mortgage lender since 1983.
Citibank Service Corporation, an affiliate of CFSB, acts as trustee
with respect to substantially all deeds of trust relating to mortgaged property
located in California securing mortgage loans originated or acquired by CFSB.
Under California law, the functions of a trustee under a deed of trust are to
foreclose upon the mortgaged property upon notification by the beneficiary of a
delinquency and to execute full and partial reconveyances of such mortgaged
property upon direction of the beneficiary.
The principal executive offices of CFSB are located at 1 Sansome
Street, San Francisco, California 94104. Its telephone number is (415) 627-6000.
Citibank, N.A.
Citibank is a commercial bank offering a wide range of banking services
to its customers in the New York City metropolitan area and around the world.
Citibank's deposits are insured by the FDIC to the extent provided by
law. Since 1968, Citibank has been a wholly owned subsidiary of Citicorp.
Citibank has been an active one- to four-family residential real estate mortgage
lender since 1960. Citibank has also been an active cooperative apartment
lender. Citibank conducts such lending activities through its New York Banking
Unit (the "NYBU"). Except in connection with mortgage pass-through certificates
issued by it from time to time, Citibank has not engaged in any significant
servicing activities on behalf of unaffiliated persons with respect to
conventional residential mortgage or cooperative loans.
The NYBU is responsible for Citibank's consumer banking business within
that portion of the New York Metropolitan Area which includes the nine counties
(Westchester, Nassau, Suffolk, Kings, Richmond, New York, Bronx, Rockland and
Queens) within and surrounding New York City. Citibank offers a wide range of
consumer banking products and services, including mortgage and cooperative
apartment loans.
The principal executive offices of Citibank are located at 399 Park
Avenue, New York, New York 10043. Its telephone number is (212) 559-1000.
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CitiMae, Inc.
CitiMae, Inc. ("CitiMae"), a Delaware corporation and a wholly owned
subsidiary of Citibank, is primarily engaged in the purchase and sale of
mortgage loans, the performance of master servicing functions and the
securitizing of mortgage loans. Its principal executive offices are located at
399 Park Avenue, New York, New York 10043. Its telephone number is (212)
793-5880.
At March 31, 1996, CitiMae master serviced mortgage loans, on behalf of
Citibank, with principal balances of approximately $4,843,000,000. CitiMae
enters into agreements with various approved servicers to perform, as
independent contractors, certain servicing functions for Citibank, as master
servicer. See "LOAN UNDERWRITING POLICIES--Loan Underwriting Policies of the
CitiMae Originators."
Set forth below is a description of aspects of CitiMae's purchase
program for Mortgage Loans eligible for inclusion in a Pool.
The Issuer will purchase Mortgage Loans either directly or indirectly
from CitiMae or its affiliates or from approved sellers which may be affiliates
of the Issuer or CitiMae. CitiMae or its affiliates has approved (or will
approve) individual institutions as eligible sellers by applying certain
criteria, including the seller's depth of mortgage origination experience,
servicing experience and financial stability. From time to time, however,
CitiMae or its affiliates may purchase Mortgage Loans from sellers which, while
not meeting the generally applicable criteria, have been reviewed by it and
found to be acceptable as sellers of Mortgage Loans.
Underwriting standards are intended to evaluate the Mortgagor's credit
standing and repayment ability and the value and adequacy of the Mortgaged
Property as collateral. Underwriting standards are applied in a standard
procedure which complies with applicable federal and state laws and regulations.
In determining the adequacy of the property as collateral, an appraisal
is generally made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good condition and
that construction, if new, has been completed. The appraisal is based on the
appraiser's judgment of values, giving appropriate weight to both the market
value of comparable homes and the cost of replacing the property.
See also "LOAN UNDERWRITING POLICIES--Loan Underwriting Policies of the
CitiMae Originators".
If CitiMae Mortgage Loans are included in a Pool, the Issuer intends to
enter into a Subservicing Agreement with CitiMae (the "Subservicer") pursuant to
which the Subservicer will agree to perform certain functions for the Servicer
relating to the purchase of the Mortgage Loans and the servicing and
administering of the CitiMae Mortgage Loans. Under the Subservicing Agreement,
the Subservicer will agree, among other things, to perform the Servicer's
obligations with respect to the servicing of the CitiMae Mortgage Loans and the
Servicer's servicing obligations under the Pooling Agreement which will include
making advances to Certificateholders under circumstances in which the Servicer
would be obligated to make such advances, and repurchasing Mortgage Loans from
the Trustee where the Servicer would be obligated to so repurchase. Any actions
of the Subservicer taken pursuant to the Subservicing Agreement will be for the
Servicer with the same force and effect as though performed directly by the
Servicer and the Servicer will at all times remain responsible for the
performance of its duties under the Pooling Agreement. The Subservicer will be
paid a fee by the Servicer for its services.
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Third Party Originators
If Third Party Loans having an aggregate Adjusted Balance exceeding 10%
of the aggregate Adjusted Balance of the Mortgage Loans in a Pool are included
in a Pool, the related Prospectus Supplement will identify the Third Party
Originators of such Third Party Loans.
Unless otherwise specified in the related Prospectus Supplement, each
Third Party Originator will be required to satisfy the qualifications set forth
in this paragraph. Each Third Party Originator must be an institution
experienced in originating mortgage loans of the type contained in the related
Pool in accordance with accepted practices and prudent guidelines. Each Third
Party Originator must be a savings and loan association, savings bank,
commercial bank, credit union, insurance company or a mortgagee approved by the
Secretary of Housing and Urban Development.
LOAN UNDERWRITING POLICIES
Loan Underwriting Policies of the Affiliated Originators
Except as specifically noted below and except as may be specified in
the applicable Prospectus Supplement, residential real estate mortgage loans
originated or acquired from affiliated or unaffiliated third parties by the
Affiliated Originators are subject to the same underwriting process. For certain
residential mortgage loans the Affiliated Originators have contracted with or
delegated the underwriting process to certain unaffiliated third parties. The
underwriting process, which is described below, assesses the prospective
borrower's ability to repay and the adequacy of the property as collateral for
the loan requested. The loan underwriting policies of each Affiliated Originator
require such Originator's loan underwriters to be satisfied that the value of
the property being financed currently supports, and will likely support in the
future, the outstanding loan balance with sufficient excess value to protect
against minor adverse shifts in real estate values. In general, it is the policy
of each Affiliated Originator not to make conventional one- to four-family real
estate loans with more than 95% loan-to-value ratios. Unless otherwise specified
in the related Prospectus Supplement, a Pool will not contain any Real Estate
Loans with more than a 95% loan-to-value ratio.
Each Affiliated Originator's real estate lending process for one- to
four-family residential mortgage loans follows a standard procedure, established
to comply with applicable federal and state laws and regulations. Initially, a
prospective borrower is required to fill out an application designed to provide
pertinent information about the prospective borrower, the property to be
financed and the type of loan desired. As part of the description of the
prospective borrower's financial condition, each Affiliated Originator requires
a current balance sheet describing assets and liabilities and a statement of
income and expenses, proof of income such as a paycheck stub or W-2 form (except
for certain self-employed prospective borrowers), proof of liquid assets
(required as of April 1991), telephone verification of employment (required as
of April 1991), which may be verified utilizing a third party national
employment verification service, and a credit report which summarizes the
prospective borrower's credit history with local merchants and lenders and any
record of bankruptcy. From February 1991 until May 1997, it was the policy of
each Affiliated Originator to obtain at least two credit reports (which could be
in the form of a merged credit bureau report) with respect to a prospective
borrower. Since May 1997, it has been the policy of each Affiliated Originator
to obtain the single most comprehensive readily available credit bureau report
with respect to a prospective borrower. Prior to May 1997, self-employed
prospective borrowers were required to submit their federal income tax returns
for the most recent two years and a separate statement of income and expenses.
Since May 1997, self-employed prospective borrowers are required to submit a
copy of their most recently filed Form 1040, without schedules. In the case of
mortgage loans originated or
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acquired after July 1993 by the Affiliated Originators, facsimile copies of
certain verification documents (such as bank statements and verification of
employment) may be accepted in lieu of originals.
If the proposed mortgage loan does not exceed 65% (prior to December
1992, such percentage could be up to 80%) of the value of the underlying
property based on the lesser of the appraised value determined in an appraisal
obtained by the Affiliated Originator at the origination of such mortgage loan
or the sale price for such property (the "Original Value"), certain
self-employed prospective borrowers may be exempt from some or all of the
requirements that they provide financial statements, current federal income tax
returns and proof of income. However, each Affiliated Originator during 1990 and
1991 implemented as part of its underwriting policy that telephone verification
of employment is required and, beginning in April 1991, proof of liquid assets,
as described below. Certain high net worth prospective borrowers with ongoing
banking relationships with Citicorp's Private Banking Group may be exempt from
the employment verification process.
Once the employment verification and the credit report are received, a
determination is made as to whether the prospective borrower has sufficient
monthly income available to meet the borrower's monthly obligations on the
proposed loan and other expenses related to the residence as well as to meet
other financial obligations and monthly living expenses. Each Affiliated
Originator has established as lending guidelines that the mortgage payments,
plus applicable real property taxes and any condominium or homeowner association
common charges and hazard insurance, should not exceed 33% (34% in the case of
ARMs) of the borrower's gross income, or that all monthly payments, including
those mentioned above and other fixed obligations, such as car payments, should
not exceed 38% of gross income. Since May 1997, loans that meet the Affiliated
Originator's minimum credit score and delinquency requirements may have debt
burden ratios of up to 45% and, for certain corporate relocation loans, 50%.
Where there are two individuals co-signing the mortgage note or documents, the
income and debt of both are included in the computation. Since May 1997, each
Affiliated Originator does not require income or asset verification in the case
of their current mortgagors seeking to refinance their mortgage loans, if such
refinancing meets such Affiliated Originator's minimum seasoning, payment
history and credit score requirements. In the case of other mortgagors seeking
to refinance their mortgage loans, each Affiliated Originator does not require
asset verification and allows a debt burden ratio of up to 45% for loans that
meet such Affiliated Originator's minimum seasoning, payment history and credit
score requirements. In the case of ARMs, the initial mortgage rate may be lower
than the sum of the then-applicable Index and Mortgage Margin for such loan, and
the determination of whether the prospective borrower has sufficient monthly
income is made based upon such lower initial mortgage rate. In the case of
mortgage loans originated by the California branches of CFSB prior to June 1991,
the actual mortgage payments may be higher due to a higher mortgage rate at the
time the loan documents are prepared, but such mortgage rate generally will not
exceed the anticipated rate used in such analysis by more than one percent.
Often, however, other credit considerations may cause a loan underwriter to
depart from these guidelines, and a loan underwriter may require additional
information or further verification of information provided so as to compensate
for the exception to the Affiliated Originator's lending guidelines.
Since April 1991, each Affiliated Originator's underwriting policies
have required it to make a determination as to whether the prospective borrower
has sufficient liquid assets to acquire the property to be financed, taking into
account, among other things, proceeds from the sale of any prior residence and
cash on deposit in banks. This determination may be made from such evidence as
the existence of a contract for sale of any prior residence and bank statements
supplied by the prospective borrower. As described in the preceding paragraph,
asset verification may be waived for certain refinancings.
Each Affiliated Originator requires an appraisal to be made of each
property to be financed, which may be a master appraisal in the case of bulk
commitments. The appraisal is conducted by either an
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independent fee appraiser, a specially trained employee of the Affiliated
Originator or an employee of an affiliate. The person conducting the appraisal
personally visits the property and estimates its market value on the basis of
comparable properties. Since April 1997, each Affiliated Originator accepts, in
lieu of originals, electronic appraisals without photographs from appraisers who
utilize certain approved appraisal software packages. Neither the independent
appraisers nor employees receive any compensation dependent upon either the
amount of the loan or its consummation. In normal practice, the Affiliated
Originator's judgment of the appraisal determines the maximum amount which will
be lent on the property. In connection with the refinancing of an existing
mortgage originated or acquired by certain Affiliated Originators, such
Originators may not cause a current appraisal of the underlying property to be
prepared unless the then outstanding principal amount of the mortgage loan is
increased by an amount in excess of the mortgagor's out-of-pocket costs
associated with the refinanced transaction plus (at the option of qualifying
borrowers) the amount required to pay off any junior liens on the property. In
connection with the modification of an existing mortgage pursuant to a
Modification Agreement, a current appraisal of the underlying property may not
be prepared.
Each Affiliated Originator obtains or causes to be obtained a search of
the liens of record to which the property being financed is subject at the time
of origination. Title insurance or, in lieu thereof, an attorney's opinion of
title in those jurisdictions in which such practice is acceptable, is required
in the case of all mortgage loans, except that with respect to Cooperative
Loans, an Affiliated Originator does not require a borrower or the cooperative
to obtain title insurance of any type or to obtain a title search of the
property on which the cooperative apartment building is located.
Since January 1995, each Affiliated Originator has used a credit
scoring system as part of its underwriting process. This credit scoring system
assesses the prospective borrower's ability to repay a mortgage loan based upon
certain predetermined mortgage loan characteristics and credit risk factors. All
prospective borrowers remain subject to verification of employment, income,
assets and credit history, unless provided otherwise herein. All credit scored
loans are rated strong, satisfactory or inconclusive. Mortgage loans rated
"strong" or "satisfactory" are not subjected to the normal loan underwriting
process described herein, but are subject to verification of property value.
Mortgage loans rated "inconclusive" are underwritten in accordance with the
normal loan underwriting policies described herein.
An Affiliated Originator may originate Leasehold Loans. Leasehold Loans
are approved in accordance with such Affiliated Originator's standard
underwriting criteria. An ALTA leasehold title insurance policy is required,
which contains no exceptions for any adjustable features of the lease. The title
insurance policy must assure that the Affiliated Originator's first mortgage is
not subordinate to any lien or encumbrance other than the land lease.
Additionally, when deemed necessary, the California branches of CFSB require
that a consent to assignment of lease and/or subordination agreement be obtained
and recorded. Furthermore, each Affiliated Originator requires that the
leasehold estate be assignable or transferable if it is subjected to the
mortgage lien.
The land lease should guarantee such Affiliated Originator's right to
receive any notice of default by the borrower and the right to cure the default.
Payments due pursuant to the land lease are taken into account in both debt
ratio calculations in connection with the underwriting of such mortgage loans.
Finally, each Affiliated Originator requires that the term of the lease must
extend at least ten years longer than the scheduled maturity on the mortgage
loan.
Prior to 1986, the Affiliated Originators did not generally make one-
to four-family real estate loans with loan-to-value ratios above 80% unless such
Affiliated Originator had obtained primary mortgage insurance coverage. From
1986 through January 1993, each Affiliated Originator originated mortgage loans
with loan-to-value ratios in excess of 80% but not more than 90% without
obtaining primary mortgage
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insurance. Since February 1993, it has been the policy of each Affiliated
Originator not to make one- to four-family real estate loans with loan-to-value
ratios above 80% without obtaining primary mortgage insurance. Certain corporate
relocation programs, offered by the Affiliated Originators to employees of
certain approved corporations, permit single family real estate loans with
loan-to-value ratios in excess of 80% without requiring primary mortgage
insurance. For these loans, however, the applicable corporate employer generally
guarantees the excess of the amount of the mortgage loan over the 80%
loan-to-value amount. Certain other corporate relocation programs permit the
providing of subordinate financing by the corporate employer at the time of the
origination of the first priority mortgage loan by an Affiliated Originator.
The Affiliated Originators offer certain programs under which they may
make real estate loans with a loan-to-value ratio of up to 80% and subordinate
financing similar to those described in the preceding paragraph to borrowers not
participating in a corporate relocation program without requiring any primary
mortgage insurance or third party guarantees.
Each Affiliated Originator's underwriting standards are designed to
evaluate a borrower's credit standing and repayment ability and the value and
adequacy of the mortgaged property as collateral. In the case of a Converted
Mortgage Loan, the borrower's repayment ability will have been determined only
at origination on the basis of such borrower's then-current income and
obligations and interest rates for adjustable interest rate mortgage loans
which, traditionally, have been lower than the interest rates charged by
mortgage lenders on fixed interest rate mortgage loans. The borrowers at their
exclusive options may elect to convert their mortgage loans into fixed interest
rate loans or to continue with the adjustable interest rate features. A
borrower's conversion option is conditional only upon a review by the applicable
Affiliated Originator of the loan payment history and payment of a conversion
fee. It is possible that the fixed interest rate payable by the borrower upon
conversion will be higher than the adjustable interest rate otherwise payable.
In that event, the borrower's capacity to repay the loan may be reduced.
Unless otherwise specified in the Prospectus Supplement, no ARM Pool
will contain ARMs which provide for conversion options.
Each Affiliated Originator originates Buydown Mortgage Loans. Unless
otherwise specified in the applicable Prospectus Supplement, (i) during the
buydown period, each of the Buydown Mortgage Loans will provide for payments
payable by the Mortgagor based on a hypothetical reduced interest rate (the
"buydown mortgage rate") that will not have been more than 5% below the mortgage
rate at origination, (ii) the annual increase in the buydown mortgage rate
during the buydown period will not exceed 1% or in the case of tiered payment
Mortgage Loans the annual increase in the mortgagors' monthly payment will
increase as described in the "THE POOLS--Mortgage Loans" and (iii) the buydown
period will not exceed three years in the case of Citibank Pools and Buydown
Mortgage Loans originated by the Florida branches of CFSB, five years in the
case of CMI Pools, and six years in the case of CFSB Pools (other than those
Buydown Mortgage Loans originated by its Florida branches). For all Pools, with
respect to Mortgage Loans originated prior to October 1, 1991, the maximum
amount of the buydown funds that may be contributed by the seller or builder of
the related Mortgaged Property is limited to 9% of the Original Value of the
Mortgaged Property; with respect to Mortgage Loans originated on or after
October 1, 1991, the maximum amount of buydown funds that may be contributed by
the seller or builder of the related Mortgaged Property is limited to 6% of the
Original Value of the Mortgaged Property. These limitations do not apply to
contributions from the Mortgagor or immediate relatives or the employer of the
mortgagor. Except as may be otherwise indicated in the applicable Prospectus
Supplement, the Mortgagor under each Buydown Mortgage Loan will have been
qualified at an interest rate which is not more than 5% per annum below the
current mortgage rate at origination. Accordingly, the repayment of a Buydown
Mortgage Loan is dependent on the ability of the Mortgagor to make larger
monthly payments after the buydown funds have been depleted and, for certain
Buydown Mortgage Loans, while such funds are being depleted.
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All the above described Affiliated Originators (other than Citibank)
purchase mortgage loans originated by other parties. Except as may be otherwise
specified in the applicable Prospectus Supplement, mortgage loans acquired from
other parties, other than in a bulk purchase, are reviewed by such Affiliated
Originators or by unaffiliated third parties under contracts with such
Affiliated Originators for compliance with the above described underwriting
criteria, and such Affiliated Originators have the right to reject loans which
fail to conform to such criteria. In connection with an acquisition of mortgage
loans in a bulk purchase, (i.e., loans aggregating more than $15,000,000) from a
nationally recognized mortgage loan originator, the acquiring Affiliated
Originator will review the selling originator's underwriting policies and
procedures with a view to their compliance with such Affiliated Originator's or
FNMA/FHLMC underwriting standards and, in addition, will conduct a limited
mortgage loan file review.
Loan Underwriting Policies of the CitiMae Originators
Except as described below, each Mortgage Loan contributed to the Trust
by a CitiMae Originator has satisfied the credit, appraisal and underwriting
guidelines established by CitiMae or one of its affiliates, as set forth in its
Sellers' Guide, which forms a part of the agreement pursuant to which
unaffiliated loan originators sell mortgage loans to CitiMae or one of its
affiliates. Such underwriting guidelines may be varied in cases deemed
appropriate by CitiMae or one of its affiliates. To determine satisfaction of
such underwriting guidelines, CitiMae or a loan reviewer reviewed the Mortgage
Loans.
CitiMae's underwriting guidelines are intended to evaluate the
Mortgagor's credit standing and repayment ability and the value and adequacy of
the Mortgaged Property as collateral. CitiMae's underwriting guidelines are
applied in a standard procedure which complies with applicable federal and state
laws and regulations. Initially, a prospective Mortgagor is required to fill out
a detailed application designed to provide pertinent credit information. As part
of the description of the Mortgagor's financial condition, the Mortgagor is
required to provide a current balance sheet describing assets and liabilities
and a statement of income and expenses, as well as an authorization to apply for
a credit report which summarizes the Mortgagor's credit history with local
merchants and lenders and any record of bankruptcy. In addition, an employment
verification is obtained from the Mortgagor's employer wherein the employer
reports the length of employment with that organization, the current salary, and
an indication as to whether it is expected that the Mortgagor will continue such
employment in the future. If a prospective Mortgagor is self-employed, the
Mortgagor is required to submit copies of signed tax returns. The Mortgagor also
authorizes deposit verification at all financial institutions where the
Mortgagor has demand or savings accounts.
Once the employment and deposit verifications and the credit report are
received, a determination is made as to whether the prospective Mortgagor has
sufficient monthly income available (i) to meet the Mortgagor's monthly
obligations on the proposed mortgage loan and other expenses related to the
Mortgaged Property (such as property taxes, hazard insurance and maintenance and
utility costs) and (ii) to meet other financial obligations and monthly living
expenses.
In determining the adequacy of the property as collateral, an
independent appraisal is made of each property considered for financing. The
appraiser is required to inspect the property and verify that it is in good
condition and that construction, if new, has been completed. The appraisal is
based on the appraiser's judgment of values, giving appropriate weight to both
the market value of comparable homes and the cost of replacing the property.
CitiMae and its affiliates employ alternative underwriting guidelines
for certain qualifying mortgage loans underwritten by CitiMae and its
affiliates. Depending on the facts and circumstances of a particular case,
CitiMae may accept mortgage loans based upon limited documentation that
eliminates the need for either income verification and/or asset verification.
The objective of the limited documentation guidelines
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<PAGE>
is to shift the emphasis of the underwriting process from the credit standing of
the Mortgagor to the value and adequacy of the Mortgaged Property as collateral.
A borrower(s) ability and willingness to repay a mortgage loan in a timely
manner must be demonstrated by the quality, quantity and durability of income
history, history of debt management and net worth accumulation. If greater than
10% of the Mortgage Loans by aggregate Adjusted Balance as of the Cut-Off Date
were originated under limited documentation guidelines, the percentage of
Mortgage Loans originated under such guidelines will be as provided in the
Prospectus Supplement.
Depending upon the facts and circumstances of a particular case,
CitiMae or one of its affiliates may accept mortgage loans based upon seasoning
and payment histories without obtaining standard underwriting documentation. The
objective of the seasoned underwriting guidelines is to shift the emphasis of
the underwriting process from the credit standing and repayment ability of the
Mortgagor at the time of origination to the actual repayment performance of the
related mortgage loan. If greater than 10% of the Mortgage Loans (by Adjusted
Balance as of the Cut-Off Date) were originated under seasoned mortgage loan
guidelines, the percentage of such Mortgage Loans by Adjusted Balance will be
provided in the Prospectus Supplement.
Loan Underwriting Standards of Third Party Originators
If Third Party Loans are included in a Pool, the underwriting policies
and guidelines of the related Third Party Originators may not be identical to
those set forth above for the Affiliated Originators or for CitiMae. As part of
CMI's process in purchasing Third Party Loans, CMI will review a sample of the
Third Party Loans to determine whether the Third Party Loans would generally
conform to CMI's underwriting standards. The Third Party Loans will be credit
scored or reunderwritten, in each case in whole or in part, by CMI in order to
determine whether the underwriting process for the Third Party Loans adequately
assessed the borrower's ability to repay and the adequacy of the property as
collateral, based on CMI's underwriting standards.
DELINQUENCY, FORECLOSURE AND LOSS CONSIDERATIONS AND EXPERIENCE
Loss and Delinquency Considerations
There can be no assurance that the foreclosure and delinquency
experience on the Mortgage Loans underlying the CitiMortgageCertificates or the
Certificates will be comparable to that set forth below. The Mortgage Loans
underlying the CitiMortgageCertificates or the Certificates may have a different
range of remaining maturities from those represented by the tables below.
Furthermore, general economic conditions generally affect levels of
delinquencies, defaults and foreclosures. Historically, delinquencies, defaults
and foreclosures do not reach their peak until sometime after the lowest point
in an economic cycle. Finally, the residential real estate market in a
particular area could experience an overall decline in property values such that
the then-current loan-to-value ratios of the Mortgage Loans underlying the
CitiMortgageCertificates or the Certificates could be higher, and could be
substantially higher, than such ratios at origination. In addition, property
values could decline to the point that the amounts owing on the Mortgage Loans
underlying all or part of the CitiMortgageCertificates or the Certificates and
any secondary financing on the related mortgaged properties could become equal
to or greater than the value of such mortgaged properties. In that event, the
actual rate of delinquencies and the number of foreclosures could be higher than
those previously experienced. In addition, the costs and expenses of
foreclosure, together with any damage to or deterioration of the Mortgaged
Property, may result in a determination by the Servicer that foreclosure would
not increase the net proceeds of liquidation available for distribution to
Certificateholders. The Servicer is not required under the Pooling Agreement to
expend its own funds to foreclose on a defaulted Mortgage Loan unless it
34
<PAGE>
generally determines that foreclosure would increase such net proceeds and its
expenditures will be recoverable.
In recent years, California, the New York Metropolitan Area and several
other regions have experienced significant declines in housing prices. In
addition, California and certain other regions have experienced natural
disasters, such as earthquakes, fires, floods and hurricanes, which have
adversely affected property values in the affected areas. Any direct damage to a
mortgaged property securing a Mortgage Loan caused by such disasters, as well as
any deterioration in housing prices or values or the existence of adverse
economic conditions which adversely affect the ability of mortgagors to make
timely and full payments on Mortgage Loans, may increase the likelihood of
delinquencies, and the likelihood and magnitude of losses, on the Mortgage
Loans, which may result in losses on the Certificates to the extent such losses
are not covered by insurance or any credit enhancement. Such delinquencies or
losses, if occurring, may increase the likelihood of foreclosures and
prepayments on Mortgage Loans, which may in turn have an adverse effect on the
yield of the Certificates or of certain classes of the CitiCertificates.
The Mortgaged Properties may be located in "anti-deficiency" states
where, in general, a lender providing credit on a one- to four-family property
may not seek a deficiency judgment against the Mortgagor but rather must look
solely to the property for repayment in the event of foreclosure. Each
Affiliated Originator's, CitiMae's and each Third Party Originator's
underwriting standards in all states (including such anti-deficiency states)
require underwriting officers to be satisfied that the value of the property
being financed, as indicated by the appraisal, currently supports the
outstanding loan balance. See APPENDIX A: "THE MORTGAGE LOANS AND
CITIMORTGAGECERTIFICATES--Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders." However,
there can be no assurance that property values will not decline after the
Mortgage Loan is originated.
Delinquency and Foreclosure Experience of Affiliated Originators'
Serviced Portfolio
The delinquency and foreclosure experience on the portfolio of one- to
four-family conventional residential first mortgage loans originated or acquired
by the Affiliated Originators and certain other affiliates of CMI and serviced
by CMI for the periods indicated is set forth in the following table. During the
period covered in the table, this portfolio decreased from $35.6 billion on
December 31, 1994 to $35.2 billion on September 30, 1997. CMI's total serviced
portfolio includes both fixed and adjustable interest rate mortgage loans,
including Buydown Mortgage Loans, tiered-payment mortgage loans, loans with
stated maturities of 15 to 30 years and other types of mortgage loans having a
variety of payment characteristics, and includes mortgage loans secured by
mortgaged properties in geographic locations that may not be representative of
the geographic distribution or concentration of the Mortgaged Properties
securing the Mortgage Loans. There can be no assurance that the delinquency and
foreclosure experience set forth below with respect to CMI's total serviced
portfolio will be similar to the results that may be experienced with respect to
the Mortgage Loans underlying the CitiMortgageCertificates or the Certificates.
35
<PAGE>
Delinquency and Foreclosure Experience of Serviced Portfolio
of One- to Four-Family Residential Mortgage Loans (1)
<TABLE>
<CAPTION>
As of As of As of As of
December 31, 1994 December 31, 1995 December 31, 1996 September 30,1997
----------------- ----------------- ----------------- -----------------
By Dollar By Dollar By Dollar By Dollar
Amount of Amount of Amount of Amount of
By No. of Loans By No. of Loans By No. of Loans By No. of Loans
Loans (in Millions) Loans (in Millions) Loans (in Millions) Loans (in Millions)
----- ------------- ----- ------------- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio........ 350,751 $ 35,590.9 330,529 $ 34,880.5 309,754 $ 34,084.8 302,877 $ 35,182.8
Period of Delinquency(2)
30-59 Days........ 12,309 $ 1,237.3 12,216 $ 1,213.7 10,487 $ 1,014.9 9,296 $ 902.8
60-89 Days........ 3,847 $ 412.3 4,098 $ 431.7 2,444 $ 253.1 2,108 $ 201.7
90 Days or more... 5,967 $ 740.4 5,724 $ 676.2 3,291 $ 371.8 2,950 $ 317.3
Total Loans Delinquent. 22,123 $ 2,390.0 22,038 $ 2,321.6 16,222 $ 1,639.8 14,354 $ 1,421.8
Delinquency Ratio...... 6.31% 6.72% 6.67% 6.66% 5.24% 4.81% 4.74% 4.04%
Foreclosures(3)........ 6,245 $ 835.7 6,067 $ 793.2 5,822 $ 696.0 3,616 $ 425.4
Foreclosure Ratio...... 1.78% 2.35% 1.84% 2.27% 1.88% 2.04% 1.19% 1.21%
</TABLE>
- ----------
(1) The table includes mortgage loans serviced by CMI and held by an
Originator, in its own portfolio, and certain affiliates' portfolios. The
table also includes mortgage loans serviced by CMI which have been packaged
and sold to FNMA and FHLMC, in transactions pursuant to registration
statements under the Securities Act and in transactions exempt from the
registration requirements of the Securities Act. The table does not include
loans purchased strictly for servicing revenue or, in the case of the
Florida branches of CFSB, loans originated prior to the acquisition by the
Citicorp group of the Florida branches of CFSB in January 1984. The
portfolio includes cooperative loans. Since June 20, 1997, CMI has
transferred the servicing of 803 delinquent loans and loans in foreclosure
totaling $106.0 million.
(2) The Period of Delinquency is based upon the number of days past due on a
contractual basis. No mortgage loan is considered delinquent for purposes
of this table until 30 days past due on a contractual basis.
(3) The table shows mortgage loans for which foreclosure proceedings had been
instituted at the dates indicated.
Unless otherwise specified in the Prospectus Supplement, CMI will act as
subservicer of the Mortgage Loans in the CMI Pools, CFSB Pools and Citibank
Pools.
Delinquency, Foreclosure and Loss Experience of
Affiliated Originators' Securitized Portfolio
The delinquency, foreclosure and loss experience on the one- to
four-family conventional residential first mortgage loans that were originated
or acquired and subsequently sold by the Affiliated Originators, CMSI and
certain other affiliates of CMI pursuant to registration statements under the
Securities Act and serviced by CMI is set forth in the following tables for the
periods indicated. During the period covered in the tables, this group of
securitized mortgage loans decreased from $7.4 billion on December 31, 1994 to
$5.3 billion on September 30, 1997. CMI's total securitized portfolio includes
both fixed and adjustable interest rate mortgage loans, including Buydown
Mortgage Loans, tiered-payment mortgage loans, loans with stated maturities of
15 to 30 years and other types of mortgage loans having a variety of payment
characteristics, and includes mortgage loans secured by mortgaged properties in
geographic locations that may not be representative of the geographic
distribution or concentration of the Mortgaged Properties securing the Mortgage
Loans.
36
<PAGE>
Delinquency and Foreclosure Experience of Securitized
One- to Four-Family Residential Mortgage Loans
<TABLE>
<CAPTION>
As of As of As of As of
December 31, 1994 December 31, 1995 December 31, 1996 September 30, 1997
------------------ ------------------ ----------------- ------------------
By Dollar By Dollar By Dollar By Dollar
Amount of Amount of Amount of Amount of
By No. of Loans By No. of Loans By No. of Loans By No. of Loans
Loans (in Millions) Loans (in Millions) Loans (in Millions) Loans (in Millions)
----- ------------- ----- ------------- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio........ 53,693 $ 7,376.5 48,182 $ 6,579.9 40,489 $ 5,503.2 36,474 $ 5,297.4
Period of Delinquency(1)
30-59 Days......... 1,885 $ 235.2 1,768 $ 206.9 1,339 $ 151.6 1,108 $ 133.8
60- 89 Days........ 578 $ 80.1 578 $ 73.2 321 $ 40.3 258 $ 29.6
90 Days or more.... 1,044 $ 182.9 889 $ 138.6 411 $ 58.7 382 $ 53.9
Total Loans Delinquent. 3,507 $ 498.2 3,235 $ 418.7 2,071 $ 250.6 1,748 $ 217.3
Delinquency Ratio...... 6.53% 6.75% 6.71% 6.36% 5.11% 4.55% 4.79% 4.10%
Foreclosures(2)........ 1,621 $ 288.3 1,302 $ 217.8 993 $ 146.6 659 $ 94.4
Foreclosure Ratio...... 3.02% 3.91% 2.70% 3.31% 2.45% 2.66% 1.81% 1.78%
</TABLE>
- ----------
(1) The Period of Delinquency is based upon the number of days past due on a
contractual basis. No mortgage loan is considered delinquent for purposes
of this table until 30 days past due on a contractual basis.
(2) The table shows mortgage loans for which foreclosure proceedings had been
instituted at the dates indicated.
The following table indicates the level of cumulative net losses with
respect to securities sold pursuant to the Registration Statements. The amount
of net losses was computed by aggregating the amount of draws for net losses
against applicable credit enhancement and the amount of net losses not covered
by credit enhancement, as indicated in the reports to Certificateholders for the
securities sold under the Registration Statements.
Loss Experience of Securities Issued
Pursuant to the Registration Statements
<TABLE>
<CAPTION>
Cumulative Aggregate Stated Amount of
---------- --------------------------
Net Losses (Millions)(1) Securities Issued (Millions)(1)(2) Loss Ratio(3)
------------------------ ---------------------------------- -------------
<S> <C> <C> <C>
As of December 31, 1994...... 215.6 25,470.6 .85%
As of December 31, 1995...... 331.1 25,857.4 1.28%
As of December 31, 1996...... 413.8 25,857.4 1.60%
As of September 30, 1997..... 460.5 26,668.3 1.73%
</TABLE>
- ----------
(1) Rounded to the nearest hundred thousand.
(2) The Aggregate Stated Amount of securities issued represents securities
issued which have had at least one Distribution Date.
(3) Loss Ratio represents cumulative net losses as a percentage of the
aggregate Stated Amount of securities issued under the Registration
Statements.
There can be no assurance that the delinquency, foreclosure or
historical loss experience indicated in the preceding tables with respect to
CMI's total securitized portfolio will be similar to the results that may be
experienced with respect to the Mortgage Loans underlying the
CitiMortgageCertificates or the Certificates.
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<PAGE>
Delinquency and Foreclosure Experience of CitiMae Originators' Portfolio
Historically, a variety of factors including the appreciation of real
estate values have limited CitiMae's loss and delinquency experience on its
portfolio of master serviced mortgage loans. There can be no assurance that
factors beyond CitiMae's control, such as national or local economic conditions
or downturns in the real estate markets of its lending areas, will not result in
increased rates of delinquencies and foreclosure losses in the future.
The following table summarizes the foreclosure and delinquency
experience, respectively, on the dates indicated on conventional first trust
deed or mortgage loans master serviced by CitiMae (other than (i) mortgage loans
originated pursuant to underwriting standards specified by certain agencies of
various states, which mortgage loans were not reviewed to determine if such
standards conform with CitiMae's underwriting standards, but which loans are
serviced by CitiMae and (ii) mortgage loans which have not been sold by CitiMae
or an affiliate of CitiMae). No assurances can be given that the foreclosure and
delinquency experience presented in the table below will be indicative of such
experience on the Mortgage Loans:
<TABLE>
<CAPTION>
At September 30, At March 31, At September 30, At March 31,
1994 1995 1995 1996
---- ---- ---- ----
By Dollar By Dollar By Dollar By Dollar
Amount of Amount of Amount of Amount of
By No. of Loans By No. of Loans By No. of Loans By No. of Loans
Loans (in Millions) Loans (in Millions) Loans (in Millions) Loans (in Millions)
----- ------------- ----- ------------- ----- ------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio............. 25,971 $ 4,758.6 27,233 $ 5,074.2 28,092 $ 5,124.3 27,969 $ 4,843.0
Period of Delinquency
30-59 days.......... 623 $ 73.1 590 $ 84.5 814 $ 123.2 913 $ 110.9
60-89 days.......... 121 $ 19.7 113 $ 16.3 169 $ 28.1 225 $ 29.2
90 days or more..... 125 $ 24.5 92 $ 16.4 162 $ 30.2 171 $ 31.4
Total Loan Delinquent....... 869 $ 117.3 795 $ 117.2 1,145 $ 181.5 1,309 $ 171.5
Delinquency Ratio........... 3.35% 2.46% 2.92% 2.31% 4.08% 3.54% 4.70% 3.54%
Foreclosures................ 253 $ 52.2 271 $ 54.8 261 $ 52.2 331 $ 65.7
Foreclosure Ratio........... 0.97% 1.10% 1.00% 1.08% 0.93% 1.02% 1.20% 1.40%
Total Loans Delinquent and in
Foreclosure............ 1,122 $ 169.5 1,066 $ 172.0 1,406 $ 233.7 1,640 $ 237.2
Total Delinquency and
Foreclosure Ratio...... 4.32% 3.56% 3.91% 3.39% 5.00% 4.56% 5.90% 4.90%
</TABLE>
The increase in the delinquency and foreclosure experience from March
31, 1995 to September 30, 1995 indicated in the table above is primarily the
result of an increase in delinquencies in CitiMae's Mortgage Loan portfolio
during such period and delinquencies related to the change of servicers in
connection with the consolidation of servicing for certain CitiMae Mortgage
Loans from various servicers to one servicer. The percentage increases in the
delinquency and foreclosure experience by number of loans from September 30,
1995 to March 31, 1996 indicated in the table above are in part due to the fact
that the mortgage loans serviced by CitiMae during such period were relatively
more seasoned than the mortgage loans serviced by CitiMae in earlier periods and
more seasoned loans tends to have a higher delinquency and loss rate than newly
originated mortgage loans. In addition, prepayments experienced on such mortgage
loans over such period were generally higher with respect to the larger and
better quality mortgage loans.
Delinquency and Foreclosure Experience of Third Party Originators' Portfolios
If Third Party Loans originated by any one Third Party Originator have
an aggregate Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of
the Mortgage Loans in a Pool, the related Prospectus Supplement will describe
the delinquency and foreclosure experience of such Third Party Originator.
38
<PAGE>
<PAGE>
CITICORP
Citicorp is a holding company incorporated under the laws of Delaware
on December 4, 1967 whose principal subsidiary is Citibank, N.A. The principal
office of Citicorp is located at 399 Park Avenue, New York, New York 10043; its
telephone number is (212) 559-1000.
Through its subsidiaries and affiliates, including the Issuer, CMI,
CFSB, Citibank and CitiMae, Citicorp is a multinational financial services
organization serving the financial needs of businesses, governments, financial
institutions and individuals in the United States and throughout the world.
USE OF PROCEEDS
The net proceeds to be received by the Issuer from the sale of the
Certificates are intended to be used for the purpose of originating or
purchasing new residential mortgage loans from the Originators and for other
general corporate purposes, which may include the repayment of indebtedness to
Citicorp, its affiliates or unaffiliated parties. Certificates will be sold in
Series from time to time. The timing and amount of such sales will be dependent
upon a number of factors, including the volume of mortgage loans acquired by the
Issuer, prevailing interest rates, availability of funds and general market
conditions.
THE POOLING AGREEMENTS
Reports to Certificateholders
For each Series, the Trustee will include with each distribution to
holders of CitiCertificates, and will send to holders of Residual Certificates,
a statement prepared by the Issuer setting forth the following information (per
Single Certificate, as to (i) through (iii) below):
(i) to each Certificateholder of a Class of CitiCertificates on which
distributions in reduction of the Stated Amount are then being made, the amount
of such payment which represents a reduction in the Stated Amount and the amount
which represents interest, the amount, if any, which represents losses and the
Stated Amount of a Single Certificate of each Class after giving effect to the
reduction of Stated Amount on such Distribution Date;
(ii) to each Certificateholder of a Class of CitiCertificates on which
a distribution of interest only is then being made, the amount of such interest
payment and the aggregate Stated Amount of Certificates outstanding of each
Class after giving effect to reductions of Stated Amount, if any, made on such
Distribution Date and on any Special Distribution Date occurring subsequent to
the last such report and after including in the aggregate Stated Amount of
Accrual CitiCertificates outstanding the amount of any accrued interest added to
the Stated Amount thereof on such Distribution Date.
(iii) to each holder of an Accrual CitiCertificate (but only if such
holder shall not have received on such Distribution Date a distribution of
interest equal to the entire amount of interest accrued on such CitiCertificate
during the Interest Accrual Period with respect to such Distribution Date):
(A) the information contained in the report delivered pursuant to
clause (ii) above,
(B) the interest accrued on a Single Certificate of such Class of
Accrual CitiCertificates during the Interest Accrual Period with respect to such
Distribution Date and added to the Stated Amount of such Accrual
CitiCertificate, and
38
<PAGE>
(C) the Stated Amount of a Single Certificate of such Class of Accrual
CitiCertificate after giving effect to the addition thereto of all interest
accrued thereon during such Interest Accrual Period;
(iv) the amount of servicing compensation received by the Issuer during
the preceding Reporting Period and such other customary information as the
Issuer deems necessary or desirable to enable Certificateholders to prepare
their tax returns;
(v) the book value of any real estate acquired by the Pool through
foreclosure or otherwise;
(vi) the number and aggregate principal amount of Mortgage Loans
delinquent 30 days and 60 or more days;
(vii) the amount remaining under any form of credit support after
giving effect to the declining Amount Available and any payments thereunder and
other amounts charged thereto on the applicable Distribution Date;
(viii) the aggregate amount received in respect of Mortgage Loans and
Mortgage Certificates during the related Due Period; and
(ix) the aggregate Adjusted Balance of the Mortgage Loans as of the
last day of the month next preceding the month of such distribution after giving
effect to payments on the Mortgage Loans due on the related Due Date and
Principal Prepayments distributed on the Distribution Date.
The Issuer will provide Certificateholders that are federally insured
savings and loan associations with certain reports and with access to
information and documentation regarding the Mortgage Loans evidenced by such
Series sufficient to permit such associations to comply with applicable
regulations of the Office of Thrift Supervision (the "OTS"), the successor to
the Federal Home Loan Bank Board. (Section 3.05)
In addition to the foregoing, the Trustee shall file with the Internal
Revenue Service and applicable state and local taxing authorities and furnish or
make available to Certificateholders such statements or information at the times
and in the manner as may be required by the Code or other tax laws and
regulations in accordance with the Pooling Agreement.
Evidence as to Compliance
The Pooling Agreement for each Series will provide that a firm of
independent public accountants will furnish to the Trustee and to holders of a
certain percentage of Certificates outstanding (i) on or before March 31, of
each year, beginning with March 31 in the year which begins not less than three
months after the date of the initial issuance of Certificates of that Series, a
statement as to compliance with the Pooling Agreement relating to the servicing
of the Affiliated Mortgage Loans and (ii) on or before September 30, of each
year, beginning with September 30 in the year which begins not less than three
months after the date of initial issuance of Certificates of that Series, a
statement as to compliance with the Pooling Agreement relating to the servicing
of the CitiMae Mortgage Loans. (Section 3.09) The Pooling Agreement will also
provide for delivery to the Trustee and to holders of a certain percentage of
Certificates outstanding on or before March 31 and September 30, respectively,
of each year with respect to the Affiliated Mortgage Loans and September 30 with
respect to the CitiMae Mortgage Loans, beginning with March 31 and September 31,
respectively, in the year which begins not less than three months after the date
of the initial issuance of Certificates of that Series, a statement signed by an
officer of the Issuer to the effect that the Issuer has fulfilled its
obligations under such Pooling Agreement throughout the preceding year or, if
there has been a default in the fulfillment of any such obligation, describing
each such default. (Section 11.01)
39
<PAGE>
Certificateholders may obtain copies of such statements by request in
writing addressed to the Trustee.
Certain Matters Regarding the Issuer and Citicorp
The Pooling Agreement for each Series will provide that the Issuer may
not resign from its obligations and duties as servicer thereunder, except upon a
determination evidenced by an opinion of counsel that the Issuer's performance
of such duties is no longer permissible under applicable law or upon the consent
of the Trustee and holders of more than 662/3% of the Stated Amount of the
Certificates and of more than 662/3% of the Percentage Interests of Residual
Certificates then outstanding. No such resignation will become effective until
the Trustee or a successor servicer has assumed the Issuer's obligations and
duties under such Pooling Agreement. Citicorp's obligations under the Guaranty
for any Series for which a Guaranty is provided for in the related Prospectus
Supplement will, upon issuance thereof, be irrevocable; provided, however, that
the Issuer may substitute in whole or in part another form of credit support for
Citicorp's Guaranty, as described herein. See "--Amendment" below. (Section
6.04)
The Pooling Agreement will further provide that neither the Issuer nor
Citicorp, if Citicorp has issued a Guaranty, nor any of their respective
directors, officers, employees and agents, shall be under any liability to the
Pool or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Pooling Agreement, or for errors in judgment;
provided, however, that neither the Issuer nor Citicorp, if Citicorp has issued
a Guaranty, nor any such person will be protected against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Pooling Agreement will
provide that neither the Issuer nor Citicorp, if Citicorp has issued a Guaranty,
is under any obligation to appear in, prosecute or defend any legal action which
is not incidental to the Issuer's servicing responsibilities under the Pooling
Agreement and which in its opinion may involve it in any expense or liability.
The Issuer may, however, in its discretion undertake any such action which it
may deem necessary or desirable in respect of the Pooling Agreement and the
rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Pool and the Issuer and Citicorp will be entitled to be
reimbursed therefor out of the Certificate Account. (Section 6.03)
The Issuer or Citicorp, if Citicorp has issued a Guaranty, and any of
its directors, officers, employees or agents will be indemnified and held
harmless by the Pool against any loss, liability or expense incurred in
connection with any suit in equity, action at law or other proceedings, other
than any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or reckless disregard
of obligations and duties under the Pooling Agreement. (Section 6.03) Any
corporation into which the Issuer may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Issuer is a party, or any corporation succeeding to the business of the Issuer,
or any entity, more than 50% of which is owned, directly or indirectly, by
Citicorp, which assumes the obligations of the Issuer, will be the successor of
the Issuer under the Pooling Agreement; provided that, in the event any such
assumption is made, the Issuer will not be released from any of its obligations
thereunder. (Section 6.02) The Issuer may at any time subcontract any duties
under the Pooling Agreement to any entity, including an entity more than 50% of
which is owned, directly or indirectly, by Citicorp. In the event of any such
subcontract, the Issuer will remain responsible for the subcontractor's
performance in accordance with the Pooling Agreement. (Section 6.06)
Events of Default
Events of Default under the Pooling Agreement for each Series will
consist of (i) any failure by the Issuer (a) to distribute to Certificateholders
of that Series any required payment (assuming the Issuer is the
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paying agent) or (b) to pay over to the paying agent for distribution to
Certificateholders of that Series any required payment (assuming the Issuer is
not the paying agent), provided that any such failure in (a) or (b) may be
remedied by making the required distribution to Certificateholders (A) within
ten business days of receiving notice of any such failure if the Issuer
distributed to Certificateholders or paid over to the paying agent less than the
amount of such required payment due to an error in calculating the amount of
such required payment and (B) within three business days of receiving notice if
the Issuer did not distribute to Certificateholders or pay over to the paying
agent the full amount in respect of such required payment for any reason other
than that set forth in clause (A) above; (ii) any failure by the Issuer to
repurchase any Mortgage Loan or Mortgage Certificate as required under the
Pooling Agreement which continues unremedied for 60 business days after the
giving of written notice of such failure to the Issuer by the Trustee or to the
Issuer and the Trustee by the holders of Certificates evidencing ownership
interests aggregating not less than 662/3% of the Stated Amount of the
Certificates; (iii) any failure by the Issuer duly to observe or perform in any
material respect any of its other covenants or agreements in such Pooling
Agreement, if such failure materially affects the rights of Certificateholders
and continues unremedied for 60 days after the giving of written notice of such
failure to the Issuer by the Trustee, or to the Issuer and the Trustee by the
holders of not less than 662/3% of the Stated Amount of the Certificates; and
(iv) certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and certain actions by the Issuer
indicating its insolvency, reorganization or inability to pay its obligations.
(Section 7.01)
Rights Upon Event of Default
As long as an Event of Default under the Pooling Agreement for any
Series remains unremedied, the Trustee or holders of not less than 662/3% of the
Stated Amount of the Certificates may terminate all of the rights and
obligations of the Issuer under such Pooling Agreement whereupon the Trustee
will succeed to all the responsibilities, duties and liabilities of the Issuer
under such Pooling Agreement and will be entitled to similar compensation
arrangements. The Issuer shall be entitled to payment of certain amounts payable
to it under the Pooling Agreement in respect of services rendered
notwithstanding the termination of its activities as servicer. No such
termination will affect in any manner the issuer's obligations under any credit
support. In the event that the Trustee is unwilling or unable to act as
servicer, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a housing and home finance institution with a net worth of at
least $5,000,000 to act as successor servicer under such Pooling Agreement. The
Trustee and such successor may agree upon the servicing compensation to be paid,
which in no event may be greater than the Servicing Compensation to the Issuer
under such Pooling Agreement. (Sections 7.01 and 7.02)
No Certificateholder of any Series will have the right under the
applicable Pooling Agreement to institute any proceeding with respect to such
Pooling Agreement, unless such holder previously has given to the Trustee
written notice of default and unless the holders of Certificates evidencing
ownership interests aggregating not less than 662/3% of the Stated Amount of the
Certificates 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 proceedings. (Section 10.03) However, the Trustee is under no
obligation to exercise any of the trusts or powers vested in it by the Pooling
Agreement for any Series or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby. (Section 8.02)
Amendment
The Pooling Agreement and any form of credit support for each Series
may be amended by the Issuer, the issuer of credit support and the Trustee,
without Certificateholder consent, (i) to cure any ambiguity, (ii) to
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correct or supplement any provision therein which may be inconsistent with any
other provision therein, (iii) to make any other provisions with respect to
matters or questions arising under such Pooling Agreement or credit support
which are not inconsistent with the provisions of such Pooling Agreement or
credit support, as the case may be, including replacing such credit support
(other than any Class or Classes of subordinated Certificates) in whole or in
part by other forms of credit support as described herein or in the related
Prospectus Supplement, (iv) to comply with any requirements imposed by the Code
or any regulations thereunder, including any requirement relating to maintaining
the status of the Trust (as defined in the related Prospectus Supplement) or
applicable portion or portions of the property thereof as one or more REMICs, as
the case may be, or (v) to establish a "qualified reserve fund" within the
meaning of Code Section 860G(a)(7)(B). The Pooling Agreement and any form of
credit support for each Series may also be amended by the Issuer, the issuer of
the credit support and the Trustee, without Certificateholder consent, if the
Issuer delivers an opinion of counsel acceptable to the Trustee to the effect
that such amendment will not materially adversely affect the interests of the
Certificateholders. The Pooling Agreement and any form of credit support for
each Series may also be amended by the Issuer and the Trustee with the consent
of the holders of not less than 662/3% of the Stated Amount of the Certificates
affected by such amendment for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Pooling
Agreement or form of credit support or modifying in any manner the rights of
Certificateholders of that Series; provided, however, that (i) if any Class of
Certificates is affected differently in any material respect by such amendment
than the other Classes, the consent of the holders of 662/3% of the Stated
Amount of the Certificates of such differently affected Class shall be required
and (ii) no such amendment may (i) decrease in any manner the amount of, or
delay the timing of, payments or distributions received on Mortgage Loans or
Mortgage Certificates which are required to be distributed in respect of any
such Certificate without the consent of the holder of such Certificate or (ii)
reduce the aforesaid percentage of Certificates, the holders of which are
required to consent to any such amendment, without the consent of the holders of
all Certificates of each Affected Class then outstanding. (Section 10.01)
List of Certificateholders
If the Trustee is not then the Certificate Registrar, the Issuer will
provide or cause to be provided to the Trustee within 15 days after receipt of
its written request a list of the names and addresses of all Certificateholders
of record of a particular Series as of the most recent record date for payment
of distributions to Certificateholders of that Series. Upon written request of
three or more Certificateholders of record of a Series of Certificates, for
purposes of communicating with other Certificateholders with respect to their
rights under the Pooling Agreement for such Series, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee. If such list is as of a
date more than 90 days prior to the date of receipt of such Certificateholders'
request, the Trustee shall promptly request from the Issuer a current list and
will afford such requesting Certificateholders access to such list promptly upon
receipt. (Section 5.05)
No Pooling Agreement will provide for the holding of any annual or
other meeting of Certificateholders.
Termination; Repurchase of Mortgage Loans and Mortgage Certificates
The obligations of the Issuer and the Trustee created by the Pooling
Agreement for each Series will terminate upon the earlier of (a) a complete
liquidation of the Pool as described in the Pooling Agreement and (b) the later
of (i) the maturity or other liquidation of the last Mortgage Loan or Mortgage
Certificate subject thereto and the disposition of all property acquired upon
foreclosure or by deed in lieu of foreclosure of any such Mortgage Loan or
Mortgage Certificate and (ii) the payment to Certificateholders of that Series
of all amounts in the Certificate Account required to be paid to them pursuant
to such Pooling Agreement. In no event, however, will the trust created by any
Pooling Agreement continue beyond the expiration of 21 years from the
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death of the last survivor of the descendants of a certain person specified in
such Pooling Agreement living at the date of such Pooling Agreement. For each
series the Issuer will give or cause to be given written notice of termination
of the Pooling Agreement to each Certificateholder, and the final distribution
will be made only upon surrender and the cancellation of the Certificates at an
office or agency of the Trustee specified in the notice of termination. (Section
9.01) Interest shall not accrue for the period of any delay in the payment of a
Certificate resulting from the failure of a holder to surrender the Certificate
in accordance with such notice.
The Pooling Agreement for each Series may permit, but not require, the
Issuer or the holders of Residual Certificates to repurchase from the Pool for
such Series, as part of a plan to complete liquidation of the Pool, all
remaining Mortgage Loans and Mortgage Certificates and all property acquired in
respect of such Mortgage Loans and Mortgage Certificates at a price equal to the
sum of (i) 100% of the unpaid principal balance of such Mortgage Loans or
Mortgage Certificates on the first day of the month of repurchase (after giving
effect to payments of principal due on such first day), together with accrued
interest thereon at the then applicable Pass-Through Rate to but not including
the Due Date in the month in which the related distribution is made to
Certificateholders, in the case of a repurchase by the Issuer after subtracting
any unreimbursed payments under the credit support for such Series and any
unreimbursed Voluntary Advances with respect to such Mortgage Loans (other than
such payments or advances with respect to Liquidating Loans and interest in
excess of the applicable Pass-Through Rate), and (ii) the current appraised
value of acquired property. The exercise of such right and the related
liquidation will effect early retirement of the Certificates of that Series, but
such right so to repurchase is subject to (i) the aggregate Adjusted Balance of
the Mortgage Loans or Mortgage Certificates for such Series at the time of
repurchase being equal to or less than the percentage (generally 5%), specified
in the applicable Prospectus Supplement and Pooling Agreement, of the aggregate
Adjusted Balance of such Mortgage Loans or Mortgage Certificates as of the
Cut-Off Date for that Series and (ii) such repurchase and related distributions
(X) constituting a "qualified liquidation" within the meaning of Code Section
860F(a)(4)(A),
(Y) not adversely affecting the REMIC status of each Pool and (Z) not otherwise
causing each such Pool to be subject to tax for the taxable year in which the
repurchase occurs or any prior taxable year. (Section 9.01)
Duties of the Trustee
The Trustee makes no representations as to the validity or sufficiency
of the Pooling Agreement, the Certificates or of any Mortgage Loan or Mortgage
Certificate or related document, and is not accountable for the use or
application by the Issuer of any funds paid to it in respect of the
Certificates, the Mortgage Loans or the Mortgage Certificates, or deposited into
or withdrawn from the Certificate Account or the Servicing Account by the
Issuer. The Trustee shall have no liability for any losses incurred as a result
of (i) any failure of each Pool to qualify as a REMIC under the Code, (ii) any
termination, inadvertent or otherwise, of each Pool's status as a REMIC or (iii)
any "prohibited transaction" as defined in Code Section 860F(a) unless such
losses were as a result of the Trustee's negligence, bad faith or failure to
perform its duties under the Pooling Agreement. (Section 8.03) If no Event of
Default has occurred, the Trustee is required to perform only those duties
specifically required of it under the Pooling Agreement. However, upon receipt
of the various certificates, reports or other instruments required to be
furnished to it, the Trustee is required to examine them to determine whether
they conform to the requirements of the Pooling Agreement. (Section 8.01)
The Trustee
The identity of the commercial bank, savings and loan association or
trust company named as the Trustee for each Series of Certificates will be set
forth in the applicable Prospectus Supplement. The commercial bank, savings and
loan association or trust company serving as Trustee may have normal banking
relationships with the Issuer or the Originators. In addition, for the purpose
of meeting the legal requirements
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of certain local jurisdictions, the Issuer and the Trustee acting jointly shall
have the power to appoint co-trustees or separate trustees of all or any part of
the Pool relating to a particular Series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Pooling Agreement relating to such Series shall be
conferred or imposed upon the Trustee and each such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the Trustee shall be
incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee. (Section 8.10) The
Trustee may also appoint agents (which may include the Issuer and its
affiliates) to perform any of the responsibilities of the Trustee, which agents
shall have any or all of the rights, powers, duties and obligations of the
Trustee conferred on them by such appointment, provided that the Trustee shall
continue to be responsible for its duties and obligations under the Pooling
Agreement.
The Trustee may resign at any time, in which event the Issuer will be
obligated to appoint a successor Trustee. The Trustee may also be removed at any
time (i) by the Issuer, (a) if the Trustee ceases to be eligible to continue as
such under the Pooling Agreement or if the Trustee becomes insolvent, (b) if the
Trustee breaches any of its duties under the Pooling Agreement which materially
adversely affects the Certificateholders, (c) if through the performance or
non-performance of certain actions by the Trustee, the rating assigned to the
CitiCertificates would be lowered or (d) if the credit rating of the Trustee is
downgraded to a level which would result in the rating assigned to the
CitiCertificates to be lowered or (ii) by the holders of Certificates evidencing
more than 50% of the current Stated Amount of CitiCertificates then outstanding
and 50% of the Percentage Interests of the Residual Certificates. Upon becoming
aware of such circumstances, the Issuer will be obligated to appoint a successor
Trustee. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee. (Section 8.07)
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans to which
it applies ("Plans") and on those persons who are fiduciaries with respect to
such Plans. In accordance with ERISA's general fiduciary standards, before
investing in a Certificate a Plan fiduciary should determine whether such an
investment is permitted under the governing Plan instruments and is appropriate
for the Plan in view of its overall investment policy and the composition and
diversification of its portfolio. Other provisions of ERISA and the Code
prohibit certain transactions involving the assets of a Plan and persons who
have certain specified relationships to the Plan ("parties in interest" within
the meaning of ERISA or "disqualified persons" within the meaning of the Code).
Thus, a Plan fiduciary considering an investment in Certificates should also
consider whether such an investment might constitute or give rise to a
prohibited transaction under ERISA or the Code. For purposes of the discussion,
a person investing on behalf of an individual retirement account established
under Code Section 408 (an "IRA") would be regarded as a fiduciary and the IRA
as a Plan.
An investment in Certificates by a Plan might result in the assets of
the related Pool being deemed to constitute in whole or in part Plan assets,
which in turn might mean that the Plan fiduciary who decided to invest in the
Certificates had delegated asset management responsibility, and that certain
underlying aspects of such investment, including the operation of such Pool,
might be deemed prohibited transactions under ERISA and the Code. Neither ERISA
nor the Code defines "plan assets." The U.S. Department of Labor has published
regulations (the "Regulations") concerning whether or not a Plan's assets would
be deemed to include an interest in the underlying assets of an entity (such as
a Pool) for purposes of certain reporting, disclosure and fiduciary
responsibility requirements, including the prohibited transaction provisions
found in ERISA and the Code, if the Plan acquires an "equity interest" in such
entity (such as by acquiring Certificates). The Issuer cannot predict in advance
whether under the rules set forth in the Regulations an investing Plan's assets
would be deemed to include an interest in the assets of a Pool or be deemed
merely to include its interest in the
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Certificates, because of the factual nature of certain of these rules. For
example, the Regulations state that the underlying assets of an entity will not
be considered "plan assets" if, immediately after the most recent quisition of
any equity interest in the entity, whether or not from the issuer or an
underwriter, less than 25% of the value of each class of equity interest is held
by "benefit plan investors," which are defined as Plans, IRAs, and employee
benefit plans not subject to ERISA (for example, governmental plans).
The Regulations provide that if a Plan acquires a "guaranteed
governmental mortgage pool certificate," the Plan's assets include such
certificate but do not include any of the mortgages underlying such certificate.
The Regulations include in the definition of a "guaranteed governmental mortgage
pool certificate" the types of FHLMC Certificates, GNMA Certificates and FNMA
Certificates which may be included in a Pool underlying a Series of
Certificates. Accordingly, even if such Mortgage Certificates included in a Pool
were deemed to be in whole or in part assets of Plan investors, the mortgages
underlying such Mortgage Certificates would not be treated as assets of such
Plans and the operation of the pools containing such underlying mortgages would
not give rise to prohibited transactions.
U.S. Department of Labor Prohibited Transaction Class Exemption 83-1
for Certain Transactions Involving Mortgage Pool Investment Trusts ("PTE 83-1")
exempts certain transactions involving the creation, maintenance and termination
of certain residential mortgage pools and the direct or indirect acquisition and
holding of certain residential mortgage pool pass-through certificates by Plans,
from treatment as potential prohibited transactions, whether or not the Plan's
assets would be deemed to include an ownership interest in the mortgages in the
mortgage pool, and whether or not such transactions would otherwise be
prohibited under ERISA. PTE 83-1 sets forth certain "general conditions" and
"specific conditions" to its applicability. The Issuer believes that such
"general conditions" set forth in Section II of PTE 83-1 would be met with
respect to the purchase and holding of Senior Certificates evidencing ownership
interests in a Pool consisting of Real Estate Loans.
It appears that PTE 83-1 might not apply to the purchase and holding of
Senior Certificates evidencing ownership interests in a Pool consisting of
Cooperative Loans as well as Real Estate Loans, of Certificates which constitute
Residual Certificates, or of Senior Certificates which do not pass through both
principal and interest.
It is not clear whether PTE 83-1 applies to Senior Certificates
evidencing an interest in a Pool of Mortgage Certificates as opposed to Real
Estate Loans; when offering a Series of such Certificates, if it appears no
other ERISA prohibited transaction exemption is applicable, the Issuer intends
to only include in a Pool Mortgage Certificates which are "guaranteed
governmental mortgage pool certificates," or Mortgage Certificates which
themselves would meet the general conditions of PTE 83-1 if purchased directly
by a Plan. Further, in such circumstances, the Issuer intends to structure the
offering of any such Series of Certificates and the operations of the Pool and
to take such other actions as are both reasonable and appropriate so as to
reduce the risk of the occurrence of ERISA prohibited transactions should PTE
83-1 be held inapplicable to the acquisition and holding of such Certificates.
Several underwriters of mortgage-backed securities have applied for and
obtained ERISA prohibited transaction exemptions which are in some respects
broader than PTE 83-1. Such exemptions can only apply to mortgage-backed
securities which, among other conditions, are sold in an offering with respect
to which such underwriter serves as the sole or a managing underwriter, or as a
selling or placement agent. Several other underwriters have applied for similar
exemptions. If such an exemption might be applicable to a Series of
Certificates, the related Prospectus Supplement will refer to such possibility.
In view of the foregoing, before purchasing any Certificates, a Plan
fiduciary should consult with its counsel and determine whether PTE 83-1 applies
to the creation, maintenance and termination of the Pool and
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the acquisition and holding of the Certificates, including whether the
appropriate "specific conditions" set forth in Section I of PTE 83-1 as well as
the "general conditions" of Section II would be met, and should consult the
applicable Prospectus Supplement relating to such Series of Certificates,
especially, but not only, the ERISA discussion, if any. If it is unclear to a
Plan fiduciary and its counsel that PTE 83-1 would apply to the purchase and
holding of the Certificates, because, for example, the Pool includes Mortgage
Certificates, such fiduciary and its counsel should consider whether such
Mortgage Certificates are "guaranteed governmental mortgage pool certificates,"
whether in such case PTE 83-1 would be applicable to the indirect acquisition
and holding of the Mortgage Certificates, and whether any other ERISA prohibited
transaction exemption is applicable or necessary.
Certain affiliates of the Issuer, such as Citicorp, might be considered
"parties in interest" or "disqualified persons" with respect to a Plan. If so,
special caution ought to be exercised before a Plan purchases a Certificate in
such circumstances. Certificates may not be purchased with the assets of a Plan
if an affiliate of the Issuer or of the Trustee of a Pool either: (a) has
investment discretion with respect to the investment of such assets; (b) has
authority or responsibility to give, or regularly gives, investment advice with
respect to such assets for a fee and pursuant to an agreement or understanding
that such advice will serve as a primary basis for investment decisions with
respect to such assets and that such advice will be based on the particular
investment needs of the Plan; or (c) is an employer maintaining or contributing
to such Plan. By agreeing to acquire a Certificate for a Plan, the fiduciary of
any such Plan is representing and warranting to the Underwriter and the Issuer
that the assets of the Plan to be used in connection with such purchase do not
come within (a), (b) or (c) above.
A governmental plan as defined in Section 3(32) of ERISA is not subject
to ERISA, or Code Section 4975. However, such a governmental plan may be subject
to a federal, state, or local law, which is, to a material extent, similar to
the provisions of ERISA of Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and the
availability of any exemptive relief under Similar Law.
The purchase of a Residual Certificate by most varieties of ERISA
Plans, governmental plans, and certain church plans (as defined in section 3(33)
of ERISA) may give rise to "unrelated business taxable income" as described in
Code Sections 511-515 and 860E. Further, prior to the purchase of Residual
Certificates, a prospective purchaser may be required to provide an affidavit to
a transferor that it is not a "disqualified organization," which term as defined
herein includes certain tax-exempt entities not subject to Code Section 511,
including certain governmental plans, as discussed herein under the caption
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Taxation of Residual
Certificates--Tax-Related Restrictions oN Transfer of Residual
Certificates--Disqualified Organizations."
Due to the complexity of the foregoing rules and the penalties imposed
upon persons involved in prohibited transactions, it is particularly important
that potential Plan investors consult with their counsel regarding the
consequences under ERISA of their acquisition and ownership of Certificates.
Unless otherwise specified in the related Prospectus Supplement, no assets of a
Plan which is subject to ERISA may be invested in Subordinated Certificates.
LEGAL INVESTMENT
The Senior Certificates, and if so specified in the related Prospectus
Supplement, the Subordinated Certificates and the Residual Certificates will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended (the "Enhancement Act"), so long as
they are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating
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organization. As "mortgage related securities," they will be legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including, but not limited to, state-chartered savings
banks, commercial banks, savings and loan associations and insurance companies,
as well as trustees and state government employee retirement systems) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent that, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any agency or instrumentality thereof constitute legal
investments for such entities. Pursuant to the Enhancement Act, a number of
States enacted legislation on or before the October 3, 1991 cutoff for such
enactments, limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in "mortgage related securities," in
most cases by requiring the affected investors to rely solely upon existing
state law, and not the Enhancement Act. Accordingly, the investors affected by
such legislation will be authorized to invest in the Senior Certificates, and if
so specified in the related Prospectus Supplement, the Subordinated Certificates
and the Residual Certificates, only to the extent provided in such legislation.
The Enhancement Act also amended the legal investment authority of
federally chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal in
mortgage related securities without limitation as to the percentage of their
assets represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase mortgage related securities for
their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. Section 24 (Seventh), subject in
each case to such regulations as the applicable federal regulatory authority may
prescribe. In this connection, the Office of the Comptroller of the Currency
(the "OCC") has amended 12 C.F.R. Part 1 to authorize national banks to purchase
and sell for their own account, without limitation as to a percentage of the
bank's capital and surplus (but subject to compliance with certain general
standards concerning "safety and soundness" and retention of credit information
in 12 C.F.R. ss. 1.5), certain "Type IV securities," defined in 12 C.F.R. ss.
1.2(1) to include certain "residential mortgage-related securities." As so
defined, "residential mortgage-related security" means, in relevant part,
"mortgage related security" within the meaning of the Enhancement Act. Federal
credit unions should review National Credit Union Administration (the "NCUA")
Letter to Credit Unions No. 96, as modified by Letter to Credit Unions No. 108,
which includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities. The NCUA has adopted rules, codified
as 12 C.F.R. Section 703.5(f)-(k), which prohibit federal credit unions from
investing in certain mortgage related securities (including securities such as
certain Series, Classes or Subclasses of Certificates), except under limited
circumstances. However, effective January 1, 1998, the NCUA has amended its
rules governing investments by federal credit unions at 12 C.F.R. Part 703; the
revised rules will permit investments in "mortgage related securities" under
certain limited circumstances, but will prohibit investments in stripped
mortgage related securities and residual interests in mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the "investment pilot program" described in 12 C.F.R. ss.
703.140.
All depository institutions considering an investment in the
Certificates should review the Federal Financial Institutions Examination
Council's "Supervisory Policy Statement on Securities Activities" dated January
28, 1992, as revised April 15, 1994 (the "Policy Statement"). The Policy
Statement, which has been adopted by the Board of Governors of the Federal
Reserve System, the FDIC, the OCC and the OTS and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities such as certain Series,
Classes or Subclasses of Certificates), except under limited circumstances, and
sets forth certain investment practices deemed to be unsuitable for regulated
institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any of
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the Certificates, as certain Series, Classes or Subclasses may be deemed
unsuitable investments, or may otherwise be restricted, under such rules,
policies or guidelines (in certain instances irrespective of the Enhancement
Act).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not
"interest-bearing" or "income-paying," and, with regard to any Certificates
issued in book-entry form, provisions which may restrict or prohibit investments
in securities which are issued in book-entry form.
Except as to the status of Certificates as "mortgage related
securities," no representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Certificates) may adversely affect the liquidity of the Certificates.
Investors should consult with their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
CitiCertificates and Residual Certificates. The discussion below does not
purport to address all federal income tax consequences that may be applicable to
particular categories of investors, some of which may be subject to special
rules. The authorities on which this discussion is based are subject to change
or differing interpretations, and any such change or interpretation could apply
retroactively. The discussion reflects the applicable provisions of the Code, as
well as regulations (the "REMIC Regulations") promulgated by the U.S. Department
of the Treasury. Investors should consult their own tax advisors in determining
the federal, state, local, and any other tax consequences to them of the
purchase, ownership and disposition of CitiCertificates and Residual
Certificates. For purposes of this tax discussion, references to
"Certificateholder" or "holder" generally mean the beneficial owner of a
CitiCertificate or Residual Certificate.
With respect to each Series of CitiCertificates and Residual
Certificates, an election will be made to treat the related Trust or one or more
segregated pools of assets therein as one or more REMICs within the meaning of
Code Section 860D. If an election is made to treat one or more segregated pools
of assets within the Trust property as a REMIC, references to the "Trust" or the
"REMIC" herein shall be deemed to refer to such portion or portions of the Trust
property. An election may also be made to treat the trust in which
CitiMortgageCertificates with respect to a Series represent an undivided
interest as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each Series of CitiCertificates and Residual
Certificates (and, if applicable, CitiMortgageCertificates), Rona Daniels, Vice
President and Tax Counsel of Citibank, N.A., has advised the Issuer that in her
opinion, assuming (i) the making of an appropriate election, (ii) compliance
with the Pooling Agreement, and (iii) compliance with any changes in the law,
including any amendments to the Code or applicable Treasury regulations
thereunder, the Trust (and, if applicable, the trust relating to the
CitiMortgageCertificates) will qualify as a REMIC. In such case, the
CitiCertificates will be considered to be "regular interests" in the REMIC and
generally will be taxed as if they
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were newly originated debt instruments, and the Residual Certificates will be
considered to be "residual interests" in the REMIC. The Prospectus Supplement
for each Series of Certificates will indicate whether more than one REMIC
election with respect to the property included in the related Trust will be
made.
Status of CitiCertificates and Residual Certificates
Certificates held by a domestic building and loan association will
constitute "a regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the assets of the
REMIC would be treated as "loans . . . secured by an interest in real property
which is . . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v) or as other assets described in Code Section 7701(a)(19)(C).
Certificates held by a real estate investment trust will constitute "real estate
assets" within the meaning of Code Section 856(c)(4)(A), and interest on the
CitiCertificates and income with respect to Residual Certificates will be
considered "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section 856(c)(3)(B) in
the same proportion that, for both purposes, the assets and income of the REMIC
would be so treated. If at all times 95% or more of the assets of the REMIC
qualify for any of the foregoing treatments, the Certificates will qualify for
the corresponding status in their entirety. It is anticipated that the
Certificates will qualify for the foregoing treatments in their entirety. For
purposes of Code Section 856(c)(4)(A), payments of principal and interest on the
Mortgage Loans that are reinvested pending distribution to holders of
Certificates qualify for such treatment. Where two REMICs are a part of a tiered
structure they will be treated as one REMIC for purposes of the tests described
above respecting asset ownership of more or less than 95%. In addition, if the
assets of the REMIC include Buydown Mortgage Loans, it is possible that the
percentage of such assets constituting "loans . . . secured by an interest in
real property" for purposes of Code Section 7701(a)(19)(C)(v) may be required to
be reduced by the amount of the related buydown subsidy accounts. Certificates
held by a regulated investment company will not constitute "Government
securities" within the meaning of Code Section 851(b)(4)(A)(i). Certificates
held by certain financial institutions will constitute "evidence of
indebtedness" within the meaning of Code Section 582(c)(1). The Small Business
Job Protection Act of 1996 (the "SBJPA of 1996") repealed the reserve method for
bad debts of domestic building and loan associations and mutual savings banks,
and thus has eliminated the asset category of "qualifying real property loans"
in former Code Section 593(d) for taxable years beginning after December 31,
1995. The requirement in the SBJPA of 1996 that such institutions must
"recapture" a portion of their existing bad debt reserves is suspended if a
certain portion of their assets are maintained in "residential loans" under Code
Section 7701(a)(19)(C)(v), but only if such loans were made to acquire,
construct or improve the related real property and not for the purpose of
refinancing. However, no effort will be made to identify the portion of the
Mortgage Loans of any Series meeting this requirement, and no representation is
made in this regard.
Qualification as a REMIC
In order for the Trust to qualify as a REMIC, there must be ongoing
compliance on the part of the Trust with the requirements set forth in the Code.
First, the Trust must fulfill an asset test, which requires that no more than a
de minimis portion of the assets of the Trust (as of the close of the third
calendar month beginning after the Startup Day and at all times thereafter) may
consist of assets other than "qualified mortgages" and "permitted investments."
The REMIC Regulations provide a safe harbor pursuant to which the de minimis
requirement will be met if, at all times, the aggregate adjusted basis of the
nonqualified assets is less than 1% of the aggregate adjusted basis of all the
Trust's assets. An entity that fails to meet the safe harbor may nevertheless
demonstrate that it holds no more than a de minimis amount of nonqualified
assets. A REMIC must also adopt "reasonable arrangements" to prevent its
residual interests from being held by "disqualified organizations" and must
furnish applicable tax information to transferors that violate this requirement.
See "--Taxation of Residual Certificates--Tax-Related Restrictions on Transfer
of Residual Certificates--Disqualified Organizations" below.
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A qualified mortgage is any obligation that is principally secured by
an interest in real property and that is either transferred to the REMIC on the
Startup Day or is purchased by the REMIC within a three-month period thereafter
pursuant to a fixed price contract in effect on the Startup Day. Qualified
mortgages include whole mortgage loans or stripped portions thereof,
certificates of beneficial ownership in a grantor trust that holds mortgage
loans, such as the Mortgage Certificates, and regular interests in another
REMIC, such as Mortgage Certificates in a trust as to which a REMIC election has
been made. The REMIC Regulations specify that loans secured by timeshare
interests and shares held by a tenant stockholder in a cooperative housing
corporation can be qualified mortgages. A qualified mortgage includes a
qualified replacement mortgage, which is any property that would have been
treated as a qualified mortgage if it were transferred to the REMIC on the
Startup Day and that is received either (i) in exchange for any qualified
mortgage within a three-month period thereafter, or (ii) in exchange for a
"defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is
reasonably foreseeable, (ii) a mortgage as to which a customary representation
or warranty made at the time of transfer to the REMIC has been breached, (iii) a
mortgage that was fraudulently procured by the mortgagor, and (iv) a mortgage
that was not in fact principally secured by real property (but only if such
mortgage is disposed of within 90 days of discovery). A Mortgage Loan that is
"defective" as described in clause (iv) that is not sold or, if within two years
of the Startup Day, exchanged within 90 days of discovery, ceases to be a
qualified mortgage after such 90 day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding thirteen
months, until the next scheduled distribution to holders of interests in the
REMIC. A qualified reserve asset is any intangible property held for investment
that is part of any reasonably required reserve maintained by the REMIC to
provide for payments of expenses of the REMIC or to provide additional security
for payments due on the regular or residual interests that otherwise may be
delayed or defaulted upon because of a default or delinquency on the qualified
mortgages, lower than expected reinvestment returns, prepayment interest
shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in such fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the Mortgage Loans
are received. Foreclosure property is real property acquired by the REMIC in
connection with the default or imminent default of a qualified mortgage and
generally not held beyond the close of the third calendar year following the
year of acquisition, with a possible extension granted by the Internal Revenue
Service.
In addition to the foregoing requirements, the various interests in a
REMIC also must meet certain requirements. All of the interests in a REMIC must
be either of the following: (i) one or more classes of regular interests or (ii)
a single class of residual interests on which distributions, if any, are made
pro rata. A regular interest is an interest in a REMIC that is issued on the
Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed rate
or a qualified variable rate, or consist of a specified, nonvarying portion of
the interest payments on qualified mortgages. Such a specified portion may
consist of a fixed number of basis points, a fixed percentage of the total
interest or the difference between fixed and qualified variable rates on some or
all of the qualified mortgages. The specified principal amount of a regular
interest that provides for interest payments consisting of a specified,
nonvarying portion of interest payments on qualified mortgages may be zero. A
residual interest is an interest in a REMIC other than a regular interest that
is issued on the Startup Day and is designated as a residual interest. An
interest in a REMIC may be treated as a regular interest even if payments of
principal with respect to such interest are subordinated to payments on other
regular interests or the residual interest in the REMIC, and are dependent on
the absence of defaults or delinquencies on qualified
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mortgages or permitted investments, lower than reasonably expected returns on
permitted investments, unanticipated expenses incurred by the REMIC or
prepayment interest shortfalls. Accordingly, the CitiCertificates of a Series
will constitute one or more classes of regular interests, and the Residual
Certificates of that Series will constitute a single class of residual interests
on which distributions are made pro rata.
If an entity, such as the Trust, fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
the Code provides that the entity will not be treated as a REMIC for such year
and thereafter. In this event, an entity with multiple classes of ownership
interests may be treated as a separate association taxable as a corporation
under Treasury regulations, and the CitiCertificates may be treated as equity
interests therein. The Code authorizes the Treasury Department to issue
regulations that address situations where failure to meet one or more of the
requirements for REMIC status occurs inadvertently and in good faith, and
disqualification of the REMIC would occur absent regulatory relief. Investors
should be aware, however, that the Conference Committee Report to the Tax Reform
Act of 1986 (the "1986 Act") indicates that the regulatory relief may be
accompanied by sanctions, such as the imposition of a corporate tax on all or a
portion of the REMIC's income for the period of time in which the requirements
for REMIC status are not satisfied.
Taxation of CitiCertificates
General
In general, interest, original issue discount, and market discount on a
CitiCertificate will be treated as ordinary income to a Certificateholder, and
distributions in reduction of Stated Amount of a CitiCertificate will be treated
as a return of capital to the extent of the Certificateholder's basis in the
CitiCertificate. Each Certificateholder must use the accrual method of
accounting with regard to CitiCertificates, regardless of the method of
accounting otherwise used by such Certificateholder.
Original Issue Discount
All Accrual CitiCertificates will be, and certain of the
CitiCertificates of other Classes of a Series may be, issued with "original
issue discount" within the meaning of Code Section 1273(a). Holders of any Class
of CitiCertificates having original issue discount generally must include
original issue discount in ordinary income for federal income tax purposes as it
accrues, in accordance with a constant yield method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to such
income. The following discussion is based in part on temporary and final
Treasury regulations issued on February 2, 1994, as amended on April 14, 1996
(the "OID Regulations") under Code Sections 1271 through 1273 and 1275 and in
part on the provisions of the 1986 Act. Holders of CitiCertificates should be
aware, however, that the OID Regulations do not adequately address certain
issues relevant to prepayable securities, such as the CitiCertificates. To the
extent such issues are not addressed in such regulations, the Issuer intends to
apply the methodology described in the Conference Committee Report to the 1986
Act. No assurance can be provided that the Internal Revenue Service will not
take a different position as to those matters not currently addressed by the OID
Regulations. Moreover, the OID Regulations include an anti-abuse rule allowing
the Internal Revenue Service to apply or depart from the OID Regulations where
necessary or appropriate to ensure a reasonable tax result in light of the
applicable statutory provisions. A tax result will not be considered
unreasonable under the anti-abuse rule in the absence of a substantial effect on
the present value of a taxpayer's tax liability. Investors are advised to
consult their own tax advisors as to the discussion herein and the appropriate
method for reporting interest and original issue discount with respect to the
CitiCertificates.
Each CitiCertificate (except to the extent described below with respect
to a CitiCertificate on which distributions in reduction of Stated Amount are
made in a single installment by lots of a specified Stated
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Amount upon the request of a Certificateholder or by random lot (a "Retail Class
CitiCertificate")) will be treated as a single installment obligation for
purposes of determining the original issue discount includible in a
Certificateholder's income. The total amount of original issue discount on a
CitiCertificate is the excess of the "stated redemption price at maturity" of
the CitiCertificate over its "issue price." The issue price of a Class of
CitiCertificates generally is the first price at which a substantial amount of
CitiCertificates of such Class is sold to the public (excluding bond houses,
brokers and underwriters). Although unclear under the OID Regulations, the
Issuer intends to treat the issue price of a Class as to which there is no
substantial sale as of the issue date or that is retained by the Issuer as the
fair market value of that Class as of the issue date. The issue price of a
CitiCertificate also includes any amount paid by the initial Certificateholder
for accrued interest that relates to a period prior to the issue date of the
CitiCertificate, unless the CitiCertificateholder elects on its federal income
tax return to exclude such amount from the issue price and to recover it on the
first Distribution Date. The stated redemption price at maturity of a
CitiCertificate always includes its Initial Stated Amount. The stated redemption
price at maturity generally will not include distributions of interest if such
interest distributions constitute "qualified stated interest." Under the OID
Regulations, qualified stated interest generally means interest payable at a
single fixed rate or a qualified variable rate (as described below), provided
that such interest distributions are unconditionally distributable at intervals
of one year or less during the entire term of the CitiCertificates. Because
there is no penalty or default remedy in the case of nonpayment of interest with
respect to a CitiCertificate, it is possible that no interest on any Class of
CitiCertificates will be treated as qualified stated interest. However, except
as provided in the following three sentences or in the applicable Prospectus
Supplement, because the underlying Mortgage Loans provide for remedies in the
event of default, the Issuer intends to treat interest with respect to the
CitiCertificates as qualified stated interest. No distributions on an Accrual
CitiCertificate, or on other CitiCertificates with respect to which interest
distributions may be deferred and added to the Stated Amount, will constitute
qualified stated interest and, accordingly, the stated redemption price at
maturity of such CitiCertificates includes not only their Initial Stated Amount
but also all other distributions (whether denominated as accrued interest or
current interest) to be received thereon. Likewise, the Issuer intends to treat
an "interest only" class or a class on which interest is substantially
disproportionate to its principal amount (a so-called "super-premium" class) as
having no qualified stated interest. Where the interval between the issue date
and the first Distribution Date on a CitiCertificate is shorter than the
interval between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a CitiCertificate
will be considered to be zero if such original issue discount is less than 0.25%
of the stated redemption price at maturity of the CitiCertificate multiplied by
the weighted average maturity of the CitiCertificate. For this purpose, the
weighted average maturity of the CitiCertificate is computed as the sum of the
amounts determined by multiplying the number of full years (i.e., rounding down
partial years) from the issue date until each return of stated redemption price
at maturity is scheduled to be made by a fraction, the numerator of which is the
amount of each return of stated redemption price at maturity and the denominator
of which is the stated redemption price at maturity of the CitiCertificate. The
Conference Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans and Mortgage Certificates included in the Trust
(the "Prepayment Assumption") and the anticipated reinvestment rate, if any,
used in pricing the CitiCertificates. The Prepayment Assumption with respect to
a Series of CitiCertificates will be set forth in the related Prospectus
Supplement. Holders of CitiCertificates generally must report de minimis
original issue discount pro rata as distributions of stated redemption price at
maturity are received, and such income will be capital gain if the
CitiCertificate is held as a capital asset. However, holders of CitiCertificates
may elect to accrue all de minimis original issue discount, as well as market
discount and market premium, under the constant yield method. See "--Election to
Treat All Interest Under the Constant Yield Method" below.
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A holder of a CitiCertificate generally must include in gross income
for any taxable year the sum of the "daily portions", as defined below, of the
original issue discount on the CitiCertificate accrued during an accrual period
for each day on which it holds the CitiCertificate, including the date of
purchase but excluding the date of disposition. The Issuer will treat the
monthly period ending on the day before each Distribution Date as the accrual
period. With respect to each CitiCertificate, a calculation will be made of the
original issue discount that accrues during each successive full accrual period
(or shorter period from the date of original issue) that ends on the day before
the related Distribution Date on the CitiCertificate. The Conference Committee
Report to the 1986 Act states that the rate of accrual of original issue
discount is intended to be based on the Prepayment Assumption. The original
issue discount accruing in a full accrual period on a CitiCertificate would be
the excess, if any, of (i) the sum of (a) the present value of all of the
remaining distributions to be made on the CitiCertificate as of the end of that
accrual period and (b) the distributions made on the CitiCertificate during the
accrual period that are included in the CitiCertificate's stated redemption
price at maturity, over (ii) the adjusted issue price of the CitiCertificate at
the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence is calculated based on (i)
the yield to maturity of the CitiCertificate as of the Startup Day, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period and (iii) the Prepayment Assumption. For these purposes, the
adjusted issue price of a CitiCertificate at the beginning of any accrual period
equals the issue price of the CitiCertificate, increased by the aggregate amount
of original issue discount with respect to the CitiCertificate that accrued in
all prior accrual periods and reduced by the amount of distributions included in
the CitiCertificate's stated redemption price at maturity that were made on the
CitiCertificate attributable to such prior periods. The original issue discount
accruing during any accrual period (as determined in this paragraph) will then
be divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the period. With respect to an initial
accrual period that is shorter than a full accrual period, the daily portions of
original issue discount must be determined according to an appropriate
allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a holder of a CitiCertificate
generally will increase to take into account prepayments on the CitiCertificates
as a result of prepayments on the Mortgage Loans underlying the Mortgage
Certificates or Mortgage Loans that exceed the Prepayment Assumption, and
generally will decrease (but not below zero for any period) if the prepayments
on the Mortgage Loans underlying the Mortgage Certificates or Mortgage Loans are
slower than the Prepayment Assumption. An increase in prepayments on the
Mortgage Loans with respect to a Series can result in both a change in the
priority of principal payments with respect to certain Classes of
CitiCertificates and either an increase or decrease in the daily portions of
original issue discount with respect to such CitiCertificates.
In the case of a Retail Class CitiCertificate, the Issuer intends to
determine the yield to maturity of such CitiCertificate based upon the
anticipated payment characteristics of the Class as a whole under the Prepayment
Assumption. In general, the original issue discount accruing on each Retail
Class CitiCertificate in a full accrual period would be its allocable share of
the original issue discount with respect to the entire Class, as determined in
accordance with the preceding paragraph. However, in the case of a distribution
in reduction of the entire Stated Amount of any Retail Class CitiCertificate (or
portion of such Stated Amount), (a) the remaining unaccrued original issue
discount allocable to such CitiCertificate (or to such portion) will accrue at
the time of such distribution, and (b) the accrual of original issue discount
allocable to each remaining CitiCertificate of such Class (or the remaining
Stated Amount of a Retail Class CitiCertificate after a distribution in
reduction of Stated Amount has been received) will be adjusted by reducing the
present value of the remaining payments on such Class and the adjusted issue
price of such Class to the extent attributable to the portion of the Stated
Amount that was distributed. The Issuer believes that the foregoing treatment is
consistent with the "pro rata prepayment" rules of the OID Regulations, but with
the rate of accrual of original issue discount determined based on the
Prepayment Assumption for the Class as a whole. Investors are advised to consult
their tax advisors as to this treatment.
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Acquisition Premium
A purchaser of a CitiCertificate at a price greater than its adjusted
issue price but less than its stated redemption price at maturity will be
required to include in gross income the daily portions of the original issue
discount on the CitiCertificate pro rata by a fraction, the numerator of which
is the excess of its purchase price over such adjusted issue price and the
denominator of which is the excess of the remaining stated redemption price at
maturity over the adjusted issue price. Alternatively, such a subsequent
purchaser may elect to treat all such acquisition premium under the constant
yield method, as described under the heading "--Election to Treat All Interest
Under the Constant Yield Method" below.
Variable Rate CitiCertificates
CitiCertificates may provide for interest based on a variable rate
("Variable Rate CitiCertificates"). Under the OID Regulations, interest is
treated as payable at a variable rate if, generally, (i) the issue price does
not exceed the original principal balance by more than a specified amount and
(ii) the interest compounds or is payable at least annually at current values of
(a) one or more "qualified floating rates," (b) a single fixed rate and one or
more qualified floating rates, (c) a single "objective rate," or (d) a single
fixed rate and a single objective rate that is a "qualified inverse floating
rate." A floating rate is a qualified floating rate if variations in the rate
can reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds, where such rate is subject to a multiple that is greater
than 0.65 but not greater than 1.35. Such rate may also be increased or
decreased by a fixed spread or subject to a fixed cap or floor, or a cap or
floor that is not reasonably expected as of the issue date to affect the yield
of the instrument significantly. An objective rate is any rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information, provided that such
information is not (i) within the control of the issuer or a related party or
(ii) unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified floating
rate that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified inverse
floating rate may nevertheless be an objective rate. A Class of CitiCertificates
may be issued under this Prospectus that does not have a variable rate under the
foregoing rules, for example, a Class that bears different rates at different
times during the period it is outstanding such that it is considered
significantly "front-loaded" or "back-loaded" within the meaning of the OID
Regulations. It is possible that such a Class may be considered to bear
"contingent interest" within the meaning of the OID Regulations. The OID
Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to CitiCertificates. However, if final regulations
dealing with contingent interest with respect to CitiCertificates apply the same
principles as the OID Regulations, such regulations may lead to different timing
of income inclusion than would be the case under the OID Regulations.
Furthermore, application of such principles could lead to the characterization
of gain on the sale of contingent interest CitiCertificates as ordinary income.
Investors should consult their tax advisors regarding the appropriate treatment
of any CitiCertificates that do not pay interest at a fixed rate or variable
rate as described in this paragraph.
Under the REMIC Regulations, a CitiCertificate (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points) or that represents a weighted
average of rates on some or all of the Mortgage Loans that bear either a fixed
rate or a variable rate, including such a rate that is subject to one or more
caps or floors, or (ii) bearing one or more such variable rates for one or more
periods, and a different variable rate or fixed rate for other periods,
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the applicable Prospectus Supplement, the Issuer intends to treat
CitiCertificates that qualify as regular interests under this rule in the same
manner as obligations bearing a variable rate for original issue discount
reporting purposes.
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The amount of original issue discount with respect to a CitiCertificate
bearing a variable rate of interest will accrue in the manner described above
under "Original Issue Discount", with the yield to maturity and future
distributions on such CitiCertificate generally to be determined by assuming
that interest will be payable for the life of the CitiCertificate based on the
initial rate (or, if different, the value of the applicable variable rate as of
the pricing date). Unless otherwise specified in the applicable Prospectus
Supplement, the Issuer intends to treat such variable interest as qualified
stated interest, other than variable interest on an interest-only or super-
premium Class, which will be treated as non-qualified stated interest includible
in the stated redemption price at maturity. Ordinary income reportable for any
period will be adjusted based on subsequent changes in the applicable interest
rate index.
Although unclear under the OID Regulations, the Issuer intends to treat
CitiCertificates bearing an interest rate that is a weighted average of the net
interest rates on Mortgage Loans having fixed or adjustable rates as having
qualified stated interest. In the case of adjustable rate Mortgage Loans, the
applicable index used to compute interest on the Mortgage Loans in effect on the
pricing date (or possibly the issue date) will be deemed to be in effect
beginning with the period in which the first weighted average adjustment date
occurring after the issue date occurs. Adjustments will be made in each accrual
period either increasing or decreasing the amount of ordinary income reportable
to reflect the actual Stated Rate on the CitiCertificates.
Deferred Interest
Any Deferred Interest (as defined in the Prospectus Supplement with
respect to a Series) that accrues with respect to a Class of CitiCertificates
will constitute income to the holders of such CitiCertificates prior to the time
distributions of cash with respect to such Deferred Interest are made. Under the
OID Regulations, all interest payments on CitiCertificates that may have
Deferred Interest must be treated as non-qualified stated interest payments and
included in the stated redemption price at maturity of the CitiCertificates in
computing original issue discount thereon.
Market Discount
A purchaser of a CitiCertificate also may be subject to the market
discount rules of Code Sections 1276 through 1278. Under these Code sections and
the principles applied by the OID Regulations in the context of original issue
discount, "market discount" is the amount by which the purchaser's original
basis in the CitiCertificate (i) is exceeded by the then-current principal
amount of the CitiCertificate, or (ii) in the case of a CitiCertificate having
original issue discount, is exceeded by the adjusted issue price of such
CitiCertificate at the time of purchase, as described above. Such purchaser
generally will be required to recognize ordinary income to the extent of accrued
market discount on such CitiCertificate as distributions includible in the
stated redemption price at maturity thereof are received, in an amount not
exceeding any such distribution. Such market discount would accrue in a manner
to be provided in Treasury regulations and should take into account the
Prepayment Assumption. The Conference Committee Report of the 1986 Act provides
that until such regulations are issued, such market discount would accrue either
(i) on the basis of a constant interest rate, or (ii) in the ratio of stated
interest allocable to the relevant period to the sum of the interest for such
period plus the remaining interest as of the end of such period, or in the case
of a CitiCertificate issued with original issue discount, in the ratio of
original issue discount accrued for the relevant period to the sum of the
original issue discount accrued for such period plus the remaining original
issue discount as of the end of such period. Such purchaser also generally will
be required to treat a portion of any gain on a sale or exchange of the
CitiCertificate as ordinary income to the extent of the market discount accrued
to the date of disposition under one of the foregoing methods, less any accrued
market discount previously reported as ordinary income as partial distributions
in reduction of the stated redemption price at maturity were received. Such
purchaser also will be required to defer deduction of a portion of the interest
expense attributable to any indebtedness incurred or continued to purchase or
carry the CitiCertificate. The deferred portion of the interest expense would
not
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exceed the accrued market discount on the CitiCertificate for the taxable year.
Any such deferred interest expense is, in general, allowed as a deduction not
later than the year in which the related market discount income is recognized or
the CitiCertificate is disposed of. As an alternative to the inclusion of market
discount in income on the foregoing basis, the holder may elect to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, in which
case the interest deferral rule will not apply. See "--Election to Treat All
Interest Under the Constant Yield Method" below regarding an alternative manner
in which such election may be deemed to be made.
By analogy to the OID Regulations, market discount with respect to a
CitiCertificate will be considered to be zero if such market discount is less
than 0.25% of the remaining stated redemption price at maturity of such
CitiCertificate multiplied by the weighted average maturity of the
CitiCertificate (determined as described above in the third paragraph under
"Original Issue Discount") remaining after the date of purchase. It appears that
de minimis market discount would be reported in a manner similar to de minimis
original issue discount. See "--Original Issue Discount" above. Treasury
regulations implementing the market discount rules have not yet been issued, and
therefore investors should consult their own tax advisors regarding the
application of these rules. Investors should also consult Revenue Procedure
92-67 concerning the elections to include market discount in income currently
and to accrue market discount on the basis of the constant yield method.
Premium
A CitiCertificate purchased at a cost greater than its remaining stated
redemption price at maturity generally is considered to be purchased at a
premium. If a holder holds such CitiCertificate as a "capital asset" within the
meaning of Code Section 1221, the holder may elect under Code Section 171 to
amortize such premium under the constant yield method. Such election will apply
to all debt obligations acquired at a premium by the holder of a CitiCertificate
held in that taxable year or thereafter, unless revoked with the permission of
the Internal Revenue Service. The Conference Committee Report to the 1986 Act
indicates a Congressional intent that the same rules that will apply to the
accrual of market discount on installment obligations will also apply in
amortizing bond premium under Code Section 171 on installment obligations such
as the CitiCertificates, although it is unclear whether the alternatives to the
constant yield method described above under "--Market Discount" are available.
Amortizable bond premium will be treated as an offset to interest income on a
CitiCertificate, rather than a separate deduction item. See "--Election to Treat
All Interest Under the Constant Yield Method" below regarding an alternative
manner in which the Code Section 171 election may be deemed to be made.
Treatment of Losses
Holders of CitiCertificates will be required to report income with
respect to the CitiCertificates on the accrual method of accounting, without
giving effect to delays or reductions in distributions attributable to defaults
or delinquencies on the Mortgage Loans, except to the extent it can be
established that such losses are uncollectible. Accordingly, the holder of a
CitiCertificate, particularly a Subordinated Certificate, may have income or may
incur a diminution in cash flow as a result of a default or delinquency, but may
not be able to take a deduction (subject to the discussion below) for the
corresponding loss until a subsequent taxable year. In this regard, investors
are cautioned that while they may generally cease to accrue interest income if
it reasonably appears that the interest will be uncollectible, the Internal
Revenue Service may take the position that original issue discount must continue
to be accrued in spite of its uncollectibility until the debt instrument is
disposed of in a taxable transaction or becomes worthless in accordance with the
rules of Code Section 166.
To the extent the rules of Code Section 166 regarding bad debts are
applicable, it appears that holders of CitiCertificates that are corporations or
that otherwise hold the CitiCertificates in connection with a trade or business
should in general be allowed to deduct as an ordinary loss such loss with
respect to principal sustained
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during the taxable year on account of any such CitiCertificates becoming wholly
or partially worthless, and that, in general, holders of CitiCertificates that
are not corporations and do not hold the CitiCertificates in connection with a
trade or business will be allowed to deduct as a short term capital loss any
loss sustained during the taxable year on account of a portion of any such
CitiCertificates becoming wholly worthless. Although the matter is not free from
doubt, such non-corporate holders of CitiCertificates should be allowed a bad
debt deduction at such time as a loss is allocated to such Class of
CitiCertificates to reflect losses resulting from any liquidated Mortgage Loans.
The Internal Revenue Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect such
losses only after all the Mortgage Loans remaining in the Trust have been
liquidated or the applicable Class of CitiCertificates has been otherwise
retired. The Internal Revenue Service could also assert that losses on the
CitiCertificates are deductible on some other method that may defer such
deductions for all holders, such as reducing future cash flow for purposes of
computing original issue discount. This may have the effect of creating
"negative" original issue discount which would be deductible only against future
positive original issue discount or otherwise upon termination of the Class.
Holders of CitiCertificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such CitiCertificates. While losses attributable to interest
previously reported as income should be deductible as ordinary losses by both
corporate and non-corporate holders, the Internal Revenue Service may take the
position that losses attributable to accrued original issue discount may only be
deducted as short-term capital losses by non-corporate holders not engaged in a
trade or business. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
CitiCertificates.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a CitiCertificate may elect to
treat all interest that accrues on the instrument using the constant yield
method, with none of the interest being treated as qualified stated interest.
For purposes of applying the constant yield method to a debt instrument subject
to such an election, (i) "interest" includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial prepayment assumption would continue to apply or if a new prepayment
assumption as of the date of the holder's acquisition would apply. A holder
generally may make such an election on an instrument by instrument basis or for
a class or group of debt instruments. However, if the holder makes such an
election with respect to a debt instrument with amortizable bond premium or with
market discount, the holder is deemed to have made elections to amortize bond
premium or to report market discount income currently as it accrues under the
constant yield method, respectively, for all premium bonds held or market
discount bonds acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the
approval of the Internal Revenue Service. Investors should consult their own tax
advisors regarding the advisability of making such an election.
Sale or Exchange of CitiCertificates
If a holder sells or exchanges a CitiCertificate, the holder will
recognize gain or loss equal to the difference, if any, between the amount
received and its adjusted basis in the CitiCertificate. The adjusted basis of a
CitiCertificate generally will equal the cost of the CitiCertificate to the
seller, increased by any original issue discount or market discount previously
included in the seller's gross income with respect to the CitiCertificate, and
reduced by the distributions in reduction of the Stated Amount of the
CitiCertificate that were previously received by the seller, by any amortized
premium and by any deductible losses.
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Except as described above with respect to market discount, and except
as provided in this paragraph, any gain or loss on the sale or exchange of a
CitiCertificate realized by an investor who holds the CitiCertificate as a
capital asset (within the meaning of Code Section 1221) will be capital gain or
loss and will be long-term, mid-term or short-term depending on whether the
CitiCertificate has been held for the applicable holding period (described
below). Such gain will be treated as ordinary income (i) if a CitiCertificate is
held as part of a "conversion transaction" as defined in Code Section 1258(c),
up to the amount of interest that would have accrued on the holder's net
investment in the conversion transaction at 120% of the appropriate applicable
Federal rate under Code Section 1274(d) in effect at the time the holder entered
into the transaction minus any amount previously treated as ordinary income with
respect to any prior disposition of property that was held as a part of such
transaction, (ii) in the case of a non-corporate taxpayer, to the extent such
taxpayer has made an election under Code Section 163(d)(4) to have net capital
gains taxed as investment income at ordinary income rates, or (iii) to the
extent that such gain does not exceed the excess, if any, of (a) the amount that
would have been includible in the gross income of the holder if its yield on
such CitiCertificate were 110% of the applicable Federal rate as of the date of
purchase, over (b) the amount of income actually includible in the gross income
of such holder with respect to such CitiCertificate. In addition, gain or loss
recognized from the sale of a CitiCertificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code Section
582(c). In general, short-term capital gains of certain non-corporate taxpayers
are subject to the same maximum tax rate of 39.6% as the ordinary income of such
taxpayers for property held for not more than one year; mid-term capital gains
for such taxpayers are subject to a maximum tax rate of 28% for property held
for more than one year but not more than 18 months; and long-term capital gains
of such taxpayers are subject to a maximum tax rate of 20% for property held for
more than 18 months. The maximum tax rate for corporations is the same with
respect to both ordinary income and capital gains.
Taxation of Residual Certificates
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss
will be includible directly on the federal income tax return of holders of
Residual Certificates ("Residual Holders") as ordinary income or loss, and will
not be taxed separately to the REMIC. The daily portions of REMIC taxable income
or net loss for a Residual Holder are determined by allocating the REMIC's
taxable income or net loss for each calendar quarter ratably to each day in such
quarter and by allocating such daily portion among the Residual Holders in
proportion to their respective holdings of Residual Certificates in the REMIC on
such day. REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting, except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on deductibility of
interest and expenses related to tax-exempt income will apply. The REMIC's gross
income includes interest, original issue discount income, and market discount
income, if any, on the Mortgage Loans or the mortgage loans underlying the
Mortgage Certificates owned by the REMIC, reduced by amortization of any premium
on the Mortgage Loans or the mortgage loans underlying the Mortgage
Certificates, plus amortization of premium on CitiCertificates issued at a
premium, plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
CitiCertificates. The REMIC's deductions include interest and original issue
discount expense on the CitiCertificates, servicing fees on the Mortgage Loans
or the mortgage loans underlying the Mortgage Certificates, other administrative
expenses and realized losses on the Mortgage Loans or Mortgage Certificates. The
requirement that Residual Holders report their pro rata share of taxable income
or net loss of the REMIC will continue until there are no Certificates of any
Class of the related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year
will be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market
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discount income or amortization of premium with respect to Mortgage Loans or the
mortgage loans underlying the Mortgage Certificates, on the one hand, and the
timing of deductions for interest (including original issue discount) or income
from amortization of issue premium on the CitiCertificates, on the other hand.
In the event that an interest in the Mortgage Loans or in the mortgage loans
underlying a Mortgage Certificate is acquired by the REMIC at a discount, and
one or more of such loans is prepaid, the Residual Holder may recognize taxable
income without being entitled to receive a corresponding amount of cash because
(i) the prepayment may be used in whole or in part to make distributions in
reduction of Stated Amount of CitiCertificates, and (ii) the discount on the
Mortgage Loans or underlying mortgage loans which is includible in income may
exceed the deduction allowed upon such distributions on those CitiCertificates
on account of any unaccrued original issue discount relating to those
CitiCertificates. When there is more than one Class of CitiCertificates on which
distributions in reduction of Stated Amount are made sequentially, this
mismatching of income and deductions is particularly likely to occur in the
early years following issuance of the CitiCertificates when distributions in
reduction of Stated Amount are being made in respect of the earlier Classes of
CitiCertificates to the extent such Classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
general, corresponding losses would be allowed in later years as distributions
on the later Classes of CitiCertificates are made. Taxable income may also be
greater in earlier years than in later years as a result of the fact that
interest expense deductions, expressed as a percentage of the outstanding Stated
Amount of the CitiCertificates, may increase over time as distributions in
reduction of Stated Amount are made on the lower yielding Classes of
CitiCertificates, whereas interest income with respect to any given Mortgage
Loan or mortgage loans underlying a Mortgage Certificate will remain constant
over time as a percentage of the outstanding principal amount of that loan.
Consequently, Residual Holders must have sufficient other sources of cash to pay
any federal, state, or local income taxes due as a result of such mismatching or
unrelated deductions against which to offset such income, subject to the rules
on "excess inclusions" discussed below. The timing of such mismatching of income
and deductions described in this paragraph, if present with respect to a Series
of CitiCertificates, may have a significant adverse effect upon a Residual
Holder's after-tax rate of return. In addition, a Residual Holder's taxable
income during certain periods may exceed the income reflected by such Residual
Holder for such periods in accordance with generally accepted accounting
principles. Investors should consult their own accountants concerning the
accounting treatment of their investment in such Certificates.
Basis and Losses
The amount of any net loss of the REMIC that may be taken into account
by the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate, if earlier), determined without taking into account the
net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
reportable by the Residual Holder and will be decreased (but not below zero),
first, by a cash distribution from the REMIC and, second, by the amount of loss
of the REMIC reportable by the Residual Holder. Any loss that is disallowed on
account of this limitation may be carried over indefinitely by the Residual
Holder for whom such loss was disallowed and may be used by such Residual Holder
only to offset any income generated by the same REMIC.
A Residual Holder will not be permitted to amortize directly the cost
of its Residual Certificate as an offset to its share of the taxable income of
the related REMIC. However, that taxable income will not include cash received
by the REMIC that represents a recovery of the REMIC's basis in its assets. Such
recovery of basis by the REMIC will have the effect of amortization of the issue
price of the Residual Certificates over their life. However, in view of the
possible acceleration of the income of Residual Holders described above under
"--Taxation of REMIC Income", the period of time over which such issue price is
effectively amortized may be longer than the economic life of the Residual
Certificates.
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A Residual Certificate may have a negative value if the net present
value of anticipated tax liability exceeds the present value of anticipated cash
flows. The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC's basis in its assets. The preamble to the REMIC Regulations states
that the Internal Revenue Service may provide future guidance on the proper tax
treatment of payments made by the transferor of such a residual interest to
induce the transferee to acquire the interest, and Residual Holders should
consult their own tax advisors in this regard.
To the extent that the initial adjusted basis of a Residual Holder
(other than the original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC's basis in the Mortgage Loans or Mortgage
Certificates, the Residual Holder will not recover a portion of such basis until
termination of the REMIC unless otherwise provided in subsequent legislation or
future Treasury regulations. The REMIC Regulations currently in effect do not so
provide. See "Treatment of Certain Items of REMIC Income and Expense-Market
Discount" below regarding the basis of Mortgage Loans or Mortgage Certificates
to the REMIC and "Sale or Exchange of a Residual Certificate" below regarding
possible treatment of a loss upon termination of the REMIC as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Issuer intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Issuer makes no representation as to the specific
method that it will use for reporting income with respect to the Mortgage Loans
and expenses with respect to the CitiCertificates and different methods could
result in different timing of reporting of taxable income or net loss to
Residual Holders or differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC's deductions
for original issue discount and income or offset to interest (expense) from
amortization of issue premium will be determined in the same manner as original
issue discount income and premium amortization on CitiCertificates as described
above under "--Taxation of CitiCertificates--Original Issue Discount,"
"--Variable Rate CitiCertificates" and "--Deferred Interest" without regard to
the de minimis rule described therein, and "--Premium."
Deferred Interest. Any Deferred Interest that accrues with respect to
any adjustable rate Mortgage Loans held by the REMIC will constitute income to
the REMIC and will be treated in a manner similar to the Deferred Interest that
accrues with respect to CitiCertificates as described above under "--Taxation of
CitiCertificates--Deferred Interest".
Market Discount. The REMIC will have market discount income in respect
of mortgage loans directly held by the REMIC or underlying a Mortgage
Certificate if, in general, the basis of the REMIC allocable to such mortgage
loans is exceeded by their unpaid principal balances. The REMIC's basis in such
mortgage loans is their fair market value immediately after their transfer to
the REMIC. The REMIC Regulations provide that such basis is equal in the
aggregate to the issue prices of all regular and residual interests in the REMIC
(or the fair market value thereof at the Closing Date in the case of a retained
class). The accrued portion of such market discount would be recognized
currently as an item of REMIC ordinary income in a manner similar to original
issue discount. Market discount income generally should accrue in the manner
described above under
"--Taxation of CitiCertificates-Market Discount."
Premium. Generally, if the basis of the REMIC in mortgage loans held
directly by the REMIC or underlying a Mortgage Certificate exceeds the unpaid
principal balances of the mortgage loans, the REMIC will be considered to have
acquired such mortgage loans at a premium equal to the amount of such excess. As
stated
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above, the REMIC's basis in such mortgage loans is their fair market value
immediately after their transfer to the REMIC, based on the aggregate of the
issue prices (or the fair market values of retained classes) of the regular and
residual interests in the REMIC. As described above under "--Taxation of
CitiCertificates--Premium," a person who holds mortgage loans as capital assets
under Code Section 1221 may elect under Code Section 171 to amortize premium on
the mortgage loans described above that were originated after September 27, 1985
under the constant yield method. Amortizable bond premium will be treated as an
offset to interest income on the mortgage loans, rather than as a separate
deduction item. Because substantially all of the mortgagors on the mortgage
loans described above are expected to be individuals, Code Section 171 will not
be available for premium on mortgage loans originated on or prior to September
27, 1985. Premium with respect to such mortgage loans may be deductible in
accordance with a reasonable method regularly employed by the holder of such
mortgage loans. The allocation of such premium pro rata among principal payments
should be considered a reasonable method; however, the Internal Revenue Service
may argue that such premium should be allocated in a different manner, such as
allocating such premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income
A portion (or all) of the REMIC taxable income includible in
determining the federal income tax liability of a Residual Holder will be
subject to special treatment. That portion, referred to as the "excess
inclusion," is equal to the excess of REMIC taxable income for the calendar
quarter allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long term applicable Federal rate that would
have applied to the Residual Certificate (if it were a debt instrument) on the
Startup Day under Code Section 1274(d), multiplied by (ii) the adjusted issue
price of such Residual Certificate at the beginning of such quarterly period.
For this purpose, the adjusted issue price of a Residual Certificate at the
beginning of a quarter is the issue price of the Residual Certificate, plus the
amount of the daily accruals of REMIC income for all prior quarters, decreased
by any distributions made with respect to such Residual Certificate prior to the
beginning of such quarterly period. Accordingly, the portion of the REMIC's
taxable income that will be treated as excess inclusions will be a larger
portion of such income as the adjusted issue price of the Residual Certificates
diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of
the excess inclusions generally may not be offset by other deductions, including
net operating loss carry forwards, on such Residual Holder's return. However,
net operating loss carryovers are determined without regard to excess inclusion
income. Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual Holder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Holder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who are
not U.S. Persons (as defined below under "Tax- Related Restrictions on Transfer
of Residual Certificates-Foreign Investors"), and the portion thereof
attributable to excess inclusions is not eligible for any reduction in the rate
of withholding tax (by treaty or otherwise). See "Taxation of Certain Foreign
Investors-Residual Certificates" below. Finally, if a real estate investment
trust or regulated investment company owns a Residual Certificate, a portion
(allocated under Treasury regulations yet to be issued) of dividends paid by the
real estate investment trust or regulated investment company could not be offset
by net operating losses of its shareholders, would constitute unrelated business
taxable income for tax exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The SBJPA
of 1996 has eliminated the special rule permitting Section 593 institutions
("thrift institutions") to use net operating losses and other allowable
deductions to offset their excess inclusion income from Residual Certificates
that have "significant value" within the meaning of the REMIC Regulations,
effective for taxable years beginning after December 31, 1995, except with
respect to Residual Certificates continuously held by thrift institutions since
November 1, 1995.
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In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual Holder
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Holder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Certificates
Disqualified Organizations. If any legal or beneficial interest in a
Residual Certificate is transferred to a Disqualified Organization (as defined
below), a tax would be imposed in an amount equal to the product of (i) the
present value of the total anticipated excess inclusions with respect to such
Residual Certificate for periods after the transfer and (ii) the highest
marginal federal income tax rate applicable to corporations. The REMIC
Regulations provide that the anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
Federal rate under Code Section 1274(d) as of the date of the transfer for a
term ending with the last calendar quarter in which excess inclusions are
expected to accrue. Such rate is applied to the anticipated excess inclusions
from the end of the remaining calendar quarters in which they arise to the date
of the transfer. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit that the transferee is not a Disqualified Organization and, as of the
time of the transfer, the transferor does not have actual knowledge that such
affidavit is false. The tax also may be waived by the Internal Revenue Service
if the Disqualified Organization promptly disposes of the Residual Certificate
and the transferor pays income tax at the highest corporate rate on the excess
inclusions for the period the Residual Certificate is actually held by the
Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax will be imposed on such entity equal to the product of
(i) the amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization and (ii) the federal corporate income tax rate. Such tax would be
deductible from the ordinary gross income of the Pass-Through Entity for the
taxable year. The Pass-Through Entity would not be liable for such tax if it has
received an affidavit from such record holder that it is not a Disqualified
Organization or stating such holder's taxpayer identification number and, during
the period such person is the record holder of the Residual Certificate, the
Pass-Through Entity does not have actual knowledge that such affidavit is false.
For taxable years beginning on or after January 1, 1998, if an
"electing large partnership" holds a Residual Certificate, all interests in the
electing large partnership are treated as held by Disqualified Organizations for
purposes of the tax imposed upon a Pass-Through Entity by section 860E(c) of the
Code. An exception to this tax, otherwise available to a Pass-Through Entity
that is furnished certain affidavits by record holders of interests in the
entity and that does not know such affidavits are false, is not available to an
electing large partnership.
For these purposes, (i) "Disqualified Organization" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of
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any of the foregoing (provided, that such term does not include an
instrumentality if all of its activities are subject to tax and a majority of
its board of directors is not selected by any such government entity), any
cooperative organization furnishing electric energy or providing telephone
service to persons in rural areas as described in Code Section 1381(a)(2)(C),
and any organization (other than a farmers' cooperative described in Code
Section 521) that is exempt from taxation under the Code unless such
organization is subject to the tax on unrelated business income imposed by Code
Section 511, (ii) "Pass-Through Entity" means any regulated investment company,
real estate investment trust, common trust fund, partnership, trust or estate
and certain corporations operating on a cooperative basis except as may be
provided in Treasury regulations, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to such
interest, be treated as a Pass-Through Entity and (iii) an "electing large
partnership" is a partnership which had 100 or more members during the preceding
taxable year, other than certain service partnerships and commodity pools, and
elects to apply the simplified reporting provisions of the Code.
The Pooling Agreement with respect to a Series will provide that no
legal or beneficial interest in a Residual Certificate may be transferred or
registered unless (i) the proposed transferee provides to the transferor, CMSI
and the Trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual Certificate
and is not a Disqualified Organization and that it is not purchasing such
Residual Certificate on behalf of a Disqualified Organization (i.e., as a
broker, nominee or middleman thereof), and (ii) the transferor provides a
statement in writing to CMSI and the Trustee that it has no actual knowledge
that such affidavit is false. Moreover, the Pooling Agreement will provide that
any attempted or purported transfer in violation of these transfer restrictions
will be null and void and will vest no rights in any purported transferee. Each
Residual Certificate with respect to a Series will bear a legend referring to
such restrictions on transfer, and each holder of a Residual Certificate will be
deemed to have agreed, as a condition of ownership thereof, to any amendments to
the related Pooling Agreement required under the Code or applicable Treasury
regulations to effectuate the foregoing restrictions. Information necessary to
compute an applicable excise tax must be furnished to the Internal Revenue
Service and to the requesting party within 60 days of the request, and CMSI or
the Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations permit the
Internal Revenue Service to disregard certain transfers of Residual
Certificates, in which case the transferor would continue to be treated as the
owner of the Residual Certificates and thus would continue to be subject to tax
on its allocable portion of the net income of the REMIC. Under the REMIC
Regulations, a transfer of a "noneconomic residual interest" (as defined below)
to a Residual Holder (other than a Residual Holder who is not a U.S. Person, as
defined below under "Foreign Investors") is disregarded for all federal income
tax purposes if a significant purpose of the transferor is to impede the
assessment or collection of tax. A residual interest in a REMIC (including a
residual interest with a positive value at issuance) is a "noneconomic residual
interest" unless, at the time of the transfer, (i) the present value of the
expected future distributions on the residual interest at least equals the
product of the present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in which the transfer
occurs, and (ii) the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at which taxes accrue
on the anticipated excess inclusions in an amount sufficient to satisfy the
accrued taxes on each excess inclusion. The anticipated excess inclusions and
the present value rate are determined in the same manner as set forth above
under "Disqualified Organizations." The REMIC Regulations explain that a
significant purpose to impede the assessment or collection of tax exists if the
transferor, at the time of the transfer, either knew or should have known that
the transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A safe harbor is provided if (i) the transferor
conducted, at the time of the transfer, a reasonable investigation of the
financial condition of the transferee and found that the transferee historically
had paid its debts as they came due and found no significant evidence to
indicate that the transferee would not continue to pay its debts as they came
due in the future, and (ii) the transferee represents to the transferor that it
understands that, as the holder
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of a noneconomic residual interest, the transferee may incur tax liabilities in
excess of cash flows generated by the interest and that the transferee intends
to pay taxes associated with holding the residual interest as they become due.
The Pooling Agreement with respect to each Series of Certificates will require
the transferee of a Residual Certificate to certify to the matters in the
preceding sentence as part of the affidavit described above under the heading
"Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC at or after the
time at which the excess inclusions accrue (and prior to the end of the
succeeding taxable year) for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Certificate back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The Pooling Agreement and, if applicable, the Prospectus Supplement
relating to a Series, may provide that a Residual Certificate may not be
purchased by or transferred to any person that is not a U.S. Person or may
describe the circumstances and restrictions pursuant to which such a transfer
may be made. The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, an
estate that is subject to United States federal income tax regardless of the
source of its income or a trust, if, (a) for taxable years beginning after
December 31, 1996 (or after August 20, 1996 if the trustee has made the
applicable election), a court within the United States is able to exercise
primary supervision over the administration of such trust, and one or more
United States fiduciaries have the authority to control all substantial
decisions of such trust, or (b) for all other taxable years, such trust is
subject to United States federal income tax regardless of the source of its
income.
Sale or Exchange of a Residual Certificate
Upon the sale or exchange of a Residual Certificate, the Residual
Holder will recognize gain or loss equal to the excess, if any, of the amount
realized over the adjusted basis (as described above under "--Taxation of
Residual Certificates--Basis and Losses") of such Residual Holder in such
Residual Certificate at the time of the sale or exchange. In addition to
reporting the taxable income of the REMIC, a Residual Holder will have taxable
income to the extent that any cash distribution to it from the REMIC exceeds
such adjusted basis on that Distribution Date. Such income will be treated as
gain from the sale or exchange of its Residual Certificate. It is possible that
the termination of the REMIC may be treated as a sale or exchange of a Residual
Holder's Residual Certificate, in which case, if the Residual Holder has an
adjusted basis in its Residual Certificate remaining when its interest in the
REMIC terminates, and if it holds such Residual Certificate as a capital asset
under Code Section 1221, then it will recognize a capital loss at that time in
the amount of such remaining adjusted basis.
Any gain on the sale of a Residual Certificate will be treated as
ordinary income (i) if a Residual Certificate is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the Residual Holder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate in
effect at the time the Residual Holder entered into the transaction minus any
amount previously treated as ordinary income with respect to any prior
disposition of
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property that was held as a part of such transaction or (ii) in the case of a
non-corporate taxpayer, to the extent such taxpayer has made an election under
Code Section 163(d)(4) to have net capital gains taxed as investment income at
ordinary income rates. In addition, gain or loss recognized from the sale of a
Residual Certificate by certain banks or thrift institutions will be treated as
ordinary income or loss pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except
as provided in Treasury regulations yet to be issued, the wash sale rules of
Code Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the residual interest and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any residual interest in
any REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a Residual Certificate.
Mark to Market Regulations
Prospective purchasers of the Residual Certificates should be aware
that the Internal Revenue Service has issued final regulations (the "Mark to
Market Regulations") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Mark to Market Regulations provide that, for purposes of this
mark-to-market requirement, a Residual Certificate is not treated as a security
and thus may not be marked to market. The Mark to Market Regulations apply to
all Residual Certificates acquired on or after January 4, 1995.
Taxes That May Be Imposed on the REMIC
Prohibited Transactions
Income from certain transactions by the REMIC, called prohibited
transactions, will not be part of the calculation of income or loss includible
in the federal income tax returns of Residual Holders, but rather will be taxed
directly to the REMIC at a 100% rate. Prohibited transactions generally include
(i) the disposition of qualified mortgages other than for (a) substitution
within two years of the Startup Day for a defective (including a defaulted)
obligation (or the repurchase in lieu of substitution of a defective (including
a defaulted) obligation at any time), or for any qualified mortgage within three
months of the Startup Day, (b) foreclosure, default, or reasonably foreseeable
default of a qualified mortgage, (c) bankruptcy or insolvency of the REMIC, or
(d) a qualified (complete) liquidation, (ii) the receipt of income from assets
that are not the type of mortgage loan or investments that the REMIC is
permitted to hold, (iii) the receipt of compensation for services, or (iv) the
receipt of gain from disposition of cash flow investments other than pursuant to
a qualified liquidation. Notwithstanding (i) and (iv), it is not a prohibited
transaction to sell REMIC property to prevent a default on a regular interest as
a result of a default on qualified mortgages or to facilitate a clean-up call
(generally, an optional termination made to save administrative costs when no
more than a small percentage of the CitiCertificates is outstanding). The REMIC
Regulations indicate that a substantial modification of a Mortgage Loan
generally will not be treated as a disposition if it is occasioned by a default
or reasonably foreseeable default, an assumption of the Mortgage Loan, the
waiver of a due-on-sale clause or due-on-encumbrance clause, or the conversion
of an interest rate by a mortgagor pursuant to the terms of a convertible
adjustable rate Mortgage Loan.
Contributions to the REMIC After the Startup Day
In general, the REMIC will be subject to tax at a 100% rate on the
value of any property contributed to the REMIC after the Startup Day. Exceptions
are provided for cash contributions to the REMIC (i) during
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the three months following the Startup Day, (ii) made to a qualified reserve
fund by a Residual Holder, (iii) in the nature of a guarantee, (iv) made to
facilitate a qualified liquidation or clean-up call, and (v) as otherwise
permitted in Treasury regulations yet to be issued.
Net Income from Foreclosure Property
A REMIC will be subject to federal income tax at the highest corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts. Generally, property acquired
by deed in lieu of foreclosure would be treated as "foreclosure property" for a
period not exceeding the close of the third calendar year following the year of
acquisition, with a possible extension. Net income from foreclosure property
generally means gain from the sale of foreclosure property that is inventory
property and gross income from foreclosure property other than qualifying rents
and other qualifying income for a real estate investment trust.
Liquidation of the REMIC
If a REMIC adopts a plan of complete liquidation within the meaning of
Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within the 90-day period beginning on
such date, the REMIC will not be subject to the prohibited transaction rules on
the sale of its assets, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than amounts retained
to meet claims) to holders of all Certificates within the 90-day period. An
early termination of the Trust effected by a repurchase by the Issuer of all
remaining Mortgage Loans or Mortgage Certificates when the adjusted balances
thereof have declined to the percentage specified for a particular Series, and
the distribution to holders of Certificates of the proceeds of such sale and any
remaining assets of the REMIC, is contingent upon receipt of an opinion of
counsel or other evidence that such repurchase and distribution will constitute
a "qualified liquidation" within the meaning of Code Section 860F(a)(4)(A) and
will not adversely affect the REMIC status of the Trust.
Administrative Matters
As a REMIC, the Trust must maintain its books on a calendar year basis
and must file federal income tax returns in a manner similar to a partnership
for federal income tax purposes. The form for such returns is Form 1066, U.S.
Real Estate Mortgage Investment Conduit Income Tax Return. The Trustee with
respect to a Series will be required to sign the REMIC's annual returns.
Treasury regulations provide that, except where there is a single Residual
Holder for an entire taxable year, the REMIC will be subject to the procedural
and administrative rules of the Code applicable to partnerships, including the
determination of any adjustments to, among other things, items of REMIC income,
gain, loss, deduction, or credit by the Internal Revenue Service in a unified
administrative proceeding. As long as the Issuer remains a Residual Holder with
respect to any portion of a Class of Residual Certificates, the Issuer will be
obligated to act as "tax matters person," as defined in applicable Treasury
regulations, with respect to the related Series. If the Issuer or an affiliate
is not a Residual Holder, the Residual Holder holding the largest percentage of
the Residual Certificates will be obligated to act as tax matters person and, by
purchase of a Residual Certificate, will irrevocably designate the Issuer as its
agent to act as tax matters person and agree to execute any documents required
to effectuate the actions of the Issuer in its capacity as tax matters person.
The tax matters person with respect to a Series will be, in order of priority,
(i) the Issuer or an affiliate thereof, in its capacity as a holder of a
Residual Certificate or as the agent of the holders of the Residual
Certificates, and (ii) if the Issuer or an affiliate thereof is not a Residual
Holder and is not permitted to act as tax matters person or as agent of the
holders of Residual Certificates under applicable Treasury regulations, a
Residual Holder or such other person as may be specified pursuant to Treasury
regulations.
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Limitations on Deduction of Certain Expenses
An investor who is an individual, estate, or trust will be subject to
limitation with respect to certain itemized deductions described in Code Section
67, to the extent that such deductions, in the aggregate, do not exceed two
percent of the investor's adjusted gross income. In addition, Code Section 68
provides that itemized deductions otherwise allowable for a taxable year of an
individual taxpayer will be reduced by the lesser of (i) 3% of the excess, if
any, of adjusted gross income over $100,000 ($50,000 in the case of a married
individual filing a separate return) (in each case, as adjusted for post-1991
inflation), or (ii) 80% of the amount of itemized deductions otherwise allowable
for such year. In the case of a REMIC, such deductions may include Servicing
Compensation (exclusive of Additional Servicing Compensation, if any) for the
related Series, servicing fees paid to the Servicer, to the servicer of the
Mortgage Loans, or to the issuer or guarantor of the Mortgage Certificates, or
any similar expenses allocated to the REMIC with respect to a regular interest
it holds in another REMIC. Such investors who hold Certificates either directly
or indirectly through certain pass-through entities may have their pro rata
share of such expenses allocated to them as additional gross income, but may be
subject to such limitations on deductions. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and may
cause such investors to be subject to significant additional tax liability.
Temporary Treasury regulations provide that such expenses and a corresponding
additional amount of gross income generally are to be allocated entirely to
holders of the Residual Certificates in the case of a REMIC that would not
qualify as a fixed investment trust in the absence of a REMIC election. However,
such additional income and limitations on deductions will apply to the allocable
portion of such expenses to holders of CitiCertificates, as well as to holders
of Residual Certificates, where such CitiCertificates are issued in a manner
that is similar to pass-through certificates in a fixed investment trust. In
general, such allocable portion will be determined based on the ratio that a
holder's income from the CitiCertificate, determined on a daily basis, bears to
the income of all holders of CitiCertificates and Residual Certificates with
respect to a REMIC. As a result, individuals, estates, or trusts holding
CitiCertificates (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC, or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in excess of the interest income at the Stated Rate on such
CitiCertificates that are issued in a single class or otherwise consistently
with fixed investment trust status or in excess of the amount of cash received
for the related period on Residual Certificates. Unless indicated otherwise in
the applicable Prospectus Supplement, all such expenses will be allocable to the
Residual Certificates.
Taxation of Certain Foreign Investors
CitiCertificates
Interest, including original issue discount, distributable to holders
of CitiCertificates who are non-resident aliens, foreign corporations or other
Non-U.S. Persons (i.e., any person who is not a U.S. Person), will be considered
"portfolio interest" and, therefore, generally will not be subject to 30% United
States withholding tax provided that such Non-U.S. Person (i) is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B) or a
controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the Trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Section 1441 or 1442, with an appropriate
certification, signed under penalties of perjury, identifying the beneficial
owner and stating, among other things, that the beneficial owner of the
CitiCertificate is a Non-U.S. Person. If such certification, or any other
required certification, is not provided, 30% withholding will apply unless
reduced or eliminated pursuant to an applicable tax treaty or unless the
interest is effectively connected with the conduct of a trade or business within
the United States by such Non-U.S. Person. In the latter case, such Non-U.S.
Person will be subject to United States federal income tax at regular rates.
Investors who are Non-U.S. Persons should consult their own tax advisors
regarding the specific tax consequences to them of owning a CitiCertificate.
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The Internal Revenue Service recently issued final regulations (the
"New Regulations") which would provide alternative methods of satisfying the
certification requirement described above. The New Regulations are effective
January 1, 1999, although valid withholding certificates that are held on
December 31, 1998, remain valid until the earlier of December 31, 1999 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations, in the case of CitiCertificates held by a foreign
partnership, that (x) the certification described above be provided by the
partners rather than by the foreign partnership and (y) the partnership provide
certain information, including a United States taxpayer identification number. A
look-through rule would apply in the case of tiered partnerships. Non-US Persons
should consult their own tax advisors concerning the application of the
certification requirements in the New Regulations.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts
paid to Residual Holders who are Non-U.S. Persons are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Treasury regulations provide that amounts distributed to Residual Holders may
qualify as "portfolio interest," subject to the conditions described in
"CitiCertificates" above, but only to the extent that (i) the Mortgage Loans or
the mortgage loans underlying the Mortgage Certificates were issued after July
18, 1984 and (ii) the Trust or the segregated pool of assets therein (as to
which a separate REMIC election will be made), to which the Residual
Certificates relate, consists of obligations issued in "registered form" within
the meaning of Code Section 163(f)(1). Generally, Mortgage Loans will not be,
but Mortgage Certificates or CitiCertificates representing either regular
interests in another Trust or a segregated pool of assets within the Trust will
be, considered obligations issued in registered form. Furthermore, a Residual
Holder will not be entitled to any exemption from the 30% withholding tax (or
lower treaty rate) to the extent of that portion of REMIC taxable income that
constitutes an "excess inclusion." See "--Taxation of Residual Certificates--
Limitations on Offset or Exemption of REMIC Income." If the amounts distributed
to Residual Holders who are Non-U.S. Persons are effectively connected with the
conduct of a trade or business within the United States by such Non-U.S.
Persons, 30% (or lower treaty rate) withholding will not apply. Instead, the
amounts paid to such Non-U.S. Persons will be subject to United States federal
income tax at regular rates. If 30% (or lower treaty rate) withholding is
applicable, such amounts generally will be taken into account for purposes of
withholding only when paid or otherwise distributed (or when the Residual
Certificate is disposed of under rules similar to withholding upon disposition
of debt instruments that have original issue discount). See "--Taxation of
Residual Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Foreign Investors," above concerning the disregard of certain
transfers having "tax avoidance potential." Investors who are Non- U.S. Persons
should consult their own tax advisors regarding the specific tax consequences to
them of owning a Residual Certificate.
Backup Withholding
Distributions made on the CitiCertificates and proceeds from the sale
of the CitiCertificates to or through certain brokers may be subject to a
"backup" withholding tax under Code Section 3406 of 31% of "reportable payments"
(including interest distributions, original issue discount, and, under certain
circumstances, distributions in reduction of Stated Amount) unless, in general,
the holder of the CitiCertificate complies with certain reporting and/or
certification procedures, including the provision of its taxpayer identification
number to the Trustee, its agent or the broker who effected the sale of the
CitiCertificate, or such Certificateholder is otherwise an exempt recipient
under applicable provisions of the Code. Any amounts so withheld from
distributions on the CitiCertificates would be refunded by the Internal Revenue
Service or allowed as a credit against the holder's federal income tax
liability. The New Regulations change certain of the rules relating to certain
presumptions currently available relating to information reporting and backup
withholding. Non-US Persons are urged to contact their own tax advisors
regarding the application to them of backup withholding and information
reporting.
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Reporting Requirements
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to the
Internal Revenue Service and to individuals, estates, non-exempt and
non-charitable trusts, and partnerships who are either holders of record of
CitiCertificates or beneficial owners who own CitiCertificates through a broker
or middleman as nominee. All brokers, nominees and all other non-tax-exempt
holders of record of CitiCertificates (including corporations, non-calendar year
taxpayers, securities or commodities dealers, real estate investment trusts,
investment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or in
writing by contacting the person designated in Internal Revenue Service
Publication 938 with respect to a particular Series of Certificates. Holders
through nominees must request such information from the nominee.
The Internal Revenue Service's Form 1066, U.S. Real Estate Mortgage
Investment Conduit Income Tax Return, has an accompanying Schedule Q, Quarterly
Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss
Allocation. Treasury regulations require that Schedule Q be furnished by the
REMIC to each Residual Holder by the last day of the month following each
calendar quarter (41 days after the end of a quarter under proposed Treasury
regulations) in which the REMIC is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual Holders and,
if applicable, furnished annually to holders of CitiCertificates and filed
annually with the Internal Revenue Service concerning Code Section 67 expenses
(see "Limitations on Deduction of Certain Expenses" above) allocable to such
holders. Furthermore, under such regulations, information must be furnished
quarterly to Residual Holders, furnished annually to holders of
CitiCertificates, and filed annually with the Internal Revenue Service
concerning the percentage of the REMIC's assets meeting the qualified asset
tests described above under "Status of CitiCertificates and Residual
Certificates."
PLANS OF DISTRIBUTION
Certificates are being offered hereby in Series (each Series evidencing
a separate Pool) through one or more of the methods described below. The
Prospectus Supplement prepared for each Series will describe the method of
offering being utilized for that Series and will state the public offering or
purchase price of such Series, or the method by which such price is to be
determined, and the net proceeds from such sale.
The Issuer intends that Certificates will be offered through the
following methods from time to time and that offerings may be made concurrently
through more than one of these methods or that an offering of a particular
series of Certificates may be made through one or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters;
2. By placements by the Issuer with investors through dealers or
agents; and
3. By secondary offerings by an affiliate thereof in any of the manners
set forth above.
If underwriters are used in a sale of any Certificates, such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Firm
commitment underwriting and public re-offering by underwriters
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may be done through underwriting syndicates led by one or more managing
underwriters or through one or more firms acting alone. The specific managing
underwriter or underwriters, if any, with respect to the offer and sale of a
particular series of Certificates will be set forth on the cover of the
Prospectus Supplement relating to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement. The
Prospectus Supplement will describe any discounts and commissions to be allowed
or paid by the Issuer to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers or agents. The obligations of the underwriters will be
subject to certain conditions precedent. The underwriters with respect to a sale
of Certificates will be obligated to purchase all such Certificates if any are
purchased. The Issuer and Citicorp will indemnify the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act.
The Prospectus Supplement with respect to any Series of Certificates
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the Issuer
and dealers for the Certificates of such Series.
Affiliates of the Issuer may act as agents or underwriters in
connection with the sale of a Series of Certificates. Any affiliate of the
Issuer so acting will be named, and its affiliation with the Issuer and Citicorp
described, in the Prospectus Supplement with respect to such Series.
The Issuer anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
re-offers and sales by them of Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such re- offer or sale.
EXPERTS
Consolidated financial statements of Citicorp and subsidiaries included
in Citicorp's Annual Report and Form 10-K for 1996 have been incorporated herein
by reference in reliance upon the report set forth therein of KPMG Peat Marwick
LLP, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the December 31, 1996 financial statements refers to the fact that in
1994 Citicorp adopted Statement of Financial Accounting Standards ("SFAS") No.
112, "Employers' Accounting for Postemployment Benefits" and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
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APPENDIX A
THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES
This Appendix describes the Mortgage Loans contained in a Pool
(including a pool underlying a CitiMortgageCertificate), certain pooling and
servicing arrangements with respect to a Pool, the insurance arrangements in
respect of such Mortgage Loans and additional material in connection therewith.
Certain statements contained in this Appendix may be wholly or partly
inapplicable to a particular Series of Certificates. Any material divergence
from the following descriptions of the Mortgage Loans will be discussed in the
applicable Prospectus Supplement. Section references herein preceded by "PA"
refer to Pooling Agreement sections.
The Mortgage Loans
General
When used in this APPENDIX a, the term "Pool" refers to either a Pool
consisting of Mortgage Loans or a pool of Mortgage Loans underlying a
CitiMortgageCertificate. a Pool consisting in whole or in part of Mortgage Loans
originated by Citibank as well as a pool of Mortgage Loans originated by
Citibank and which underlie a CitiMortgageCertificate are each herein referred
to as a "Citibank Pool," a Pool consisting in whole or in part of Mortgage Loans
originated or acquired by CMI as well as a pool of Mortgage Loans originated or
acquired by CMI and which underlie a CitiMortgageCertificate is herein referred
to as a "CMI Pool," a Pool consisting in whole or in part of Mortgage Loans
originated or acquired by CitiMae or its affiliates is referred to herein as a
"CitiMae Pool," a Pool consisting in whole or in part of Mortgage Loans acquired
by CMSI from other affiliates as well as a pool of Mortgage Loans acquired by
CMSI from other affiliates and which underlie a CitiMortgageCertificate is
herein referred to as a "CMSI Pool," a Pool consisting in whole or in part of
Mortgage Loans originated or acquired by CFSB as well as a pool of Mortgage
Loans originated or acquired by CFSB and which underlie a
CitiMortgageCertificate is herein referred to as a "CFSB Pool" and a Pool
consisting in whole or in part of Mortgage Loans originated by Third Party
Originators as well as a pool of Mortgage Loans originated by Third Party
Originators and which underlie a CitiMortgageCertificate is herein referred to
as a "Third Party Pool." Each Pool may include either fixed interest rate
Mortgage Loans (each such Pool, a "Fixed Rate Pool") or adjustable interest rate
Mortgage Loans (each such Pool, an "ARM Pool"). a portion of the interest
component of a Mortgage Loan may be retained by an Originator and not
transferred to a Pool. The information contained herein in respect of CMI Pools
applies generally to Mortgage Loans originated by other affiliates (except
CitiMae) and contained in CMSI Pools and CMI Pools may include mortgage loans
originated or acquired by CFSB or originated by Citibank. The information
contained herein in respect of CitiMae Pools applies generally to the Mortgage
Loans originated by CitiMae Originators in accordance with the terms of the
CitiMae Sellers' Guide. Each Pool will include loans (the "Real Estate Loans")
evidenced by promissory notes secured by first mortgages or deeds of trust on
one-to four-family residences. a Pool may also contain, in addition to Real
Estate Loans, cooperative apartment loans (the "Cooperative Loans") evidenced by
promissory notes (the "Cooperative Notes") secured by security interests in
shares issued by private, non-profit, cooperative housing corporations (the
"Cooperatives") and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific dwelling units in such
cooperatives' buildings (the one-to four-family residences and the shares issued
by cooperatives are hereinafter referred to as the "Mortgaged Properties").
Unless otherwise provided in the Prospectus Supplement, the buildings owned by
such cooperatives will be located in the New York Metropolitan Area in the
States of New York and New Jersey, the Chicago Metropolitan Area in the State of
Illinois and the Washington Metropolitan Area in the District of Columbia and
the State of Maryland. The Mortgaged Properties may consist of (i)
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detached homes, (ii) attached homes (one-to four-family units having a common
wall), (iii) units located in condominiums or planned unit developments and (iv)
such other types of homes or units as are set forth in the Prospectus
Supplement. The Mortgaged Properties may include investment properties and
vacation and second homes, and may include leasehold interests. The Mortgaged
Properties will be located in states as set forth in the Prospectus Supplement.
Each Mortgage Loan will be selected by the Issuer from among those originated or
acquired by the relevant Originator in the ordinary course of its business
activities or acquired by the relevant Originator from another Originator.
All Mortgage Loans will (i) have individual principal balances at
origination of not more than $2,500,000, (ii) have monthly payments due on the
first day of each month, (iii) be secured by Mortgaged Properties located in one
of the fifty states of the United States, the District of Columbia, or the
Commonwealth of Puerto Rico, (iv) be fixed rate or adjustable rate loans which
may provide for full amortization of principal, deferral of a portion of
interest, balloon payments of principal or have such other characteristics as
set forth in the related Prospectus Supplement and (v) have original maturities
as specified in the related Prospectus Supplement. Unless otherwise specified in
the applicable Prospectus Supplement, the original principal amount of each
Mortgage Loan will not be more than 95% of the Original Value of the related
Mortgaged Property. The principal amount of the "loan," for purposes of
computation of loan-to-value ratios, includes the amount of any part of an
origination fee that is financed. The financed portion of the origination fee
will be less than 5% of the loan amount in each case.
Unless otherwise stated in the applicable Prospectus Supplement, a Pool
may contain Real Estate Loans, the original terms of which were modified prior
to their inclusion in such Pool pursuant to modification agreements (the
"Modification Agreements") or pursuant to modification, consolidation and
extension agreements (the "Consolidation Agreements"). a Modification Agreement
generally alters only the stated annual interest rate and (as a result) the
monthly payment amount for a Mortgage Loan. The terms of a Consolidation
Agreement may alter any one or more of the following: the type of Mortgage Loan,
the identity of a borrower or borrowers, the stated annual interest rate or
manner of determining such rate, the maturity date, the monthly payment amount
or the principal amount of the obligation secured by the mortgage. The
Consolidation Agreement amends the existing mortgage and the obligation secured
thereby. If additional principal was advanced at the time of amendment, the
Consolidation Agreement consolidates the new mortgage relating to the additional
principal with the existing mortgage. With respect to Real Estate Loans, the
terms of which were modified pursuant to Modification Agreements or
Consolidation Agreements, whenever the terms "original," "originated" or
"origination" are used in this Prospectus or any Prospectus Supplement to
describe certain characteristics of the Mortgage Loans on a particular date,
generally such terms shall refer to such characteristics (a) in the case of
Modification Agreements, at the original date of the extension of credit under
such Mortgage Loan except for the stated annual interest rate and monthly
payment as stated above and (b) in the case of Consolidation Agreements, at the
date of the applicable Consolidation Agreement and as modified thereby.
It is anticipated that each Pool will consist predominantly of Mortgage
Loans determined by the Issuer to be secured by the primary residence of the
borrower (the "Mortgagor"). The sole basis for such determination will be either
(i) the making of a representation by the Mortgagor at origination of the
Mortgage Loan either that the underlying property will be used by the Mortgagor
for a period of at least six months every year or that the Mortgagor intends to
use the underlying property as a primary residence, or (ii) a finding that the
address of the underlying Mortgaged Property is the Mortgagor's mailing address
as reflected in the Originator's records. The aggregate Adjusted Balanceof
Mortgage Loans for which such determination shall have been made will be
disclosed in the applicable Prospectus Supplement or, if not known at the time a
Series is offered, set forth in a report on Form 8-K which will be filed with
the Commission and made available to the CitiCertificateholders within 15 days
of the initial issuance of a Series. In the case of Mortgage Loans which were
assumed by a new borrower after origination, the representation made or the
information given by the
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original Mortgagor at origination in respect of (i) and (ii) above is used to
determine such disclosure in the related Prospectus Supplement and as set forth
in a report on Form 8-K.
The Issuer will represent that no Mortgage Loan in a Pool will be 30
days or more past due as of the first day of the month during which the related
Series is issued or has been 30 days or more past due more than once in the
12-month period immediately preceding such day and, in the event that such Pool
consists in whole or in part of Issuer Certificates, the Issuer will make a
representation as to delinquency information available with respect to the
Mortgage Loans in which such Issuer Certificates evidence interests. For other
representations to be made by the Issuer concerning the Mortgage Loans, see
"--Assignment of Mortgage Loans." In addition, at the date of initial issuance
of any Series, the aggregate Adjusted Balance of the Mortgage Loans included in
the related Pools will not be less than $20,000,000. As used herein, references
to aggregate principal balances to be used for determining weighted averages,
percentages for termination of the Pools, or credit support amounts (but not
repurchase prices) shall mean the scheduled principal balances thereof as of the
close of business on the first day of the applicable month (whether or not any
scheduled payments have been received on subsequent days) less Principal
Prepayments thereon or in respect thereof received or posted prior to the close
of business on the business day preceding such first day (or, in the case of the
Cut-Off Date, any Principal Prepayments thereon or in respect thereof received
or posted prior to the close of business on the CutOff Date) (the "Adjusted
Balance").
Property securing a Mortgage Loan may be encumbered by a subordinated
mortgage loan. Any such subordinated mortgage loan may have been originated by
an Affiliated Originator, either at the time of origination of the Mortgage Loan
or otherwise. The Prospectus Supplement will not include the amount of the
subordinated loan in the loan-to-value calculation included therein. It is the
policy of each Affiliated Originator to provide a subordinate loan in connection
with the origination of the first priority Mortgage Loan only if the combined
amount of such loans would result in a loan-to-value ratio of 90% or less.
Primary mortgage insurance is generally not required for these loans. The
proprietary lease or occupancy agreement securing a Cooperative Loan is
generally subordinate to any blanket mortgage on the related cooperative
apartment building and/or underlying land. Additionally, in the case of a
Cooperative Loan, the proprietary lease or occupancy agreement is subject to
termination and the cooperative shares are subject to cancellation by the
cooperative if the tenant-stockholder fails to pay maintenance or other
obligations or charges owed by such tenant-stockholder. See "--Certain Legal
Aspects of the Mortgage Loans--Cooperatives."
Mortgage Loans originated by Affiliated Originators and having original
principal amounts exceeding 90% of Original Value will be covered, and Mortgage
Loans having original principal balances exceeding 80% but not more than 90% of
Original Value may be covered, by primary mortgage insurance against default
until the outstanding principal amount is reduced to at least 80% of Original
Value through principal payments made by the Mortgagor or, in the case of CFSB
Pools containing Mortgage Loans originated or acquired by the California and
Florida branches of CFSB, until the outstanding principal amount thereof is less
than or equal to 80% of either the Original Value through principal payments
made by the Mortgagor or the value thereof as determined by a new appraisal
delivered subsequent to origination. So long as it is in effect, such primary
mortgage insurance will cover losses arising from a default up to an amount
ranging from 12% to 30% of the principal amount of the Mortgage Loan outstanding
from time to time. Prior to 1986, the Affiliated Originators did not generally
make one- to four-family real estate loans with loan-to-value ratios above 80%
unless such Originator had obtained primary mortgage insurance coverage. From
1986 through January 1993, each Affiliated Originator originated mortgage loans
with loan-to-value ratios in excess of 80% but not more than 90% without
obtaining primary mortgage insurance. Since February 1993, it has been the
policy of each Affiliated Originator not to make one- to four-family real estate
loans with loan-to-value ratios above 80% without obtaining primary mortgage
insurance. The policy of CitiMae Originators is to require primary mortgage
insurance for one- to four-family real estate loans with current loan-to-value
ratios in excess of 80%.
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Each Prospectus Supplement will include, among other things,
information, as of the date of such Prospectus Supplement and to the extent then
known to the Issuer, as to (i) the aggregate Adjusted Balance of the Mortgage
Loans to be delivered into the related Pool and the years of origination
thereof, (ii) if Converted Mortgage Loans with an aggregate Adjusted Balance
exceeding 10% of the aggregate Adjusted Balance of all Mortgage Loans in the
related Pool are to be delivered, the aggregate Adjusted Balance of any such
Converted Mortgage Loans, (iii) the original loan-to-value ratios of the
Mortgage Loans (which will not include the amount of any subordinated loan in
such loan-to-value calculation), (iv) the types of Mortgaged Properties securing
the Mortgage Loans, (v) the geographic distribution of the Mortgaged Properties,
prepared on a state-by-state basis for states where Mortgage Loans having an
aggregate Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of
Mortgage Loans in the related Pool are located, (vi) if Buydown Mortgage Loans
with an aggregate Adjusted Balance exceeding 10% of the aggregate Adjusted
Balance of all Mortgage Loans in the related Pool are to be delivered, the
aggregate Adjusted Balance of Buydown Mortgage Loans in the related Pool, (vii)
if Leasehold Loans with an aggregate Adjusted Balance exceeding 10% of the
aggregate Adjusted Balance of all Mortgage Loans in the related Pool are to be
delivered, the aggregate Adjusted Balance of Leasehold Loans in the related Pool
and (viii) if 15-year, fixed rate tiered-payment Mortgage Loans originated by
CFSB's California branches and providing for a prepayment penalty during the
first 12 months following origination with an aggregate Adjusted Balance
exceeding 10% of the aggregate Adjusted Balance of all Mortgage Loans in the
related Pool are to be delivered, the aggregate Adjusted Balance of such
Mortgage Loans in the related Pool. In the event specific information with
respect to the Pool is not known at the time a Series is offered, more general
information of the nature described above will be provided in such Prospectus
Supplement and the specific information described above will be set forth in a
report on Form 8-K which will be filed with the Commission and made available to
Certificateholders of the Series within 15 days of the initial issuance of such
Series.
The Issuer will be responsible for administering and servicing the
Mortgage Loans purchased, directly or indirectly, by the Trust from CMI,
Citibank or CFSB or their affiliates (the "Affiliated Originators") and will act
as master servicer with respect to Mortgage Loans purchased, directly or
indirectly, by the Trust (a) from CitiMae or its affiliates who purchased
mortgage loans from seller-servicers approved by CitiMae or from such
seller-servicers ("CitiMae Originators") or (b) from Third Party Originators,
and will perform such functions as are described in the Pooling Agreement. The
Issuer may delegate any of its duties under the Pooling Agreement to any
corporation, including a corporation more than 50% of the stock of which is
owned, directly or indirectly, by Citicorp. Unless otherwise disclosed in the
related Prospectus Supplement, if the Mortgage Loans are included directly in
the Pool, the Issuer will subcontract its duties as servicer of the Affiliated
Mortgage Loans to CMI (or its designated subservicer) and its duties as master
servicer (a) with respect to the CitiMae Mortgage Loans to CitiMae and (b) with
respect to the Third Party Loans sold by Third Party Originators on a
servicing-retained basis, to the then-current servicers of such Third Party
Loans (which will be qualified to so service the Third Party Loans in accordance
with CMI's servicing guidelines). CitiMae will subcontract such duties to
various third party servicers qualified to do so in accordance with CitiMae's
servicing guidelines. Such delegation does not relieve the Issuer of its
responsibility with respect to such duties (the Issuer and CMI in such capacity,
the "Servicer" and CitiMae and such servicers of Third Party Loans, in such
capacity, "Subservicer" or "Master Servicer"). The Servicer may at any time
delegate or subcontract or assign any of its duties as servicer under any
Pooling Agreement to any corporation, including a corporation more than 50% of
the stock of which is owned, directly or indirectly, by Citicorp. In the event
of any such delegation or subcontract, the Servicer will remain responsible for
the delegee's or subcontractor's performance in accordance with the Pooling
Agreement. a servicing fee will be paid to the Servicer with respect to each
payment of interest received with respect to each Mortgage Loan. Such servicing
fee paid to the Servicer may be in an amount equal to a fixed annual percentage
as specified in the related Prospectus Supplement for all Mortgage Loans in such
Pool of the outstanding principal balance of such Mortgage Loan on which
interest is payable. In such event, the remainder of such interest, constituting
interest at the mortgage rate for such Mortgage Loan (the "Note Rate") less such
rate of servicing compensation (the "Pass-Through Rate" for such Mortgage Loan),
is available
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for distributions of interest at the Stated Rate and distributions of principal
to holders of the related CitiMortgageCertificates, CitiCertificates and
Residual Certificates, as applicable, and to pay any REMIC Servicing Fee or fee
to the issuer of credit support. Alternatively, if so specified in the related
Prospectus Supplement, the Pass-Through Rate may be the same (or calculated in
the same manner) for each Mortgage Loan in the Pool, and the rate of servicing
compensation with respect to each Mortgage Loan (equal to the difference between
the Note Rate for such Mortgage Loan and such Pass-Through Rate) may differ
among different Mortgage Loans or in the case of the CitiMae Mortgage Loans, the
fee may be equal to an expense rate equal to a master servicing fee (the "Master
Servicing Fee"), a servicing fee paid to various third party servicers (the
"Servicing Fee") and a fee for other related expenses. The Servicer will be
entitled to retain all late payment charges, assumption fees and similar
charges, and all income or gain on funds held in the related Certificate Account
referred to below, as additional servicing compensation. The Servicer will pay
all expenses incurred in connection with the servicing of the Mortgage Loans,
including the fees of any subcontractor. See "--Servicing and Other Compensation
and Payment of Expenses" below.
There can be no assurance that the foreclosure and delinquency
experience on the Mortgage Loans underlying the CitiCertificates or the
Certificates will be comparable to that set forth under "Delinquency,
Foreclosure and Loss Considerations and Experience." If the residential real
estate market should experience an overall decline in property values such that
the outstanding balances of the Mortgage Loans and any secondary financing on
the Mortgaged Properties or interests in cooperatives in a particular Pool
become equal to or greater than the value of the Mortgaged Properties or
interests in cooperatives subject to the Mortgage Loans included in such Pool,
the actual rates of delinquencies, foreclosures and losses could be
significantly higher than those now generally experienced in the mortgage
lending industry. To the extent that such delinquencies, foreclosures and losses
are not covered by obligations under any form of credit support, they will be
borne by the holders of the related CitiCertificates.
Because the principal amounts of Mortgage Loans (other than ARMs which
provide for a portion of interest to be deferred and added to the principal
balance of such ARMs) will decline monthly as principal payments, including
prepayments, are received, the principal balance of each CitiMortgageCertificate
in a series will decline correspondingly. The Stated Amount of each
CitiCertificate will decline as described under "DESCRIPTION OF CERTIFICATES" in
the body of this Prospectus or in the related Prospectus Supplement.
Fixed Rate Pools
a Fixed Rate Pool may contain any of the following types of fixed
interest rate Mortgage Loans:
(i) fully amortizing Mortgage Loans providing for level monthly
payments of principal and interest;
(ii) growing equity Mortgage Loans providing for initial monthly
payments based on a 10 to 30 year amortization schedule, with further provisions
for scheduled annual payment increases at rates, unless otherwise specified in
the applicable Prospectus Supplement, of not less than 3% or more than 8.25% of
the scheduled monthly payments during the preceding year, with the full amount
of such increases being applied to principal;
(iii) tiered payment Mortgage Loans initially providing only for full
payment of interest and payment of little or no principal for up to three years,
with further provisions for annual Mortgagor payment increases, beginning in the
second year, unless otherwise specified in the applicable Prospectus Supplement,
of up to 7.5% of the monthly Mortgagor payments during the preceding year and
continuing annually until monthly Mortgagor payments are adequate to amortize
fully such Mortgage Loans over the remainder of the original terms;
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(iv) Mortgage Loans amortizing over a fixed number of years but which
have a shorter term to maturity that causes the outstanding principal balance of
the related Mortgage Loan to be due and payable at the end of a certain
specified period;
(v) fully amortizing graduated-payment Mortgage Loans ("GPMs"), other
than those described above, which provide for lower periodic payments, or for
payments of interest only, during the early years of the term, followed by
periodic payments of principal and interest that increase periodically at a
predetermined rate until the Mortgage Loan is repaid or for a specified number
of years, after which level periodic payments begin; or
(vi) such other fixed rate Mortgage Loans having the characteristics
set forth in the related Prospectus Supplement.
a Fixed Rate Pool may contain one or more Mortgage Loans each of which
was originated as an adjustable interest rate Mortgage Loan but has been
converted, at the sole option of the Mortgagor, into a fixed interest rate,
fully amortizing Mortgage Loan providing for level monthly payments over a term
not exceeding its remaining term to maturity (a "Converted Mortgage Loan").
Except as otherwise provided in this Prospectus and in the applicable Prospectus
Supplement, a Converted Mortgage Loan at origination is subject to the same
origination and underwriting guidelines as a comparable adjustable rate mortgage
and such a Converted Mortgage Loan is not underwritten again at the time of its
conversion. The Note Rate (and, accordingly, the scheduled monthly payments) on
such a Converted Mortgage Loan may be higher or lower than the mortgage note
rate at the time of origination of such Converted Mortgage Loan. No Fixed Rate
Pool will contain Mortgage Loans which provide for negative amortization.
ARM Pools
ARM Pools will include only adjustable interest rate Mortgage Loans
("ARMs"), each bearing interest at a Note Rate which adjusts periodically to a
rate equal to the applicable Index (as defined below) plus the number of basis
points specified in the Pooling Agreement or in the related mortgage note (the
"Mortgage Margin" for such ARM), subject to any periodic rate ceiling ("Periodic
Ceiling") and periodic rate floor ("Periodic Floor") and any lifetime maximum
note rate ("Maximum Note Rate") or a Maximum Note Rate and a lifetime minimum
note rate ("Minimum Note Rate"), if applicable, as described below. Each
adjusted Note Rate is generally rounded to the nearest 0.125%, subject to the
applicability of a Minimum Note Rate and a Maximum Note Rate. a Periodic Ceiling
limits the amount of any single periodic increase in the Note Rate and a
Periodic Floor limits the amount of any single periodic decrease in the Note
Rate. a Maximum Note Rate limits the amount of increases in the Note Rate over
the life of an ARM and a Minimum Note Rate limits the amount of decreases in the
Note Rate over the life of an ARM. Except with respect to ARMs with Minimum Note
Rates, there is no minimum Note Rate to which the Note Rate in an ARM may
adjust. The Note Rates of the ARMs in a given ARM Pool will adjust as described
in the applicable Prospectus Supplement and an ARM Pool may contain ARMs with
different adjustment dates. Certain ARMs may provide for periodic adjustments of
scheduled monthly payments in order to amortize fully the Mortgage Loan by its
stated maturity while other ARMs may permit that maturity to be extended or
shortened in accordance with the portion of each payment that is applied to
interest in accordance with the periodic Note Rate adjustments.
Where an ARM provides for limitations on the amount by which monthly
payments may be increased or changes to the Note Rate of the ARM are made more
frequently than payment changes, it is possible that an increase in the Note
Rate will not be covered by the amount of the scheduled monthly payment. In that
case, the uncollected portion of interest will be deferred and added to the
principal balance of the ARM.
The amount of the difference between the scheduled monthly payment and
the monthly interest accrued at the Mortgage Rate is added to the unpaid
principal balance of the Mortgage Loan and interest accrues on such
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added principal at the then-applicable Mortgage Rate from the date of such
addition. Such an adjustment is referred to as "negative amortization". Negative
amortization tends to lengthen the weighted average life of the Mortgage Loans
and may cause payments near the maturity of the Mortgage Loan to be larger than
the previously scheduled monthly payments unless the terms of the Mortgage Loan
permit its maturity to be extended. If a Pool includes Mortgage Loans that
provide for negative amortization, the related Supplement will describe certain
of the effects on holders of Certificates as of the preceding Record Date of
such Series.
Prior to the first adjustment of the Note Rate on an ARM, the scheduled
monthly payment by the Mortgagor is the amount which will fully amortize the
principal balance of the ARM in equal installments over its remaining term and
pay interest at the initial Note Rate. In the case of ARMs which provide for
periodic adjustments of scheduled monthly payments, on the first day of the
month following the month in which a Note Rate adjusts, the Mortgagor is
required to begin making scheduled monthly payments in amounts which will fully
amortize the principal balance of the ARM in equal installments over its
remaining term and pay interest at the adjusted Note Rate except in the case of
certain ARMs which provide for a deferral of a portion of interest, as described
in the preceding paragraph. The Mortgagor under an ARM may have been qualified
at an interest rate which is lower than the current interest rate at
origination. Accordingly, the repayment of such ARM is dependent on the ability
of the Mortgagor to make larger monthly payments after the initial Note Rate
adjustment date.
The applicable Prospectus Supplement will contain information
respecting the index (the "Index") utilized to adjust the Note Rates of ARMs,
the Mortgage Margin, the frequency of interest rate and payment adjustments, the
Periodic Ceiling, the Periodic Floor, the Maximum Note Rate, the Minimum Note
Rate, if applicable, and provisions for deferred interest, if any. The ARMs
included in a particular ARM Pool will be more fully described in the related
Prospectus Supplement.
Yield Considerations
a description of yield considerations with respect to any Series of
CitiCertificates, to the extent such considerations differ from those described
below, will be set forth in the related Prospectus Supplement.
The yield on any CitiCertificate or CitiMortgageCertificate will depend
on the price paid, the effective interest rate of the CitiCertificate or
CitiMortgageCertificate and the prepayment experience with respect to the
Mortgage Loans underlying the related Series.
Price
Subject to the effect of the amount of interest payable in connection
with prepayments as described below, prepayments of principal on the Mortgage
Loans in a Pool will increase the yield on a related CitiCertificate or
CitiMortgageCertificate purchased at a price less than the aggregate Adjusted
Balance of the Mortgage Loans in a Pool represented by such CitiCertificate or
CitiMortgageCertificate and will decrease the yield on a related CitiCertificate
or CitiMortgageCertificate purchased at a price greater than the aggregate
Adjusted Balance of the Mortgage Loans represented by such CitiCertificate or
CitiMortgageCertificate.
Effective Interest Rate
Interest on each Mortgage Loan is payable in arrears. Each monthly
interest payment on a Mortgage Loan is calculated as 1/12 of the applicable Note
Rate multiplied by the unpaid principal balance of such Mortgage Loan
outstanding as of the first day of the month. The amount of such payments
distributed monthly with respect to each Mortgage Loan will be similarly
calculated on the basis of the Pass-Through Rate for such Mortgage Loan. The
difference between the Note Rate and the Pass-Through Rate for a Mortgage Loan
will
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be retained by the servicer as servicing compensation. See "--Servicing and
Other Compensation and Payment of Expenses" below. If so indicated in the
related Prospectus Supplement, a portion of the Note Rate may be retained by the
applicable Originator or the Subservicer.
The yield on a CitiCertificate or CitiMortgageCertificate will be
slightly lower than the yield otherwise produced by the applicable fixed Stated
Rate because, while interest will accrue on each Mortgage Loan from the first
day of each month, the distribution of such interest at the applicable fixed
Stated Rate will not be made until the applicable Distribution Date in the month
following the end of the related period during which interest has accrued. Full
or partial prepayments received and posted during any calendar month are passed
through to holders of CitiCertificates or CitiMortgageCertificates on the
applicable Distribution Date immediately following such calendar month. In the
case of the Affiliated Mortgage Loans, interest on such a full or partial
prepayment will be paid at the Stated Rate for such entire calendar month
(regardless of when during such month such prepayment is received) to the extent
of Servicing Compensation (exclusive of any amount designated as "additional
servicing compensation" in the related Prospectus Supplement, and subject to any
limit described in the related Prospectus Supplement) for such calendar month.
In the case of the CitiMae Mortgage Loans, such an interest will be paid to the
extent of the Master Servicing Fee. Therefore, to the extent such Servicing
Compensation or the Master Servicing Fee, as applicable, equals or exceeds any
shortfall in collections of interest on account of full or partial prepayments,
principal prepayments will not affect the yield to holders of CitiCertificates
or CitiMortgageCertificates, except as provided in the preceding sentence and
under the heading "Price" above. Payment of interest on prepayments on Third
Party Loans will be made as described in the related Prospectus Supplement.
To the extent the loan servicing and collection practices of any
subcontractor or the timing and accruals of interest on principal prepayments
vary from those disclosed in this paragraph, the applicable Prospectus
Supplement will describe such differences.
Other Yield Considerations
The Note Rates on ARMs adjust periodically in response to movements in
the Index. In connection with ARM Pools which provide for periodic adjustments
to scheduled monthly payments, the first distribution on the related
CitiCertificates or CitiMortgageCertificates reflecting a periodic adjustment to
scheduled monthly payments on the underlying ARMs will be passed through to
holders on the Distribution Date in the month following the month in which the
Note Rate on an ARM is adjusted. Furthermore, unless otherwise described in the
related Prospectus Supplement, adjustments in the Note Rates are based on the
relevant Index most recently available as of the date 45 days prior to the date
of the Note Rate adjustment. Accordingly, the yield to certificateholders of ARM
pools will be adjusted on a delayed basis relative to movements in the Index.
Furthermore, adjustments to the Note Rate on an ARM may be limited by a Minimum
Note Rate, Maximum Note Rate, Periodic Floor and Periodic Ceiling. The following
table illustrates the timing of the adjustments and receipt by
Certificateholders of related distributions for a hypothetical ARM Pool
containing ARMs having an adjustment date of July 1. All dates are assumed to be
business days.
May 1.......... --Index is published.
July 1......... --Note Rates are adjusted based on the May 15 Index.
August 1....... --Mortgagors make the first adjusted monthly payments at the
adjusted Note Rates.
August 18...... --Determination Date.
August 25...... --First payment to Certificateholders including interest at the
adjusted Pass-Through Rate which payment reflects the
adjusted scheduled monthly payments on the underlying ARMs.
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Prepayment Experience
The Mortgage Loans may be prepaid in full or in part at any time. The
prepayment experience of the Mortgage Loans will affect the weighted average
life of a series of CitiCertificates or CitiMortgageCertificates. Based on the
Originators' experience with their own conventional fixed interest rate mortgage
loan portfolios and public information with respect to the mortgage lending
industry, the Issuer anticipates that a significant number of Mortgage Loans
will be paid in full prior to their scheduled maturities. a number of factors,
including homeowner mobility, economic conditions, enforceability of due-on-sale
clauses, any prepayment penalty contained in the Mortgage Loans, mortgage market
interest rates and the availability of mortgage funds, may influence
prepayments. In general, due-on-sale clauses for Mortgage Loans will be enforced
in a manner consistent with applicable law whenever such due-on-sale clauses are
contained in the mortgage documents and such enforcement would not violate the
contractual arrangements with the Mortgagors. See "--Certain Legal Aspects of
the Mortgage Loans--Enforceability of Certain Provisions, Prepayment Charges and
Prepayments" below.
Unless the Prospectus Supplement indicates otherwise, Mortgage Loans
representing at least 90% of the aggregate Adjusted Balance of the Mortgage
Loans in a Fixed Rate Pool will contain a due-on-sale clause permitting the
mortgagee to accelerate the maturity of the Mortgage Loan upon conveyance by the
Mortgagor of the Mortgaged Property. Generally, ARMs in an ARM Pool will contain
a due-on-sale clause permitting the mortgagee to accelerate only in situations
where its security may be impaired.
Servicing institutions for loan pools are sometimes asked to refinance
existing loans by accepting prepayments of loans and making new loans secured by
the same property or assigning existing loans to new lenders, or by otherwise
modifying the terms of existing mortgage loans. a mortgagor may be legally
entitled to require a lender to grant such an assignment of a real estate loan.
See "--Certain Legal Aspects of the Mortgage Loans--Enforceability of Certain
Provisions, Prepayment Charges and Prepayments" below. The Issuer reserves the
right to offer incentives such as favorable loan terms or reduced fees to
encourage borrowers to refinance existing Mortgage Loans. The Issuer also
reserves the right to offer to mortgagors, at the request of mortgagors,
modifications of the terms of existing Mortgage Loans as an alternative to
refinancing, consistent with the REMIC provisions of the Code and the terms of
the applicable Pooling Agreement. Upon any such modification, the Issuer will
repurchase such Mortgage Loan from the Pool. The Issuer reserves the right to
accept prepayments of Mortgage Loans in any Pool and to make new loans to the
same borrowers or to refinance Real Estate Loans in any Pool pursuant to a
Consolidation Agreement. Upon any such refinancing or modification, either
pursuant to a Consolidation Agreement or a Modification Agreement or through the
extension of a new loan to the borrower, the refinanced or modified Mortgage
Loan will be treated as fully prepaid and removed from the Pool. The principal
balance of any such refinanced or modified Mortgage Loan together with interest
accrued thereon at the applicable Pass-Through Rate through the last day of the
month in which such refinancing or modification occurred will be distributed to
CitiCertificateholders or holders of the CitiMortgageCertificate, as the case
may be, in the month following the refinancing or modification.
The Servicer permits Mortgagors to participate in certain "prepayment
programs" with unaffiliated service agencies. Under those programs, generally a
Mortgagor makes 26 bi-weekly payments during a calendar year, each payment being
in the amount of one-half of the Mortgagor's scheduled monthly principal and
interest payment, resulting in 13 monthly payments being made per year. Twelve
of these monthly payments are applied as such on each applicable Due Date. All
of the thirteenth payment is applied as a curtailment in reduction of the
outstanding principal balance of the Mortgage Loan, thus effecting a more rapid
repayment of the Mortgage Loan and reducing the aggregate amount of accrued
interest payable on such Mortgage Loan.
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<PAGE>
See also "THE POOLING AGREEMENTS--Termination; Repurchase of Mortgage
Loans and Mortgage Certificates" in the body of this Prospectus for a
description of the option to repurchase the Mortgage Loans or Mortgage
Certificates in any Pool when the aggregate principal balance thereof is less
than the percentage (generally 5%) specified in the applicable Prospectus
Supplement of the aggregate Adjusted Balance thereof as of the Cut-Off Date for
the related Series.
Assignment of Mortgage Loans
At the time of issuance of each Series of Certificates, the affiliate
of the Issuer originating or acquiring the Mortgage Loans in a Pool, other than
a Pool which consists wholly of Issuer Certificates, will assign the Mortgage
Loans to the Trustee, together with all principal and interest received on or
with respect to such Mortgage Loans (if specified in the applicable Prospectus
Supplement, a portion of the interest received on a Mortgage Loan may be
retained by an Originator or a Subservicer) after the first day of the month of
issuance of such Certificates (the "Cut-Off Date") other than principal and
interest due and payable on or before the CutOff Date. Mortgage Loans underlying
Issuer Certificates will have been so assigned to the Underlying Trustee at the
time of issuance of such Issuer Certificates. The Trustee or its agent will,
concurrently with such assignment, authenticate and deliver the Certificates
evidencing such Series. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling Agreement. Such schedule will include
information as to the Adjusted Balance of each Mortgage Loan as of the close of
business on the Cut-Off Date, as well as information with respect to the Note
Rate, the scheduled monthly payment of principal and interest, the maturity date
or term and, if such Pool contains Cooperative Loans, the number of Mortgage
Loans which are Cooperative Loans. (PA Section 2.01)
In addition, the Issuer or the affiliate of the Issuer originating or
acquiring the Real Estate Loans in a Pool, other than a Pool which consists
wholly of Issuer Certificates, will, as to each Real Estate Loan in such Pool,
deliver to the Trustee (or to the custodian hereinafter referred to) the
Mortgage Note endorsed either manually or by facsimile signature, any
assumption, modification, buydown or conversion to fixed interest rate
agreement, any certificate of primary mortgage insurance, a mortgage assignment
in recordable form (except as provided below) and the original recorded Mortgage
or, in the case of Cooperative Loans, the related Cooperative Note, the original
security agreement, the proprietary lease or occupancy agreement, the
recognition agreement, an executed financing statement (if required at
origination under applicable law) and the relevant stock certificate and related
blank stock powers; provided that, in instances where recorded documents cannot
be delivered due to delays in connection with recording, the originator may
deliver copies thereof and deliver the original recorded documents promptly upon
receipt. In addition, in lieu of delivering a mortgage assignment in recordable
form, the originator may instead deliver a blanket assignment which will not be
in recordable form, together with a power of attorney appointing the Trustee its
attorney-in-fact to act for and on behalf of such originator in preparing,
executing, delivering and recording in the name of the Trustee any and all
instruments of assignment with respect to the Mortgages. Real Estate Loans that
underlie Issuer Certificates will have been so delivered to the Underlying
Trustee at the time of issuance of such Issuer Certificates.
The Originators expect to record or file assignments of the Mortgage
Loans to the Trustee subsequent to the issuance of CitiMortgageCertificates or
CitiCertificates, as the case may be, except in states where, as evidenced by an
opinion of counsel, such recording is not required to protect the Trustee's
interest in the Mortgage Loan. Such recordation or filing is not necessary to
make the assignment of the Mortgage Loans to the related Trustee effective
between such Trustee and the applicable Originator. However, if any of the
Originators were to make a sale, assignment, satisfaction or discharge of any
Mortgage Loans prior to recording or filing the assignment to such Trustee, the
other parties to such sales, assignments, satisfactions or discharges might have
rights superior to those of such Trustee. If any of the Originators were to do
so without authority under the Pooling Agreement, it would be liable to the Pool
or the holders of the related CitiCertificates or
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<PAGE>
CitiMortgageCertificates. Moreover, if insolvency or receivership proceedings,
as the case may be, relating to any of the Originators were commenced prior to
such recording or filing, creditors of such Originator may be able to assert
rights in the affected Mortgage Loans superior to those of such Trustee.
The Trustee will review the above-mentioned documents (including any
Mortgage Certificates) within 90 days of the delivery of such documents and
shall promptly notify the Issuer if any document is not delivered or is found to
be defective in any material respect. If the Issuer cannot deliver such document
or cure such defect within 180 days (90 days if the defect affects the status of
the Mortgage Loan as a "qualified mortgage" for REMIC purposes) after notice
thereof, the Issuer will repurchase the related Mortgage Loan (or Mortgage
Certificate) from the Trustee within 180 days (90 days if the defect affects the
status of the Mortgage Loan as a "qualified mortgage" for REMIC purposes) after
such notice at a price equal to the principal balance owed by the Mortgagor,
plus accrued and unpaid interest thereon at the applicable Pass-Through Rate to
the first day of the month following the month of repurchase, less any
unreimbursed payments under any related Guaranty or other credit support and
unreimbursed Voluntary Advances (as described below). Such repurchase will not
diminish the amount available under any related Guaranty or other credit support
and is deemed to be a reimbursement. Except as provided in the last sentence of
this paragraph, this repurchase obligation constitutes the sole remedy available
to the CitiCertificateholders or the Trustee against the Issuer for a material
defect in a document relating to a Mortgage Loan. The Issuer will have certain
rights to substitute Mortgage Loans or Mortgage Certificates in respect of a
Pool. See "THE POOLS--Substitution of Mortgage Loans" in the body of this
Prospectus. In respect of a Pool, the related Originator will be required to
cure any defect in a document relating to, or repurchase, any Mortgage Loan
which it originated or acquired and which is found defective or repurchased by
the Issuer.
In the Pooling Agreement the Issuer will represent and warrant to the
related Trustee, among other things, that (i) the information set forth in the
schedule of Mortgage Loans attached thereto is correct in all material respects,
(ii) a lender's title and insurance policy or binder (or other satisfactory
evidence of title) for each Real Estate Loan was issued on the date of
origination thereof and each such policy or binder is valid and remains in full
force and effect, (iii) at the date of initial issuance of the CitiCertificates,
it has good title to the Mortgage Loans or the Mortgage Certificates and such
Mortgage Loans or Mortgage Certificates are free of offsets, defenses or
counterclaims and, in the case of Mortgage Certificates, free of liens, security
interests and other encumbrances, (iv) at the date of initial issuance of the
CitiCertificates, each Mortgage subject to such Pooling Agreement is a valid
first lien on the property securing the related Mortgage Note (subject only to
(a) the lien of current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of the recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions generally
or specifically reflected in the related appraisal and (c) other matters to
which like properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by the Mortgage) and
such property is free of material damage and is in good repair, (v) if the Pool
includes Cooperative Loans, at the date of the initial issuance of the
CitiCertificates, each security interest created by the cooperative security
agreement is a valid first lien (subject only to the right of the related
cooperative to cancel the shares and terminate the proprietary lease for unpaid
assessments representing the Mortgagor's pro rata share of the cooperative's
payments for its blanket mortgage, current and future real property taxes,
maintenance charges and other capital and ordinary expenses to which like
collateral is commonly subject and for unpaid special assessments owed by the
Mortgagor to the cooperative) on the collateral securing the related Cooperative
Note, and the dwelling unit to which the Cooperative Loan relates is free of
material damage and is in good repair (it being recognized by the parties to the
Pooling Agreement that, while the Issuer warrants that each such security
interest is a valid first lien on the collateral securing the related
Cooperative Note, subject to the exceptions noted, the related proprietary lease
and occupancy agreement may be subordinated or otherwise subject to the lien of
any mortgage on the related cooperative building), (vi) at the applicable
Cut-Off Date, no subject Mortgage Loan is 30 days or more past due or has been
30 days or more past due more than once in the 12-month period
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immediately preceding the Cut-Off Date and there are no delinquent tax or
assessment liens against the property covered by the related Mortgage, (vii) at
the date of initial issuance of the CitiCertificates, the portion of each
Mortgage Loan, if any, which in the circumstances set forth under "General"
above and in the applicable Prospectus Supplement should be insured by a private
mortgage insurer is so insured and (viii) each Mortgage Loan at the time it was
made complied in all material respects with applicable state and federal laws,
including, without limitation, usury, equal credit opportunity and disclosure
laws. In addition, the Issuer will warrant in respect of a Mortgage Loan in a
Pool that (a) at the date of the initial issuance of the CitiCertificates, there
is no mechanics' lien or claim for work, labor or material affecting the
premises which is or may be prior to or equal with the lien of such Mortgage
(except those insured by the related title insurance policy), (b) the original
principal amount of each Mortgage Loan was not more than 95% of the Original
Value of such Mortgage Loan and (c) the Mortgage Loans and Mortgage Certificates
conform in all material respects with the descriptions thereof in this
Prospectus and the Prospectus Supplement. Within 180 days of the discovery by
the Issuer of a breach of any representation or warranty which materially and
adversely affects the interests of the CitiCertificateholders, or its receipt of
notice thereof from the Trustee (or within 90 days of discovery by the Issuer of
a failure to conform to the representations and warranties in the Pooling
Agreement that affects the status of a Mortgage Loan as a "qualified mortgage"
for REMIC purposes), the Issuer will cure the breach or repurchase the Mortgage
Loan (or Mortgage Certificate) or substitute a Mortgage Loan or Mortgage
Certificate on the terms set forth in the preceding paragraph. Such repurchase
will not diminish the amount available under any related Guaranty or other form
of credit support. In addition, the Issuer will indemnify the Pool for any
losses to such Pool not reimbursed by such repurchase. Such repurchase
obligation and limited indemnity constitute the sole remedies available to the
CitiCertificateholders or the Trustee for any such breach. (PA Section 2.03) If
Standard & Poor's Corporation ("S&P") initially assigns a rating to the
CitiCertificates, then at any time that S&P's rating of Citicorp's long-term
senior debt is below the rating S&P has assigned to the highest rated
outstanding Class (or Subclass) of a particular Series of CitiCertificates, each
related Trustee will be required either to maintain possession of the related
Mortgage Notes or to appoint a custodian (which could be itself), which may not
be an affiliate of the Issuer, to maintain possession of the related Mortgage
Notes.
The Trustee will maintain possession of the documents relating to the
Mortgage Loans; provided, however, the Trustee will be authorized to appoint a
custodian or custodians, which may be an affiliate of the Issuer, except in the
circumstances described in the preceding paragraph, to maintain possession of
the documents relating to the Mortgage Loans. Such custodian may maintain all or
part of the documents relating to the Mortgage Loans. Any custodian will keep
such documents as the Trustee's agent under a custodial agreement.
Payments on Mortgage Loans in Pools
The Pooling Agreements will provide that the Issuer will establish and
maintain with one or more depository banks, savings and loan associations or
trust companies, any of which may be an affiliate of the Issuer (each, a
"Depository"), one or more accounts (the "Certificate Account") in the name of
the Trustee for the benefit of CitiCertificateholders. Amounts with respect to
any Series may, at the option of the Issuer, be held in the same deposit account
as amounts with respect to any other Series, provided that the rating by each
nationally recognized statistical rating organization of each such Series is the
same. For payments made on the Affiliated Mortgage Loans, the initial Depository
will be Citibank (New York State), unless otherwise specified in the applicable
Prospectus Supplement. For the Certificate Account related to the Affiliated
Mortgage Loans, upon two weeks' prior written notice to the Trustee, CMSI may at
any time and from time to time in its discretion transfer or direct the Trustee
in writing to transfer the Certificate Account relating to the Affiliated
Mortgage Loans to any Depository which meets any of the requirements as stated
below. In the event that the long-term debt obligations of any Depository of the
Certificate Account relating to the Affiliated Mortgage Loans shall be rated at
less than A2 by Moody's Investors Service, Inc. ("Moody's"), or the short-term
debt obligations of such depository shall be rated by S&P at less than A-1 or by
Moody's at less than P-1, then within
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<PAGE>
five Business Days of such reduction, CMSI shall (A) transfer or direct the
Trustee in writing to transfer the Certificate Account relating to the
Affiliated Mortgage Loans to a Depository the long-term debt obligations of
which are not rated by Moody's at less than A2 and the short-term debt
obligations of which are not rated at less than A-1 by S&P and P-1 by Moody's
(the "Rating Requirements"), (B) establish another account in the corporate
trust department of the Trustee or, if such Trustee has a long-term and
short-term debt rating at least equal to the Rating Requirements, in any
department of the Trustee (the "Alternative Certificate Account") and direct the
Servicer to remit on a daily basis any funds deposited into the Certificate
Account relating to the Affiliated Mortgage Loans to the Alternative Certificate
Account, (C) (i) cause such Depository to pledge securities in the manner
provided by applicable law or (ii) pledge or cause to be pledged securities,
which shall be held by the Trustee or its agent free and clear of the lien of
any third party, in a manner conferring on the Trustee a perfected first lien
and otherwise reasonably satisfactory to the Trustee; such pledge in either case
to secure such Depository's performance of its obligations in respect of the
Certificate Account relating to the Affiliated Mortgage Loans to the extent, if
any, that such obligation is not fully insured by the FDIC; provided, however,
that prior to the day the Depository or CMSI, as the case may be, pledges the
securities, CMSI and the Trustee shall have received the written assurance of
each rating agency which assigned a rating to the CitiCertificates that the
pledging of such securities and any arrangements or agreements relating thereto
will not result in a reduction or withdrawal of the then-current rating of the
CitiCertificates, (D) establish an account or accounts or enter into an
agreement so that the existing Certificate Account relating to the Affiliated
Mortgage Loans is supported by a letter of credit or some other form of credit
support, which issuer of such letter of credit or other form of credit support
has a long-term and short-term debt rating at least equal to the Rating
Requirements; provided, however, that prior to the establishment of such an
account or the entering into of such an agreement, CMSI and the Trustee shall
have received written assurance from each rating agency which assigned a rating
to the CitiCertificates that the establishment of such an account or the
entering into of such an agreement so that the existing Certificate Account
relating to the Affiliated Mortgage Loans is supported by a letter of credit or
some other form of credit support will not result in a reduction or withdrawal
of the then-current rating on the CitiCertificates or (E) make such other
arrangements as to which CMSI and the Trustee have received prior written
assurance from each rating agency which assigned a rating to the
CitiCertificates that such arrangement will not result in a reduction or
withdrawal of the then-current rating on the CitiCertificates. In the event that
the rating on the CitiCertificates has been downgraded as a result of a rating
downgrade of the Depository, for purposes of this paragraph, the then-current
rating on the CitiCertificates shall be the rating assigned to the
CitiCertificates immediately prior to any such downgrade.
For the Certificate Account relating to the CitiMae Mortgage Loans and
the Third Party Loans, CMSI will establish and maintain accounts which are
either (i) maintained with a depositary institution the obligations of which (or
in the case of a depository institution that is the principal subsidiary of a
holding company, the obligations of such holding company) are rated in one of
the two highest rating categories by each rating agency that rated one or more
classes of the related Series of Certificates, (ii) an account or accounts the
deposits in which are fully insured by the FDIC, (iii) an account or accounts
the deposits in which are insured by the FDIC to the limits established by the
FDIC and the uninsured deposits in which are otherwise secured such that, as
evidenced by an opinion of counsel, the Certificateholders have a claim with
respect to the funds in such account or accounts, or a perfected first-priority
security interest against any collateral securing such funds, that is superior
to the claims of any other depositors or general creditors of the depository
institution with which such account or accounts are maintained or (iv) an
account or accounts otherwise acceptable to each such rating agency. The
collateral eligible to secure amounts in the Certificate Account is limited to
Eligible Investments consisting of United States government securities and other
high-quality investments.
Payments, or proceeds of payments, of the types listed below are to be
deposited in the related Certificate Account for the related Series (other than
payments in respect of principal and interest on the related Mortgage Loans due
on or before the applicable Cut-Off Date):
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(i) all scheduled payments of principal ("Scheduled Principal") and
Principal Prepayments (defined to mean any payment or other recovery of
principal on a Mortgage Loan which is received in advance of its scheduled due
date and is not accompanied by any interest scheduled for payment in any month
subsequent to the month of prepayment) on such Mortgage Loans;
(ii) all payments on account of interest (including payments made from
a buydown subsidy account established with respect to such Mortgage Loans) on
such Mortgage Loans, adjusted to the Pass-Through Rates for such Mortgage Loans;
(iii) all payments under any credit support (unless such payments are
made directly to a different account to be used for distributions to
CitiCertificateholders by the paying agent for the CitiCertificates);
(iv) all voluntary advances made as described below ("Voluntary
Advances") or other payments made by the Servicer in respect of Liquidating
Loans;
(v) all amounts received, by foreclosure or otherwise, in connection
with the liquidation of defaulted Mortgage Loans which have not been assigned to
the issuer of credit support in consideration of payments under any such credit
support, net of expenses incurred in connection with such liquidation;
(vi) all proceeds received under any title, hazard or other insurance
policy covering any Mortgage Loan (including any deductible paid by the Issuer
in lieu thereof as permitted by the Pooling Agreement), other than proceeds to
be applied to the restoration or repair of the related property, or released to
the Mortgagor in accordance with normal servicing procedures;
(vii) all proceeds of any repurchase by the Issuer of Mortgage Loans as
described under "ASSIGNMENT OF MORTGAGE LOANS" or under "THE POOLING
AGREEMENTS--Termination; Repurchase of Mortgage Loans and Mortgage Certificates"
in the body of this Prospectus (PA Section 3.10); and
(viii) in connection with any Principal Prepayment, the amount required
to be deposited by the Issuer as a reduction of servicing compensation pursuant
to the Pooling Agreement, being the difference between 30 days of interest at
the Pass-Through Rate on the amount of such Principal Prepayment and the amount
of interest (adjusted to the Pass-Through Rate) actually due thereon for the
month in which such Principal Prepayment was posted.
Voluntary Advances, payments by the servicer in respect of Liquidating
Loans and payments under any related Guaranty or other form of credit support
will be deposited in the Certificate Account not later than on the relevant
Distribution Date. All other amounts will be deposited in the Certificate
Account by the second business day next following the day of receipt and
posting.
Distributions on CitiCertificates will be made as provided in the body
of this Prospectus and in the Prospectus Supplement. See "DESCRIPTION OF
CERTIFICATES." In addition, the Trustee (or such other paying agent as may be
specified in the applicable Prospectus Supplement) will, to the extent of the
obligations under credit support, include with any distributions to holders (i)
an amount sufficient to cover delinquencies in scheduled payments of principal
and interest, first from a Certificate Account Advance (as defined below),
second from a Voluntary Advance and third, if necessary, from payments under the
credit support, (ii) if so specified in the related Prospectus Supplement, an
amount sufficient to repurchase Liquidating Loans (either as a result of a
demand or draw under the credit support or as a result of a payment by the
Servicer) and (iii) certain amounts in respect of Principal Prepayments to the
extent not paid by the Issuer, all as described in the Prospectus Supplement.
(PA Section 3.03)
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Provision is made for Voluntary Advances, Certificate Account Advances
and other payments in respect of Liquidating Loans on behalf of the issuer of
credit support in order to avoid drawings on the credit support for relatively
insignificant amounts. In the event the amount of delinquencies on Affiliated
Mortgage Loans, CitiMae Mortgage Loans or Third Party Loans cannot be covered by
an advance out of cash in the Certificate Account collected in relation to an
Affiliated Mortgage Loan, CitiMae Mortgage Loan or Third Party Loans,
respectively, being held for future distribution or withdrawal (a "Certificate
Account Advance") the Issuer may, but is not obligated to, make Voluntary
Advances to the extent that payments under credit support would otherwise be
required. The Issuer intends to make Voluntary Advances to the extent that, were
it not to do so, the issuer of the credit support would be liable for payments
under such credit support. Any such advances will be reimbursable to the extent
and in the manner payments under credit support would be reimbursed, all as
described in the Prospectus Supplement.
Not later than three business days before each Distribution Date, the
Issuer will furnish or cause to be furnished a separate statement to the Trustee
(and to any paying agent) (the information in such statement to be made
available to the Trustee at other times by the Issuer on request) setting forth,
among other things, the aggregate amount to be distributed on such Distribution
Date on account of principal and interest, stated separately, the sources of
such amount and information relating to the amount available under the credit
support. (PA Section 3.19)
The following chart sets forth an example of the application of the
foregoing provisions to a hypothetical CitiCertificate which represents an
interest in a Pool consisting primarily of Mortgage Loans which is issued during
January. The example would be applicable to any such CitiCertificate issued
during any other month or any CitiMortgageCertificate. (All dates referred to
are assumed to be business days).
January 1.......................... Cut-Off Date. The initial principal
balance of the Pool would be the
aggregate Adjusted Balance of the
Mortgage Loans on January 1 after
deducting principal payments due on or
before such date. Principal payments due
on January 1 and the accompanying
interest payments, which represent
interest on December 1 balances, are not
part of the Pool and will be retained by
the Servicer.
January 1-January 31............... Payment Period. Principal Prepayments
posted during this period will, together
with interest, if any, collected thereon
(adjusted to the Pass- Through Rate), be
deposited in the Certificate Account and
will be passed through to
CitiCertificateholders on February 25.
The Servicer collects interest on the
prepaid amount to the date of prepayment
and, for partial prepayments, collects
no interest on the prepaid amount for
the month of prepayment except, that in
the case of certain CitiMae Mortgage
Loans a full month's interest will be
collected. Scheduled payments due on
February 1 from Mortgagors will be
deposited in the Certificate Account as
received. Such payments will include the
scheduled principal payments received,
plus interest on such Mortgage Loans
calculated on the January 1 principal
balances thereof (after deducting from
such balances all partial prepayments of
principal applied as of January 1).
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<PAGE>
January 31........................ Record Date. Distributions on February
25 will be made to
CitiCertificateholders of record at the
close of business on the last business
day of the month immediately preceding
the month of distribution.
February 18........................ Determination Date. On the 18th day of
the month, the Servicer determines the
aggregate amount of funds which are
available to make distributions on
February 25, as described herein,
determining separately the aggregate
amount available in the Certificate
Account and the amount available as
Voluntary Advances or as payments under
credit support to make such
distributions.
February 22....................... Notice Date. By this date, if CMI is not
the paying agent for such
CitiCertificates, notice of the amounts
to be distributed on February 25 is
given to the Trustee (and, if a person
other than the Trustee is the paying
agent, to such paying agent). Such
notice will indicate whether the
obligations of any issuer of credit
support are sufficient to cover all
delinquencies. If they are, the
distribution on February 25 will include
an amount equal to the principal and
interest (adjusted to the Pass-Through
Rates for the related Mortgage Loans)
due on the Mortgage Loans on February 1.
If not, the distribution will include
only those payments due on February 1
which have been actually received and
posted before February 18. In addition,
in either case, Principal Prepayments
posted in January will be included in
the February 25 distribution together
with interest thereon for the entire
month of January, adjusted to the Pass-
Through Rate. The Servicer will deposit
in the Certificate Account on February
24 the difference between such interest
on such Principal Prepayments for such
entire month and the amount of interest
(adjusted to the Pass-Through Rate) paid
by the Mortgagors on such Principal
Prepayments; provided, however, that the
amount of such deposit shall not exceed
(i) Servicing Compensation (exclusive of
any amount designated as "additional
servicing compensation" in the related
Prospectus Supplement, and subject to
any limit described therein) with regard
to the Affiliated Mortgage Loans and
(ii) the Master Servicing Fee with
regard to the CitiMae Mortgage Loans.
February 25........................ Distribution Date. On February 25, the
Trustee (or such other paying agent as
may be specified in the related
Prospectus Supplement) will distribute
the amounts set forth in the notice to
it on February 22 as available for
distribution. If CMI is the paying
agent, the Servicer will furnish or
cause such notice to be furnished to the
Trustee on or before the Distribution
Date. If a payment due February 1 is
received from a Mortgagor and posted on
or after February 18 and a Certificate
Account Advance has been made with
respect to such payment, such payment
will be deposited into the Certificate
Account as reimbursement therefor. If a
Voluntary Advance or a payment under
credit support has been made with
respect to such payment from a
Mortgagor, the Servicer will withdraw
the amount of such payment from the
Certificate Account to reimburse the
entity making the Voluntary Advance or
the issuer of any credit support.
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If no such advance or payment has been
made, such late payment will be passed
through to the CitiCertificateholder at
the time of the next distribution.
Succeeding months follow the above, except with respect to the Cut-Off
Date.
Collection and Other Servicing Procedures
Affiliated Mortgage Loans
The Issuer or the Servicer will make reasonable efforts to collect all
payments called for under the Affiliated Mortgage Loans and shall, consistent
with the Pooling Agreement, follow such collection procedures as it deems
necessary or advisable. Consistent with the above, the Issuer or the Servicer
may, in its discretion, (i) waive any late payment charge or any prepayment or
other charge in connection with the prepayment of an Affiliated Mortgage Loan
and (ii) arrange with a Mortgagor a schedule for the liquidation of
delinquencies running for no more than 180 days after the applicable Due Date.
Such arrangement will be made only upon determining that the coverage of such
Mortgage Loan by any Primary Mortgage Insurance Policy will not be affected. In
the event of any such arrangement, but only to the extent of an issuer's
obligations under credit support, such issuer of credit support will honor
requests for payment or otherwise distribute funds with respect to such an
Affiliated Mortgage Loan during the scheduled period in accordance with the
amortization schedule thereof and without regard to the temporary modification
thereof.
If property subject to a Mortgage has been or is about to be conveyed
by the Mortgagor and the related Mortgage Loan includes a due-on-sale clause,
the Issuer or the Servicer is generally obligated to accelerate the maturity of
the Mortgage Loan. If it reasonably believes it is unable to enforce such
due-on-sale clause, the Issuer or the Servicer will enter into an assumption and
modification agreement with the person to whom such property has been or is
about to be conveyed, upon receipt of assurance that the Primary Mortgage
Insurance Policy covering such Mortgage Loan will not be affected, pursuant to
which such person becomes liable under the Mortgage Note or the Cooperative Note
and (except with respect to CFSB Pools) the original Mortgagor, to the extent
permitted by applicable law, remains liable thereon. The mortgage rate borne by
the related fixed rate Mortgage Note or Cooperative Note may not be decreased
and the mortgage rate borne by the related adjustable rate Mortgage Note or
Cooperative Note may not be changed in connection with any such assumption. The
method for determining any increase in the mortgage rate will be provided for in
the related fixed rate Mortgage Note or Cooperative Note. Any fee collected by
the Issuer or the Servicer for entering into any such assumption agreement will
be retained by the Issuer or the Servicer, as additional servicing compensation.
With regard to circumstances in which the Issuer or the Servicer may be unable
to enforce due-on-sale clauses, see "--Certain Legal Aspects of the Mortgage
Loans--Enforceability of Certain Provisions, Prepayment Charges and
Prepayments."
In addition to a Certificate Account, the Issuer or the Servicer will
maintain with a depository, expected to be Citibank (New York State), in the
name of its Trustee, a servicing account (a "Servicing Account") with respect to
each related Series (which account may include funds with respect to other
similar mortgage pass-through certificates) and will deposit and retain therein
all payments of taxes, assessments or comparable items received for the account
of the Mortgagors relating to Affiliated Mortgage Loans. Withdrawals from any
Servicing Account may be made only to effect payment of taxes, assessments or
comparable items, to reimburse such party out of related collections for any
cost incurred in paying taxes and assessments or otherwise preserving or
protecting the value of the Mortgages, to refund to Mortgagors any amounts
determined to be overages, to pay interest to Mortgagors on balances in such
Servicing Account to the extent required by law and to clear and terminate such
Servicing Account at the termination of the related Pooling Agreement. (PA
Section 3.11)
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The Issuer or the Servicer will exercise its best reasonable efforts to
maintain and keep in full force and effect such primary mortgage insurance as
specified under "General" above and in the related Prospectus Supplement for so
long as such insurance is required pursuant to the Pooling Agreement as
specified in such section and in such Prospectus Supplement. Primary mortgage
insurance may be replaced by substantially equivalent insurance but only if (i)
each nationally recognized statistical rating organization that initially rated
the Series advises the Issuer that such replacement will not adversely affect
the current rating of such Series or (ii) the claims-paying ability of the
substitute primary mortgage insurance company is rated in the same, an
equivalent or a higher category or categories as such Series by each such
nationally recognized statistical rating organization.
CitiMae Mortgage Loans
Pursuant to the Pooling Agreement, the Servicer will be responsible for
servicing and administering the CitiMae Mortgage Loans. The Servicer intends to
perform such servicing and administrative functions principally through CitiMae,
Inc., as Subservicer, which will act for and on behalf of the Servicer. See "THE
ORIGINATORS--CitiMae, Inc." in the body of the Prospectus. The Subservicer has
entered or will enter into contracts with approved servicers to perform, as
independent contractors, certain servicing functions for the Servicer. One or
more servicers which are affiliates of the Servicer may perform similar
functions under other contracts with respect to the CitiMae Mortgage Loans
originated by affiliates of CitiMae. The Servicer will at all times remain
responsible for the performance of its duties under the Pooling Agreement.
The Servicer will agree to perform diligently all services and duties
customary to the servicing by prudent mortgage lending institutions of mortgages
of the same type as the Mortgage Loans in those jurisdictions where the related
Mortgaged Properties are located. The duties to be performed by a servicer
include collection and remittance of principal and interest payments,
administration of mortgage escrow accounts, collection of insurance claims and,
if necessary, foreclosure. The Servicer will monitor each servicer's performance
and will have the right to remove a servicer of any CitiMae Mortgage Loan at any
time for cause. In the event of any such termination, the Servicer would
continue to be responsible for servicing such CitiMae Mortgage Loans and would
designate a substitute servicer (which may include an affiliate of the
Subservicer). During the period necessary to effect the transfer of the
servicing functions to any such substitute servicer, or to the Servicer in the
event the Servicer shall perform such servicing functions itself, the servicer
who has been terminated shall continue to perform all of its duties and
responsibilities with respect to the CitiMae Mortgage Loans serviced by it until
such time as the Servicer notifies it of such transfer. The Servicer shall be
entitled to retain the same servicing fee as was paid to the servicer in the
event the Servicer shall elect to perform such servicing functions itself.
The Servicer or the Subservicer will agree to proceed diligently to
collect all payments called for under the Mortgage Notes. Consistent with the
above, the Servicer or the Subservicer may, in its discretion, (i) waive any
prepayment charge, assumption fee, late payment charge or any other charge in
connection with the prepayment of a CitiMae Mortgage Loan and (ii) arrange with
a Mortgagor a plan of relief, other than a modification or extension of the
Mortgage, when appropriate rather than recommending liquidation. Such
arrangement will be made only upon determining that the coverage of such CitiMae
Mortgage Loan by any Primary Mortgage Insurance Policy will not be affected. In
the event of any such arrangement, but only to the extent of the amount of any
credit support, the provider of such credit support will honor requests for
payment or otherwise distribute funds with respect to such CitiMae Mortgage Loan
during the scheduled period in accordances with the amortization schedule
thereof and without regard to the temporary modification thereof. In addition,
in the event of any such arrangement, the Servicer's obligation to make
Voluntary Advances on the related CitiMae Mortgage Loan shall continue during
the scheduled period to the extent such Voluntary Advances are not made by the
subservicer.
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Under the Pooling Agreement, the Servicer will be required to enforce
"due-on-sale" clauses with respect to the CitiMae Mortgage Loans to the extent
contemplated by the terms of the CitiMae Mortgage Loans and permitted by
applicable law. Where an assumption of, or substitution of liability with
respect to, a CitiMae Mortgage Loan is required by law, upon receipt of
assurance that the Primary Mortgage Insurance Policy covering such CitiMae
Mortgage Loan will not be affected, the Master Servicer may permit the
assumption of a CitiMae Mortgage Loan, pursuant to which the Mortgagor would
remain liable on the Mortgage Note, or a substitution of liability with respect
to such Mortgage Loan, pursuant to which the new Mortgagor would be substituted
for the original Mortgagor as being liable on the Mortgage Note. Any fees
collected for entering into an assumption or substitution of liability agreement
may be retained by the Servicer as additional servicing compensation. In
connection with any assumption or substitution, the Mortgage Rate borne by the
related Mortgage Note may not be changed.
The Pooling Agreement may require the Servicer to establish and
maintain one or more escrow accounts into which Mortgagors deposit amounts
sufficient to pay taxes, assessments, hazard insurance premiums or comparable
items. Withdrawals from the escrow accounts maintained for Mortgagors may be
made to effect timely payments of taxes, assessments and hazard insurance
premiums or comparable items, to reimburse the Servicer out of related
assessments for maintaining hazard insurance, to refund to Mortgagors amounts
determined to be overages, to remit to Mortgagors, if required, interest earned,
if any, on balances in any of the escrow accounts, to repair or otherwise
protect the Mortgaged Property and to clear and terminate any of the escrow
accounts. The Servicer will be solely responsible for administration of the
escrow accounts and will be expected to make advances to such account when a
deficiency exists therein.
The Issuer or the Servicer and any successor servicer appointed
following an Event of Default, will be required to maintain certain insurance
covering errors and omissions in the performance of its obligations as servicer
and certain fidelity bond coverage ensuring against losses through wrongdoing of
its officers, employees and agents. (PA Section 6.07)
Third Party Loans
Pursuant to the Pooling Agreement, the Servicer will be responsible for
servicing and administering the Third Party Loans. The Servicer intends to
perform such servicing and administrative functions principally through Third
Party Originators, as subservicers, with respect to Third Party Loans acquired
on a servicing- retained basis. See "THE ORIGINATORS--Third Party Originators"
herein. The Subservicer will act for and on behalf of the Servicer. The Servicer
will at all times remain responsible for the performance of its duties under the
Pooling Agreement.
Hazard Insurance
The Issuer or the Servicer will cause a hazard insurance policy to be
maintained for each Real Estate Loan. The coverage of each such policy is
required to be in an amount not less than the lesser of (x) the maximum
insurable value (as established by the property insurer) of the improvements
securing such Real Estate Loan if such amount is less than the unpaid principal
balance of the Real Estate Loan, and (y) (i) the principal balance owing on such
Real Estate Loan (if such amount is greater than or equal to 80% but is less
than or equal to 100% of the insurable value) or (ii) 80% of the insurable value
(if the principal balance on the Real Estate Loan is less than 80% of the
insurable value). As set forth above, all amounts collected by the Servicer
under any hazard policy (except for amounts to be applied to the restoration or
repair of property subject to the related Mortgage or property acquired by
foreclosure or amounts released to the Mortgagor in accordance with normal
servicing procedures) will be deposited in the applicable Certificate Account.
In the event that the Servicer maintains a blanket policy insuring against
hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to
have satisfied its obligation relating to the maintenance of hazard insurance.
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Such blanket policy may contain a deductible clause, in which case the Servicer
will deposit in the Certificate Account all sums which would have been deposited
therein but for such clause. The Servicer is required to maintain a fidelity
bond and errors and omissions policy or their equivalent with respect to
officers and employees which provide coverage against losses which may be
sustained as a result of an officer's or employee's misappropriation of funds or
errors and omissions in failing to maintain insurance, subject to certain
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions in the form and amount specified in the Pooling Agreement.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the property by
fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. The policies relating to such Real Estate Loans will be underwritten by
different insurers and therefore will not contain identical terms and
conditions. Such policies typically do not cover any physical damage resulting
from the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and mud
flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism. The foregoing list is merely
indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. Where the property securing such a Real Estate Loan is located in
a federally designated special flood hazard zone, the applicable Pooling
Agreement will require that flood insurance be maintained.
Most of the properties securing the Real Estate Loans will be covered
by homeowners' insurance policies which, in addition to the standard form of
fire and extended coverage, provide coverage for certain other risks. These
homeowners' policies typically contain a "coinsurance" clause which in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, then the insurer's
liability in the event of a partial loss shall not exceed the lesser of (i) the
actual cash value (generally defined as replacement cost at the time and place
of loss, less physical depreciation) of the improvements damaged or destroyed or
(ii) such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance required to be maintained on the
improvements securing such Real Estate Loans may decline, and since residential
properties generally have historically appreciated in value over time, the
effect of coinsurance in the event of partial loss may be that hazard insurance
proceeds will be insufficient to restore fully the damaged property. However, to
the extent of the amount available to cover hazard losses under any Guaranty or
other credit support, CitiCertificateholders will not suffer loss by reason of
delinquencies or foreclosures following hazard losses, whether or not subject to
coinsurance clauses.
The Issuer and the Servicer will not require that a hazard or flood
insurance policy be maintained for any Cooperative Loan. Generally, the
cooperative itself is responsible for maintenance of hazard insurance for the
property owned by the cooperative, and the tenant-stockholders of that
cooperative do not maintain individual hazard insurance policies. To the extent,
however, a cooperative and the related borrower on a Cooperative Note do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of the damaged property, damage to
such borrower's cooperative apartment or such cooperative's building could
significantly reduce the value of the collateral securing such Cooperative Note.
If an issuer's obligations under credit support are exhausted, and if a
Mortgagor defaults on his obligations to make payments on a Mortgage Loan, the
CitiCertificateholders will bear all risk of loss resulting from hazard losses
not covered by hazard insurance.
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Primary Mortgage Insurance
A Mortgage Loan secured by a Mortgaged Property having a loan-to-value
ratio in excess of 80% may or, in the case of a CitiMae Mortgage Loan, will have
a policy (a "Primary Mortgage Insurance Policy") insuring against default all or
a specified portion of the principal amount thereof in excess of such percentage
of the value of the Mortgaged Property, as specified in the related Prospectus
Supplement.
Evidence of each Primary Mortgage Insurance Policy will be provided to
the Trustee simultaneously with the transfer to the Trustee of the related
Mortgage Loan. The Servicer, on behalf of itself, the Trustee and the
Certificateholders, is required to present claims to the insurer under any
Primary Mortgage Insurance Policy and to take such reasonable steps as are
necessary to permit recovery thereunder with respect to defaulted Mortgage
Loans. Amounts collected by the Servicer on such claims shall be deposited in
the Certificate Account for distribution as set forth above. The Servicer will
not cancel or refuse to renew any Primary Mortgage Insurance Policy required to
be kept in force by the Pooling Agreement. (PA Section 3.10)
Maintenance of Insurance Policies; Claims Thereunder and
Other Realization Upon Defaulted Mortgage Loans
The Servicer will exercise its best reasonable efforts to keep each
Primary Mortgage Insurance Policy (if any) in full force and effect at least
until the outstanding principal balance of the related Mortgage Note is equal to
the percentage of the appraised value of the Mortgaged Property specified
herein. The Servicer has agreed (or will agree) to pay the premium for each
Primary Mortgage Insurance Policy on a timely basis in the event that the
Mortgagor does not make such payments.
The Servicer, on behalf of the Trustee and Certificateholders, will
present claims to the insurer under any applicable Primary Mortgage Insurance
Policy and will take such reasonable steps as are necessary to permit recovery
under such insurance policies respecting defaulted Mortgage Loans. As set forth
above, all collections by the Servicer under such policies that are not applied
to the restoration of the related Mortgage Property are to be deposited in the
Certificate Account, subject to withdrawals as heretofore described.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
any applicable Primary Mortgage Insurance Policy, the Servicer will not be
required to expend its own funds to restore the damaged property unless the
Servicer determines (i) that such restoration will increase the net proceeds to
Certificateholders upon liquidation of the Mortgage Loan after reimbursement of
the Servicer for its expenses and (ii) that such expenses will be recoverable to
it through liquidation proceeds.
Regardless of whether recovery under any Primary Mortgage Insurance
Policy is available or any further amount is payable under the credit support
for a Series of Certificates, the Servicer is nevertheless obligated to follow
such normal practices and procedures as it deems necessary or advisable to
realize upon the defaulted Mortgage Loan. However, the Servicer is not required
under the Pooling Agreement to expend its own funds to foreclose on a defaulted
Mortgage Loan unless it generally determines that foreclosure would increase the
net proceeds of liquidation available for distribution to Certificateholders and
its expenditures will be recoverable. If at any time no further amount is
payable under the credit support for a Series of Certificates, and if the
proceeds of any liquidation of the property securing the defaulted Mortgage
Loan, if such property is liquidated, are less than the principal balance of the
defaulted Mortgage Loans plus interest accrued thereon, Certificateholders will
realize a loss in the amount of such difference plus the aggregate of
unreimbursed advances of the Servicer with respect to such Mortgage Loan and
expenses incurred by the Servicer in connection with such proceedings which are
reimbursable under the Pooling Agreement.
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Realization Upon Defaulted Mortgage Loans
If any Mortgage Loans become Liquidating Loans, an issuer of credit
support may, if so specified in the related Prospectus Supplement, be obligated
to purchase from the Trustee such Liquidating Loans up to the amount of its
remaining obligations under the related credit support. The Servicer may pay the
purchase price in respect of a Liquidating Loan on behalf of the issuer of
credit support in order to avoid demands or draws under such credit support. If
the ultimate net recovery is equal to or less than the unreimbursed payments
under the related credit support with respect to the Mortgage Loan, the amount
of an issuer's obligations under credit support will be replenished in an amount
equal to the amount of such ultimate net recovery. In the event that the
ultimate net recovery exceeds the unreimbursed payments, such excess will be
retained, in the case of a Guaranty issued by Citicorp, by Citicorp as
compensation for the issuance of such Guaranty, and in the case of other credit
support, the Servicer will be entitled to such proceeds unless otherwise
specified in the related Prospectus Supplement. Such excess will not be applied
to replenish the remaining Amount Available under any credit support. Although a
CitiCertificateholder will have no right to such excess proceeds, the previous
reduction in an issuer's obligations under credit support with respect to that
Series will have been fully restored.
If a default occurs on a Mortgage Loan at a time when the amount of the
remaining obligations under the related credit support is less than the purchase
price of such Mortgage Loan, no payments under such credit support for the
purchase of such Mortgage Loan or to cover delinquencies may be made with
respect to such default unless otherwise provided in the related Prospectus
Supplement. With respect to Liquidating Loans which are not purchased by or on
behalf of the issuer of credit support, the Issuer or the Servicer will be
obligated to follow such normal practices and procedures as it deems necessary
or advisable to realize upon a defaulted Mortgage Loan. However, the Servicer is
not required under the Pooling Agreement to expend its own funds to foreclose on
a defaulted Mortgage Loan unless it generally determines that foreclosure would
increase the net proceeds of liquidation available for distribution to
Certificateholders and its expenditures will be recoverable. If the Servicer
does not choose to foreclose on a defaulted Mortgage Loan, the Servicer may
accept payment, in connection with a sale by the Mortgagor of the Mortgaged
Property or a retention by the Mortgagor of the Mortgaged Property, in an amount
less than the outstanding balance of the related Mortgage Loan. If the Servicer
does choose to foreclose on a defaulted Mortgage Loan, the Issuer or the
Servicer may (directly or through an assignee) sell the property at a
foreclosure or trustee's or other sale, negotiate with the Mortgagor for a deed
in lieu of foreclosure or, in the event a deficiency judgment is available
against the Mortgagor or other person (see "--Certain Legal Aspects of Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" below for a
description of the limited availability of deficiency judgments), foreclose
against such property and proceed for the deficiency against the appropriate
person. Although the Servicer may elect to pursue deficiency judgments on the
Mortgage Loans, the Servicer is generally not required under the Pooling
Agreement to do so, even if permitted by applicable law. In such circumstances,
the holder of any CitiCertificate evidencing an interest in a Pool with a
Liquidating Loan will realize a loss to the extent that the ultimate net
recovery, after reimbursement to the Issuer or the Servicer of expenses incurred
in connection with the liquidation of such Mortgage Loan, is less than the
outstanding principal balance and accrued and unpaid interest thereon at the
Pass-Through Rate for such Mortgage Loan. The Pooling Agreement with respect to
a Series will require that any property acquired by the Servicer by deed in lieu
of foreclosure with respect to a Liquidating Loan be administered so that it
meets the definition of "foreclosure property" in Section 860G(a)(8) of the Code
at all times, and so that no income from the rental or sale of such property
will be "net income from foreclosure property" within the meaning of Code
Section 860G(c).
Ordinarily, the holder of collateral acquired through foreclosure
maximizes recovery by providing financing to a new purchaser. As to collateral
securing a Cooperative Loan, any prospective purchaser will generally have to
obtain the approval of the board of directors of the relevant cooperative before
purchasing the shares and acquiring rights under the proprietary lease or
occupancy agreement securing that Cooperative Loan.
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See "--Certain Legal Aspects of the Mortgage Loans--Foreclosure on Shares of
Cooperatives" below. This approval is usually based on the purchaser's income
and net worth and numerous other factors. The necessity of acquiring such
approval could, however, limit the number of potential purchasers for those
shares and otherwise limit the Issuer's or the Servicer's ability to sell, and
realize the value of, those shares.
In general, a "tenant-stockholder" (as defined in Code Section
216(b)(2)) of a corporation that qualifies as a "cooperative housing
corporation" within the meaning of Code Section 216(b)(1) is allowed a deduction
for amounts paid or accrued within his taxable year to the corporation
representing his proportionate share of certain interest expenses and certain
real estate taxes allowable as a deduction under Code Section 216(a) to the
corporation under Code Sections 163 and 164. In order for a corporation to
qualify under Code Section 216(b)(1) for its taxable year in which such items
are allowable as a deduction to the corporation, such section requires, among
other things, that at least 80% of the gross income of the corporation be
derived from its tenant- stockholders. By virtue of this requirement, the status
of a corporation for purposes of Code Section 216(b)(1) must be determined on a
year-to-year basis. Consequently, there can be no assurance that cooperatives
relating to the Cooperative Loans will qualify under such section for any
particular year. In the event that such a cooperative fails to qualify for one
or more years, the value of the collateral securing any related Cooperative
Loans could be significantly impaired because no deduction would be allowable to
tenant-stockholders under Code Section 216(a) with respect to those years. In
view of the significance of the tax benefits accorded tenant- stockholders of a
corporation that qualifies under Code Section 216(b)(1), the likelihood that
such a failure would be permitted to continue over a period of years appears
remote.
If at any time no further amount is payable under any credit support
for a Series of CitiCertificates, the Issuer or the Servicer may expend its own
funds to restore property securing a Liquidating Loan included in such Series
which has sustained uninsured damage, but only if it determines that such
restoration will increase the proceeds to the CitiCertificateholders of
liquidation of the Liquidating Loan after reimbursement of the Issuer or the
Servicer for its expenses.
Servicing and Other Compensation and Payment of Expenses
The Issuer's or Servicer's primary compensation for its servicing
activities in respect of a Pool will come from the payment to it of a servicing
fee. A servicing fee will be paid to the Issuer in respect of Mortgage Loans
underlying a Pool as described under "DESCRIPTION OF CERTIFICATES--The Servicer"
in the body of this Prospectus. Such servicing fee paid to the Servicer in
respect of a Pool may be in an amount equal to a fixed annual percentage as
specified in the related Prospectus Supplement of the outstanding principal
balance of such Mortgage Loans on which interest is payable. In such event, the
rate of servicing compensation for each Mortgage Loan in a Pool will be fixed,
and the Pass-Through Rates of the Mortgage Loans will differ based on different
mortgage rates. Accordingly, the weighted average of the fixed Pass-Through
Rates of the Mortgage Loans underlying any Series of CitiCertificates will vary
each month based on the level of principal repayments (including prepayments) on
the underlying fixed rate Mortgage Loans. In such event, because the rate of
servicing compensation is fixed for each Mortgage Loan, disproportionate
principal payments among Mortgage Loans bearing different mortgage rates in a
Pool may affect the yield to the holder of a CitiCertificate, and accordingly,
may affect the market value of such CitiCertificate. Alternatively, if so
specified in the related Prospectus Supplement, the Pass-Through Rate may be the
same (or calculated in the same manner) for each Mortgage Loan in the Pool, and
the rate of servicing compensation with respect to each Mortgage Loan (equal to
the difference between the mortgage rate for such Mortgage Loan and such
Pass-Through Rate) may differ among different Mortgage Loans. In such event,
disproportionate principal payments among Mortgage Loans bearing different
mortgage rates in a Pool will not affect the weighted average Pass-Through Rate,
but may affect the weighted average rate of servicing compensation. In addition,
the rate of servicing compensation and the Pass-Through Rate may both differ
among different Mortgage Loans. Additional information with respect to the
Pass-Through Rates of the Mortgage Loans and the related rates of servicing
compensation will be set
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forth in the related Prospectus Supplement. As principal payments are made on
the Mortgage Loans, the portion of each monthly payment which represents
interest will decline and thus the primary servicing compensation will
ordinarily decrease as the Mortgage Loans amortize.
In addition to its primary servicing compensation, the Issuer or
Servicer will retain all prepayment charges, if any, assumption fees and late
payment charges, all to the extent collected from Mortgagors, and has agreed to
pay all such amounts over to any related subservicer. Based upon the
Originators' experience and the experience of the residential financing industry
generally with respect to conventional one- to four-family real estate
mortgages, such as the Mortgage Loans, it appears that compensation from these
additional sources will be negligible in amount.
The Issuer or the Servicer will be responsible (to the extent specified
in the related Prospectus Supplement) for payment of interest in respect of
prepayments of principal of the Mortgage Loans to be distributed to
CitiCertificateholders in excess of the amount of such interest received from
the Mortgagors.
The Issuer or the Servicer will pay all expenses incurred in connection
with its servicing of the related Mortgage Loans (subject to limited
reimbursement as described herein), including, without limitation, payment of
the fees and disbursements of the Trustee (to the extent such fees are not
deducted from amounts received on the Mortgage Loans) and independent
accountants, payments of all fees and expenses in connection with the
realization upon defaulted Mortgage Loans, and payment of expenses incurred in
connection with distributions and reports to CitiCertificateholders.
If no further amount is payable under any credit support for a Series,
the Issuer or the Servicer will be entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted Mortgage
Loans, and the holders of CitiCertificates will suffer loss to the extent that
the proceeds of the liquidation proceedings respecting any defaulted Mortgage
Loan, after reimbursement of the Issuer's or the Servicer's expenses, are less
than the principal balance of such Mortgage Loan. In addition, the Servicer will
be entitled to reimbursement of certain expenditures made by it in connection
with the preservation, protection or restoration of the security for a defaulted
or foreclosed Mortgage Loan.
Certain Legal Aspects of the Mortgage Loans
Mortgages
The Real Estate Loans will be secured by either mortgages or deeds of
trust, depending upon the prevailing practice in the state in which the property
subject to a Real Estate Loan is located. a mortgage or a deed of trust creates
a lien upon the real property encumbered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by a
promissory note or a bond. It is not prior to the lien for real estate taxes and
assessments and certain other liens. Priority with respect to mortgages and
deeds of trust depends on their terms and generally on the order of recording
with a state, county or municipal office. There are two parties to a mortgage,
the mortgagor, who is the borrower/homeowner or the land trustee (as described
below), and the mortgagee, who is the lender. Under the mortgage instrument, the
mortgagor delivers to the mortgagee a note or bond and the mortgage. In the case
of a land trust, title to the property is held by a land trustee under a land
trust agreement, while the borrower/homeowner is the beneficiary of the land
trust; at origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. The security arrangements for
a living trust (also known as a family trust or inter vivos trust) are similar
to those for a land trust, except that the borrower executes the mortgage note.
Although a deed of trust is similar to a mortgage, a deed of trust formally has
three parties, the trustor (similar to a mortgagor), who is the homeowner and
may or may not be the borrower, the beneficiary (similar to a mortgagee), who is
the lender, and the trustee, a third-party grantee. Under a deed of trust, the
trustor grants the property, irrevocably
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until the debt is paid, in trust, generally with a power of sale, to the trustee
to secure payment of the obligation. The mortgagee's authority under a mortgage
and the trustee's authority under a deed of trust are governed by law, the
express provisions of the mortgage or deed of trust, and, in some cases, the
directions of the beneficiary.
Cooperatives
All cooperative apartments relating to the Cooperative Loans are
located in the States of New York, New Jersey, Illinois and Maryland and in the
District of Columbia. The private, non-profit, cooperative apartment corporation
owns all the real property that comprises the project, including the land,
separate dwelling units and all common areas. The cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
cooperative apartment building and/or underlying land, as is generally the case,
the cooperative, as project mortgagor, is also responsible for meeting these
mortgage obligations. a blanket mortgage is ordinarily incurred by the
cooperative in connection with the construction or purchase of the cooperative's
apartment building. The interest of the occupant under proprietary leases or
occupancy agreements to which that cooperative is a party are generally
subordinate to the interest of the holder of the blanket mortgage in that
building. If the cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements. Also, the blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. a foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or the collateral securing the
Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a cooperative must
make a monthly payment to the cooperative representing such tenant-stockholder's
pro rata share of the cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a cooperative and accompanying occupancy rights is
financed through a cooperative share loan evidenced by a promissory note and
secured by a security interest in the occupancy agreement or proprietary lease
and in the related cooperative shares. The lender takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and, if allowed under state law, a financing statement covering the proprietary
lease or occupancy agreement and the cooperative shares is filed in the
appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant- stockholder as an individual as provided in
the security agreement covering the assignment of the proprietary lease or
occupancy agreement and the pledge of cooperative shares. See "Foreclosure on
Shares of Cooperatives" below.
Foreclosure on Mortgages
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property upon any default by the
borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and to any person who has recorded a request for a copy of a notice of default
and notice of sale. In addition, the trustee in some states must provide notice
to any other individual having an
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interest in the real property, including any junior lienholders. The trustor,
borrower or any person having a junior encumbrance on the real estate may,
during a reinstatement period, cure the default by paying the entire amount in
arrears plus the costs and expenses incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorney's fees, which may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place and,
in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property or the courthouse door of the county in which the
property is located, recorded and sent to all parties having an interest in the
real property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers. For
example, in Texas it is necessary to give both notice of intent to accelerate as
well as notice of acceleration of an installment note, and in New Jersey it is
also necessary to give a notice of intent to foreclose. Generally, a mortgagor
is bound by the terms of the mortgage note and the mortgage as made and cannot
be relieved from his default. However, since a foreclosure action is equitable
in nature and is addressed to a court of equity, the court may relieve a
mortgagor of a default and deny the mortgagee foreclosure on proof that the
mortgagor's default was neither wilful nor in bad faith and that the mortgagee's
action was such as to establish a waiver, or fraud, bad faith, oppressive or
unconscionable conduct as to warrant a court of equity to refuse affirmative
relief to the mortgagee. Under certain circumstances a court of equity may
relieve the mortgagor from an entirely technical default where such default was
not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Substantial delays and expenses may be incurred
if the defaulting mortgagor files a petition under the federal bankruptcy laws
prior to the initiation of a foreclosure action or during its pendency.
Moreover, recent judicial decisions suggest that a non-collusive, regularly
conducted foreclosure sale may be challenged as a fraudulent conveyance,
regardless of the parties' intent, if a court determines that the sale was for
less than fair consideration and such sale occurred while the mortgagor was
insolvent and within one year (or within the statute of limitations if the
trustee in bankruptcy elects to proceed under state fraudulent conveyance law)
of the filing of bankruptcy. Similarly, a suit against the debtor on the
mortgage note or bond may take several years.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty potential third party purchasers at the
sale have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is very often the case that a third party does not purchase the
property at the foreclosure sale. Rather, it is more common for the lender to
purchase the property from the trustee or referee for an amount equal to the
principal amount of the mortgage or deed of trust plus accrued and unpaid
interest and the expenses of foreclosure. Thereafter, the lender will assume the
burdens of ownership, including obtaining casualty insurance, paying real estate
taxes and any special municipal assessments which may have priority over the
mortgage and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of any mortgage insurance proceeds. The
Servicer is not required under the Pooling Agreement to expend its own funds to
foreclose on a defaulted Mortgage Loan unless it generally determines that
foreclosure would increase the net proceeds of liquidation available for
distribution to Certificateholders and its expenditures will be recoverable.
There may be circumstances, for example, the possibility of incurring liability
for environmental damage or a substantial decline in the value of the underlying
property, which would cause the Servicer to elect not to foreclose on a
defaulted Mortgage Loan.
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Foreclosure of a mortgage is accomplished in New York, New Jersey and
Florida in most cases, and in Illinois in all cases, by an action in foreclosure
culminating in a judicial sale (or, in the case of Illinois, a judicially
approved sale) of the real property by a court-appointed referee, sales agent or
other official following a judgment of foreclosure. The purposes of a
foreclosure action are to enable the mortgagee to realize upon its security and
to bar the mortgagor, persons with liens subordinate to the foreclosing
mortgagee, and certain other persons with interests in the real property from
their statutory rights and "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been sold
in accordance with a properly conducted foreclosure and foreclosure sale, those
having an equity of redemption may redeem the property by paying the entire debt
with interest and, in the event that a foreclosure action is pending, all or
part of the costs of such action. Those having a statutory right or equity of
redemption must be made parties and duly summoned to the foreclosure action in
order for their statutory right or equity of redemption to be barred.
In Connecticut a court in its discretion may order either a foreclosure
by judicial sale or strict foreclosure. Generally, Connecticut courts grant
strict foreclosure unless the United States is a party or the court upon the
motion of a party or upon its own motion determines that the net value of the
mortgaged property is materially in excess of the debt being foreclosed. If a
court orders strict foreclosure, it will establish a "law day" for each
defendant in the foreclosure action. The period of time between the entry of the
judgment of foreclosure and the first law day will be set by the court as at
least twenty days after the date of the judgment. The first law day will be for
the owner of the mortgaged property, and then, in sequence, there will be a law
day for each party having a lien on, or other interest in, the mortgaged
property which is junior to the foreclosing mortgagee's interest, in inverse
order of their priority. Unless a party assigned a prior law day redeems by
paying the debt due the foreclosing mortgagee in full, each party will have the
right on his law day to redeem the mortgaged property by paying off the
foreclosing mortgagee; after redemption, the redeeming party will own the
mortgaged property subject to any other liens or interests as to which a law day
has not passed. If a party fails to redeem on his law day, his rights in the
mortgaged property are extinguished. If no party redeems, the foreclosing
mortgagee becomes the owner of the mortgaged property, subject to other liens or
interests which are prior to the mortgage foreclosed or as to which the holders
thereof were not parties to the foreclosure action. If the court orders
foreclosure by sale rather than strict foreclosure, a committee is appointed by
the court to sell the mortgaged property at auction. The proceeds of the sale
will then be distributed first to pay the costs of the sale and then to satisfy
the debts of the parties in the order of their priority to the extent the
proceeds permit.
Upon foreclosure of a Connecticut mortgage, a mortgagor who is
unemployed or under-employed may, in certain circumstances, be granted a stay of
the foreclosure proceedings not to exceed six months, and a restructuring of the
mortgage debt to add unpaid interest and certain other charges to the
outstanding principal amount of the debt. The total amount of the restructured
debt may not exceed the larger of the original mortgage debt or 90% of the fair
market value at the time of restructuring and the restructured payments must be
made over the remaining portion of the original term of the mortgage.
In California, foreclosure can be judicial or nonjudicial. The primary
distinction between a judicial and a nonjudicial foreclosure is that in the case
of a judicial sale a deficiency judgment may be obtained, while in the case of a
non-judicial foreclosure, no deficiency judgment is allowed. Since California
borrowers are protected by anti-deficiency legislation with respect to
purchase-money deeds of trust, the issuer will, in almost all instances, pursue
non-judicial foreclosure. a second difference between judicial and non-judicial
foreclosures is that in the case of the former, if the beneficiary chooses to
maintain its right to a deficiency judgment, the trustor may redeem the property
by paying the amount bid at the sale plus statutory fees, costs and interest for
a period of three months (when the proceeds of sale are sufficient to pay the
lender in full) or one year (when the sale proceeds are insufficient to pay the
lender in full) after the sale. The purchaser at the sale, whether it be the
lender or a third party, may not demand possession of the property until
expiration of the redemption period; although, the redeemer will be required to
pay reasonable rental value upon redemption.
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A lender may accept a deed in lieu of foreclosure instead of pursuing
either judicial or nonjudicial foreclosure. By accepting a deed in lieu of
foreclosure, the lender takes the property back subject to any junior liens,
which would be subordinated or released of record.(1)
In addition, California law can delay foreclosure and collection of
late charges if a lender participates in the sale of credit disability insurance
in connection with one of its loans and the borrower suffers a disability.
In Illinois, a borrower in a mortgage foreclosure suit is granted the
right to reinstate a mortgage prior to the expiration of ninety days from the
date the court obtains jurisdiction over all mortgagors in respect of the
property subject to such mortgage foreclosure. In the event such right is
exercised, the delinquent borrower is required to pay only the actual
delinquency costs and reasonable attorney fees, but not any amount which is due
as a result of any acceleration provisions in the note evidencing the debt. As a
result, the borrower may unilaterally reinstate the mortgage loan and terminate
the foreclosure proceedings. In addition, when the lender bids less than the
total debt at the judicial sale, Illinois law provides the borrower with a
special 30-day right of redemption in the foreclosure of a single-family
residence. Upon exercise of such right, the borrower need only redeem by paying
the amount of the sale price, plus interest and costs, and not the deficiency.
Many Illinois mortgages, however, give the mortgagors greater contractual rights
to reinstate a mortgage than are granted under Illinois statutes.
Foreclosure on Shares of Cooperatives
The cooperative shares owned by the tenant-stockholder and pledged to
the lender are, in almost all cases, subject to restrictions on transfer as set
forth in the cooperative's Certificate of Incorporation and Bylaws, as well as
in the proprietary lease or occupancy agreement, and may be canceled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. a default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under such proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest
thereon.
Recognition agreements also provide that in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring
(1) Even a transfer at a nonjudicial foreclosure sale has been held by one
federal court of appeals to constitute a fraudulent conveyance. The United
States Court of Appeals for the Ninth Circuit (in which California is located),
however, has held to the contrary. Amendments to the federal bankruptcy laws
addressed
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this conflict, at least in the bankruptcy context (as opposed to a state court
fraudulent conveyance claim), but not with complete clarity. It is probable that
a court would interpret these amendments to permit challenging a nonjudicial
foreclosure sale as a fraudulent conveyance if the property is worth
significantly more than the amount paid at the sale. Citibank Service
Corporation, a subsidiary of CFSB doing business as Citibank Insurance Agency,
sells such insurance in connection with Mortgage Loans originated by CFSB.
Finally, in California, the borrower has until 5 days before a trustee sale to
reinstate the loan. the cooperative shares or assigning the proprietary lease.
Generally, the lender is not limited in any rights it may have to dispossess the
tenant-stockholders.
In New York and New Jersey, foreclosure on the cooperative shares is
accomplished by a sale in accordance with the provisions of Article 9 of the
Uniform Commercial Code (the "UCC") and the security agreement relating to those
shares. Article 9 of the UCC requires that a sale be conducted in a
"commercially reasonable" manner. Whether a foreclosure sale has been conducted
in a "commercially reasonable" manner will depend on the facts in each case. In
determining commercial reasonableness, a court will look to the notice given the
debtor and the method, manner, time, place and terms of the foreclosure.
Generally, a sale conducted according to the usual practice of banks selling
similar collateral will be considered reasonably conducted. Article 9 of the UCC
provides that the proceeds of the sale will be applied first to pay the costs
and expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. The recognition agreement, however, generally
provides that the lender's right to reimbursement is subject to the right of the
cooperative corporation to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account to
the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible for
the deficiency. See "Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
The Servicer is not required under the Pooling Agreement to expend its
own funds to foreclose on a defaulted Mortgage Loan unless it generally
determines that foreclosure would increase the net proceeds of liquidation
available for distribution to Certificateholders and its expenditures will be
recoverable. There may be circumstances, for example, the possibility of
incurring liability for environmental damage or a substantial decline in the
value of the underlying property, which would cause the Servicer to elect not to
foreclose on a defaulted Mortgage Loan.
Rights of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the trustor or mortgagor and foreclosed junior lienors are given
a statutory period in which to redeem the property from the foreclosure sale.
The right of redemption should be distinguished from the equity of redemption,
which is a nonstatutory right that must be exercised prior to the foreclosure
sale. In some states, redemption may occur only upon payment of the entire
principal balance of the loan, accrued interest and expenses of foreclosure. In
other states, redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The right of
redemption would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
a right of redemption is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states, there
is no right to redeem property after a trustee's sale under a deed of trust or
after a foreclosure action.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of
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trust. A deficiency judgment is a personal judgment against the former borrower
equal in most cases to the difference between the net amount realized upon the
public sale of the real property and the amount due to the lender. Other
statutes require the beneficiary or mortgagee to exhaust the security afforded
under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. Finally, other
statutory provisions limit any deficiency judgment against the former borrower
following a judicial sale to the excess of the outstanding debt over the fair
market value of the property at the time of the public sale. The purpose of
these statutes is generally to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the judicial sale.
Although the Servicer may elect to pursue deficiency judgments on the
Mortgage Loans, the Servicer is generally not required under the Pooling
Agreement to do so, even if permitted by applicable law.
For Mortgage Loans Secured by Property in New York. Section 1371 of the
New York Real Property Actions and Proceedings Law provides that no award of a
deficiency judgment can be made unless the court has personal jurisdiction over
the defendant. Moreover, if no motion for a deficiency judgment is made within
90 days of the consummation of the sale by the delivery of the deed to the
purchaser, the proceeds of the foreclosure sale, regardless of the amount, are
deemed in full satisfaction of the mortgage debt and no right to recover any
deficiency in any action or proceeding exists. Section 1301 of the same law
limits the mortgagee's right to bring separate actions for the mortgage debt and
for foreclosure. While the foreclosure action is pending, or after final
judgment for the plaintiff therein, no other action may be commenced or
maintained to recover any part of the mortgage debt without leave of the court
in which the foreclosure action was brought. a deficiency judgment is limited to
an amount equal to the judgment amount in the foreclosure action, less (i) the
fair and reasonable market value of the mortgaged property as of the date of the
foreclosure sale or such nearest earlier date as there shall have been any
market value thereof as determined by the court or (ii) the sale price of the
property at the foreclosure sale, whichever shall be the higher.
Section 254-b of the New York Real Property Law also places a
limitation on the mortgagee with respect to late payment charges. Where the
mortgage contains a provision giving the mortgagee the right to collect a late
payment charge on any installment that has become due and remains unpaid, such
charge cannot be more than 2% of the delinquent installment and cannot be
imposed on any installment paid within 15 days of the due date. In addition,
late payment charges cannot be deducted from the regular installment payments;
they must be separately charged and collected by the mortgagee.
In New York the mortgagee of a loan on a residential leasehold property
can foreclose such mortgage by maintaining a traditional equitable foreclosure
action. Any rent or taxes paid by the mortgagee following default by the
mortgagor may be added to the unpaid balance of the mortgage debt upon
foreclosure. a judgment of foreclosure of a leasehold, however, results in a
public auction only if the mortgage expressly so provides, whereas judgment of
foreclosure on a real property mortgage would result in a public auction in all
cases. In the absence of an express provision, in a leasehold mortgage, the
mortgagee can only recover a money judgment. In this event, the mortgagee may
follow traditional enforcement procedures. In addition to enforcement of
judgment remedies, the leasehold interest may then be subject to a post-judgment
sale pursuant to an execution.
For Mortgage Loans Secured by Property in New Jersey. Under New Jersey
law (N.J.S.A. 2A:50-1 et seq.) an action for deficiency judgment must be
commenced within three months from the date of the foreclosure sale of a
mortgaged premises. In a deficiency action, judgment will be rendered only for
the balance due on the debt and interest and costs of the action. The obligor
under the note may file an answer in the action for deficiency, disputing the
amount of the deficiency sued for. The court will determine the amount of the
deficiency by deducting from the debt the amount determined as the fair market
value of the premises.
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In New Jersey, the commencement of a deficiency action reopens the
mortgagor's right of redemption for a period of six months after the entry of
any deficiency judgment, which could have an adverse effect on the ability to
transfer good title to the mortgaged premises during this period.
For Mortgage Loans Secured by Property in Connecticut. If the mortgagee
took title to the mortgaged property under strict foreclosure but the mortgaged
property had value lower than the debt, Connecticut law permits the mortgagee to
move for a deficiency judgment in the amount of the difference within 30 days
after the redemption period has expired. If there was foreclosure by sale and
the proceeds of sale were insufficient to discharge the mortgage debt in full,
the mortgagee may obtain a deficiency judgment for the difference. If, however,
the sales price is less than the value of the mortgaged property as found by the
court, one half of the difference between such value and the sales price must be
credited against the deficiency claim of the person who sought foreclosure by
sale.
For Mortgage Loans Secured by Property in California. The rule in
California commonly known as the "one-action rule" provides that a lender mus
include all claims in one action and must foreclose its security before seeking
to impose any personal liability. The anti-deficiency rules limit the recovery
of personal judgments. If a foreclosure is conducted by way of a nonjudicial
foreclosure sale, California law prohibits the recovery of a deficiency
judgment. In addition, a deficiency judgment is prohibited even if judicial
foreclosure is pursued when a lender finances the purchase price of residential
real property and the property has four or fewer units and is occupied by the
purchaser. Because most mortgage loans fall into this category, the Issuer
intends to pursue nonjudicial foreclosure. While it is possible to sue the
borrower for any fraud or waste, it generally is not practical to do so.
For Mortgage Loans Secured by Property in Texas. In Texas most
foreclosures are non-judicial. However, it is necessary to give both notice of
intent to accelerate as well as notice of acceleration of the installment note
unless proper waiver language is included in the note. If the real property is
used as the debtor's residence, the debtor must be given at least 20 days to
cure the default before the entire debt is due and notice of sale is given. Any
suit for a deficiency judgment must be brought within two years after the date
of foreclosure. During the pendency of such suit, the debtor has the right to
request the court to determine the fair market value of the property foreclosed
upon. In the event the court determines that the fair market value of the
property is greater than the bid price paid at foreclosure, the debtor is
entitled to an offset against the deficiency claim in the amount by which the
fair market value exceeds the bid price.
For Mortgage Loans Secured by Property in Illinois. In Illinois, if the
price at the foreclosure sale is less than the total amount adjudicated due in
the judgment of foreclosure plus statutory interest, certain advances and costs
incurred at the time of judicial sale, the mortgagee may obtain deficiency
judgment against the mortgagor provided that there is personal jurisdiction over
the mortgagor.
For Mortgage Loans Secured by Property in Florida. Under Florida law,
if the fair market value of the mortgaged property at the time of the
foreclosure sale is less than the debt of the final judgment, the mortgagee may
seek a deficiency judgment, either as part of the foreclosure action or in a
separate action on the note. The decision whether to grant a deficiency judgment
sought as part of the foreclosure action lies within the sound judicial
discretion of the court but is subject to any equitable defenses by the
borrower. No award of a deficiency judgment can be made, either as part of or
separately from the foreclosure action, unless the court has personal
jurisdiction over the defendant. a request for a deficiency judgment is subject
to dismissal for lack of prosecution if the deficiency relief is not sought
within one year from the foreclosure sale date.
For Cooperative Loans. Generally, Article 9 of the UCC governs
foreclosure on cooperative shares and the related proprietary lease or occupancy
agreement in New York or New Jersey. Some courts have interpreted section 9-504
of the UCC to prohibit a deficiency award unless the creditor establishes that
the sale of the
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collateral (which, in the case of a Cooperative Loan, would be the shares of the
cooperative and the related proprietary lease or occupancy agreement) was
conducted in a commercially reasonable manner.
Section 254-b of the New York Real Property Law relating to late
payment charges, as discussed above, also applies to a note evidencing a
cooperative loan.
For all Mortgage Loans. In addition to laws limiting or prohibiting
deficiency judgments, numerous other statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon its
security. For example, numerous statutory provisions under the United States
Bankruptcy Code, 11 U.S.C. Sections 101 et seq., (the "Bankruptcy Code") may
interfere with or affect the ability of the Servicer to obtain payment of a
Mortgage Loan, to realize upon collateral and/or to enforce a deficiency
judgment. For example, under federal bankruptcy law, virtually all actions
(including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of a bankruptcy petition, and often no
interest or principal payments are made during the course of the bankruptcy
proceeding. In a case under the Bankruptcy Code, the secured party is precluded
from foreclosing without authorization from the bankruptcy court. In addition, a
court with federal bankruptcy jurisdiction may permit a debtor through his or
her Chapter 11 or Chapter 13 plan to cure a monetary default in respect of a
Mortgage Loan by paying arrearages within a reasonable time period and
reinstating the original mortgage loan payment schedule even though the lender
accelerated the mortgage loan and final judgment of foreclosure had been entered
in state court (provided no foreclosure sale had yet occurred) prior to the
filing of the debtor's petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the case,
that effected the curing of a mortgage loan default by paying arrearages over a
number of years.
If a Mortgage Loan is secured by property not consisting solely of the
debtor's principal residence, the Bankruptcy Code also permits such Mortgage
Loan to be modified. Such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule,
and reducing the lender's security interest to the value of the property, thus
leaving the lender in the position of a general unsecured creditor for the
difference between the value of the property and the outstanding balance of the
Mortgage Loan. Some courts have permitted such modifications when the Mortgage
Loan is secured both by the debtor's principal residence and by personal
property.
If a court relieves a borrower's obligation to repay amounts otherwise
due on a Mortgage Loan, the Servicer will not be required to advance such
amounts, and any loss in respect thereof will be borne by the
Certificateholders.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing, and enforcement
of mortgage loans. These laws include the federal Truth in Lending Act, Real
Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit
Billing Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, and
related statutes and regulations. These federal laws and state laws impose
specific statutory liabilities upon lenders who originate or service mortgage
loans and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
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Enforceability of Certain Provisions, Prepayment Charges and Prepayments
Unless the Prospectus Supplement indicates otherwise, Mortgage Loans
representing at least 90% of the aggregate Adjusted Balance of the Mortgage
Loans in a Fixed Rate Pool will contain due-on-sale clauses. Generally, ARMs in
an ARM Pool will contain due-on-sale clauses permitting the mortgagee to
accelerate only in situations where its security may be impaired. These clauses
permit the lender to accelerate the maturity of the loan if the borrower sells,
transfers or conveys the property or, in the case of a land trust, the
beneficial interest therein is transferred. The enforceability of these clauses
has been impaired in various ways in certain states by statute or decisional
law. The ability of mortgage lenders and their assignees and transferees to
enforce due-on-sale clauses was addressed by the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") which was enacted on
October 15, 1982. This legislation, subject to certain exceptions, preempts
state constitutional, statutory and case law that prohibits the enforcement of
due-on-sale clauses. Exempted from this preemption are mortgage loans
(originated other than by federal savings and loan associations and federal
savings banks) that were made or assumed during the period beginning on the date
certain states ("Window Period States"), by statute or final appellate court
decision having statewide effect, prohibited the exercise of due-on-sale clauses
and ending on October 15, 1982 ("Window Period Loans"). Due-on-sale clauses
contained in mortgage loans originated by federal savings and loan associations
or federal savings banks are fully enforceable pursuant to regulations of the
Federal Home Loan Bank Board (now OTS) which preempt state law restrictions on
the enforcement of due-on-sale clauses. Mortgage loans originated by such
institutions are therefore not deemed to be Window Period Loans.
Though neither the Garn-St Germain Act nor the Federal Home Loan Bank
Board regulations promulgated thereunder actually names the Window Period
States, FHLMC has taken the position, in prescribing mortgage loan servicing
standards with respect to mortgage loans which it has purchased, that the Window
Period States are: Arizona, Arkansas, California, Colorado, Florida, Georgia,
Iowa, Michigan, Minnesota, New Mexico, Utah and Washington. In regulations
issued on November 8, 1983, the Comptroller of the Currency indicated that
certain mortgage loans which were originated by national banks prior to October
15, 1982 and which were secured by property located in the states listed above
were Window Period Loans. These regulations limit the applicability of state law
restrictions on the enforcement of due-on-sale clauses with respect to Window
Period Loans originated by national banks. The National Credit Union
Administration issued final regulations on December 3, 1982, providing that
due-on-sale clauses contained in Window Period Loans originated by federal
credit unions are fully enforceable, notwithstanding state law restrictions.
Under the Garn- St Germain Act, unless a Window Period State took action by
October 15, 1985, the end of the Window Period, to further regulate enforcement
of due-on-sale clauses, such clauses would become enforceable even in Window
Period Loans. Four of the Window Period States (Minnesota, Michigan, New Mexico
and Utah) have taken actions which restrict the enforceability of due-on-sale
clauses in Window Period Loans beyond October 15, 1985. The actions taken vary
among such states. The Garn-St Germain Act also set forth nine specific
instances in which no mortgage lender covered by the Garn-St Germain Act may
exercise a due-on-sale clause, notwithstanding the fact that a transfer of the
property may have occurred. The inability to enforce a due-on-sale clause may
result in a Mortgage Loan bearing an interest rate below the current market rate
being assumed by a new home buyer rather than being paid off, which may have an
impact upon the average life of the Mortgage Loans underlying a Series and the
number of such Mortgage Loans which may be outstanding until maturity. Upon
foreclosure, courts have imposed general equitable principles. The equitable
principles are generally designed to relieve the borrower from the legal effect
of his defaults under the loan documents. Examples of judicial remedies that
have been fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the loan.
In some cases, courts have substituted their judgment for the lender's judgment
and have required that lenders reinstate loans or recast payment schedules in
order to accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of a lender to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower's failure to
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adequately maintain the property or the borrower's execution of a second
mortgage or deed of trust affecting the property. Finally, some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for adequate notice require that borrowers under
deeds of trust or mortgages receive notices in addition to the statutorily
prescribed minimums. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protections to the borrower.
All conventional single-family Mortgage Loans originated by Citibank
may be prepaid in full or in part at any time, without penalty.
New Jersey statutes (N.J.S.A. 46:10B-2,3) provide that most New Jersey
residential mortgage loans may be prepaid in full at any time without penalty,
and that partial prepayments may be made in an amount not exceeding 331/3% of
the face amount of the mortgage loan in any six-month period without penalty.
California law regarding prepayment penalties is very complex. Whether
a lender can enforce a prepayment penalty depends in the first instance upon
whether the documents give the borrower the right to prepay or the lender the
right to charge a prepayment penalty. Other considerations are the date the loan
was originated, the amount of the loan, whether the loan was a fixed rate or a
variable rate loan, the kind of property securing the loan and when the borrower
wishes to make the prepayment. Federal savings and loan law prohibits the
imposition of prepayment penalties upon the exercise of a due-on-sale clause or
the failure to approve an assumption by a qualified transferee and the
subsequent transfer by the borrower of the property to that transferee and
prepayment of the loan in full.
Beginning on January 15, 1991, CFSB's California branches' standard
forms for 15-year fixed rate tiered-payment Mortgage Loans provide for a penalty
for full or partial prepayment of up to six months' interest during the first 12
months following origination.
In Illinois, whenever the annual rate of interest exceeds 8% for a loan
secured by residential real estate, it is unlawful to provide for a prepayment
penalty.
Most conventional single-family mortgage loans originated by the
Florida branches of CFSB may be prepaid in full or in part without penalty. The
regulations of the Federal Home Loan Bank Board prohibit the imposition of a
prepayment penalty or equivalent fee for or in connection with the acceleration
of a loan by exercise of a due-on-sale clause. a mortgagee to whom a prepayment
in full has been tendered may be compelled to give either a release of the
mortgage or an instrument assigning the existing mortgage to a refinancing
lender.
Under New York law, a prepayment penalty may not be charged on any loan
secured by a one- to six- family residence occupied by the owner or certificates
of stock in a cooperative corporation, where the interest rate exceeds 6% per
annum, if prepayment is made on or after one year from the making of the loan.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. a similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The OTS as successor to the Federal Home Loan Bank Board is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized the states to
reimpose interest rate limits by adopting, before
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April 1, 1983, a law or constitutional provision which expressly rejects an
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Issuer has been advised by counsel that a court interpreting Title
V would hold that Mortgage Loans related to a Series originated on or after
January 1, 1980 are subject to federal preemption. Therefore, in a state that
has not taken the requisite action to reject application of Title V or to adopt
a provision limiting discount points or other charges prior to origination of
such Mortgage Loans, any such limitation under such state's usury law would not
apply to such Mortgage Loans.
In any state in which application of Title V has been expressly
rejected or a provision limiting discount points or other charges is adopted, no
Mortgage Loans related to a Series originated after the date of such state
action will be eligible for inclusion in a Pool if such mortgage loans bear
interest or provide for discount points or charges in excess of permitted
levels. No mortgage loan related to a Series originated prior to January 1, 1980
will bear interest or provide for discount points or charges in excess of
permitted levels.
Adjustable Interest Rate Mortgage Loans
Adjustable interest rate mortgage loans originated by non-federally
chartered lenders have historically been subject to a variety of restrictions.
Such restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender complied with applicable law. These difficulties were
alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, state-chartered banks may originate "alternative
mortgage instruments" (including adjustable rate mortgage loans) in accordance
with regulations promulgated by the Comptroller of the Currency with respect to
origination of alternative mortgage instruments by national banks;
state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration with respect to origination of alternative mortgage instruments
by federal credit unions and all other non-federally chartered housing
creditors, including state-chartered savings and loan associations; and
state-chartered savings banks and mortgage banking companies may originate
alternative mortgage instruments in accordance with the regulations promulgated
by the Federal Home Loan Bank Board (now OTS) with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
The Issuer has been advised by its counsel that it is their opinion
that a court interpreting Title VIII would hold that adjustable interest rate
mortgage loans which were originated by state-chartered lenders before the date
of enactment of any state law or constitutional provision rejecting
applicability of Title VIII would not be subject to state laws imposing
restrictions or prohibitions on the ability of state-chartered lenders to
originate alternative mortgage instruments.
All of the ARMs which were originated by a state-chartered lender after
the enactment of a state law or constitutional provision rejecting the
applicability of Title VIII complied with applicable state law. All of the ARMs
which were originated by federally chartered lenders or which were originated by
state-chartered lenders prior to enactment of a state law or constitutional
provision rejecting the applicability of Title VIII were originated in
compliance with all applicable federal regulations.
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Environmental Considerations
a lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property. Property subject to such a
security interest may be subject to federal, state, and local laws and
regulations relating to environmental protection. Such laws may regulate, among
other things: emissions of air pollutants; discharges of wastewater or storm
water; generation, transport, storage or disposal of hazardous waste or
hazardous substances; operation, closure and removal of underground storage
tanks; removal and disposal of asbestos-containing materials; management of
electrical or other equipment containing polychlorinated biphenyls ("PCBs").
Failure to comply with such laws and regulations may result in significant
penalties, including civil and criminal fines.
Under the laws of certain states, environmental contamination on a
property may give rise to a lien on the property to ensure the availability
and/or reimbursement of cleanup costs. Generally, all subsequent liens on such
property are subordinated to such a lien and, in some states, even prior
recorded liens are subordinated to such liens ("Superliens"). In the latter
states, the security interest of the Trustee in a property that is subject to
such a Superlien could be adversely affected.
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act, as amended ("CERCLA"), and under state law in certain states,
a secured party which takes a deed in lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, operates a mortgaged property or undertakes
certain types of activities that may constitute "management" of the property may
become liable in certain circumstances for the costs of remedial action
("Cleanup Costs") if hazardous wastes or hazardous substances have been released
or disposed of on the property. Such Cleanup Costs may be substantial. CERCLA
imposes strict, as well as joint and several, liability for environmental
remediation and/or damage costs on several classes of "potentially responsible
parties," including current "owners and/or operators" of property, irrespective
of whether those owners or operators caused or contributed to contamination on
the property. In addition, owners and operators of properties that generate
hazardous substances that are disposed of at other "off-site" locations may be
held strictly, jointly and severally liable for environmental remediation and/or
damages at those off-site locations. Many states also have laws that are similar
to CERCLA. Liability under CERCLA or under similar state law could exceed the
value of the property itself as well as the aggregate assets of the property
owner.
The law is unclear as to whether and under what precise circumstances
Cleanup Costs, or the obligation to take remedial actions, could be imposed on a
secured lender such as the Trust. Under the laws of some states and under
CERCLA, a lender may be liable as an "owner or operator" for costs of addressing
releases or threatened releases of hazardous substances on a mortgaged property
if such lender or its agents or employees have "participated in the management"
of the operations of the borrower, even though the environmental damage or
threat was caused by a prior owner or current owner or operator or other third
party. Excluded from CERCLA's definition of "owner or operator," is a person
"who without participating in the management of . . . [the] facility, holds
indicia of ownership primarily to protect his security interest" (the
"secured-creditor exemption"). This exemption for holders of a security interest
such as a secured lender applies only to the extent that the lender seeks to
protect its security interest in the contaminated facility or property. Thus, if
a lender's activities begin to encroach on the actual management of such
facility or property, the lender faces potential liability as an "owner or
operator" under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property, the lender may incur potential CERCLA
liability in various circumstances, including among others, when it holds the
facility or property as an investment (including leasing the facility or
property to a third party), fails to market the property in a timely fashion or
fails to properly address environmental conditions at the property or facility.
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A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly construed
CERCLA's secured-creditor exemption. The court's opinion suggested that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under CERCLA;
rather, liability could attach to a lender if its involvement with the
management of the facility were broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decisions
could be inferred from the extent of its involvement in the facility's financial
management. A subsequent decision by the United States Court of Appeals for the
Ninth Circuity in In re Bergose Metal Corp., apparently disagreeing with, but
not expressly contradicting, the Fleet Factors court, held that a secured lender
had no liability absent "some actual management of the facility" on the part of
the lender.
On April 29, 1992, the United States Environmental Protection Agency
(the "EPA") issued a final rule interpreting and delineating CERCLA's
secured-creditor exemption and the range of permissible actions that may be
undertaken by a holder of a contaminated facility without exceeding the bounds
of the secured-creditor exemption. However, on February 4, 1994, the United
States Court of Appeals for the District of Columbia Circuit in Kelley v. EPA
invalidated the EPA rule. As a result of the Kelley case, the state of the law
with respect to the secured-creditor exemption was, until recently, unclear. On
September 28, 1996, Congress enacted, and on September 30, 1996 the President
signed into law, legislation intended to clarify the scope of the secured
creditor exemption. This legislation more clearly defines the kinds of
activities that would constitute "participation in management" and that
therefore would trigger liability for secured parties under CERCLA. It also
identified certain activities that ordinarily would not trigger liability,
provided, however, that such activities did not otherwise rise to the level of
"participation in management." The new law specifically reverses the Fleet
Factors "capacity to influence" standard. The new law also provides additional
protection against liability in the event of foreclosure. However, since the
courts have not yet had the opportunity to interpret the new statutory
provisions, the scope of the additional protections offered by the new law is
not fully defined. It also is important to note that the new legislation does
not offer complete protection to lenders and that the risk of liability remains.
If a secured lender does become liable, it may be entitled to bring an
action for contribution against the owner or operator who created the
environmental contamination or against some other liable party, but that person
or entity may be bankrupt or otherwise judgment-proof. It is therefore possible
that cleanup or other environmental liability costs could become a liability of
the Trust and occasion a loss to the Trust and to Certificateholders in certain
circumstances. The new secured creditor amendments to CERCLA also affect the
potential for liability in actions by either a state or a private party under
other federal or state laws which may impose liability on "owners or operators"
but do not incorporate the secured-creditor exemption.
Traditionally, residential mortgage lenders have not taken steps to
evaluate whether hazardous wastes or hazardous substances are present with
respect to any mortgaged property prior to the origination of the mortgage loan
or prior to foreclosure or accepting a deed-in-lieu of foreclosure. Accordingly,
neither the Issuer nor any Originator has made such evaluations prior to the
origination of the Mortgage Loans nor does the Issuer require that such
evaluations be made by originators who have sold the Mortgage Loans to it.
Neither the Issuer nor the Servicer is required to undertake any such
evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure. The
Issuer does not make any representations or warranties or assume any liability
with respect to: the environmental condition of such property; the absence or
presence of hazardous wastes or hazardous substances on any Mortgaged Property;
any casualty resulting from the presence or effect of hazardous wastes or
hazardous substances on, near or emanating from such property; or the impact of
any environmental condition or the presence of any substance on or near the
property on the prospective performance of the Mortgage Loans or the compliance
of any Mortgaged Property with any environmental laws, nor is any agent,
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person or entity otherwise affiliated with the Issuer authorized or able to make
any such representation, warranty or assumption of liability relating to any
Mortgaged Property.
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APPENDIX B
THE AGENCY CERTIFICATES
This Appendix describes GNMA, FHLMC, FNMA, their respective Mortgage
Certificates, the underlying mortgage loans and certain related matters.
GNMA
The Government National Mortgage Association ("GNMA") is a wholly-owned
corporate instrumentality of the United States within the Department of Housing
and Urban Development. Section 306(g) of Title III of the National Housing Act
of 1934, as amended (the "Housing Act"), authorizes GNMA to guarantee the timely
payment of the principal of and interest on certificates ("GNMA Certificates")
that are based on and backed by, and represent an interest in, a pool of
mortgage loans insured by the Federal Housing Administration ("FHA") under the
Housing Act ("FHA Loans") or Title V of the Housing Act of 1949, or partially
guaranteed by the United States Veterans Administration ("VA") under the
Servicemen's Readjustment Act of 1944, as amended, or Chapter 37 of Title 38,
United States Code or by pools of other eligible mortgage loans.
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guaranty under this subsection." In order to
meet its obligations under such guaranty, GNMA is authorized, under Section
306(d) of the Housing Act, to borrow from the United States Treasury in an
amount which is at any time sufficient to enable GNMA, with no limitations as to
amount, to perform its obligations under its guarantee.
GNMA Certificates
All of the GNMA Certificates will be "fully modified pass-through"
mortgage-backed certificates issued and serviced by issuers approved by GNMA or
by FNMA as a seller-servicer of FHA Loans or VA Loans or by both entities. The
mortgage loans underlying GNMA Certificates may consist of FHA Loans secured by
mortgages on one-to four-family residential properties or multifamily
residential properties, mortgage loans partially guaranteed by the VA ("VA
Loans"), and other mortgage loans eligible for inclusion in mortgage pools
underlying GNMA Certificates which may be level payment mortgage loans
(including "buydown" mortgage loans) or graduated payment mortgage loans each
secured by a first lien on a one-to four-family residential property.
Except in the case of GNMA Certificates backed by graduated payment
mortgage loans, each GNMA Certificate provides for the payment by or on behalf
of the issuer of the GNMA Certificate to the registered holder of such GNMA
Certificate of monthly payments of principal and interest equal to the
registered holder's proportionate interest in the aggregate amount of the
monthly scheduled principal and interest payments on each underlying eligible
mortgage loan, less servicing and guaranty fees aggregating the excess of the
interest on such eligible mortgage loans over the pass-through rate of such GNMA
Certificate. In addition, each payment to a GNMA Certificateholder will include
proportionate pass-through payments to such holder of any prepayments of
principal of the mortgage loan underlying the GNMA Certificate, and the holder's
proportionate interest in the remaining principal balance in the event of a
foreclosure or other disposition of any such mortgage loan.
GNMA Certificates may be issued under either the GNMA I program ("GNMA
I Certificates") or the GNMA II program ("GNMA II Certificates"). Although the
holder of a GNMA Certificate has essentially the same rights with respect to a
GNMA Certificate issued under either program, a principal difference between
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the two programs is that under the GNMA I program payments will be made directly
by the issuer of the GNMA I Certificate to the registered holder, while under
the GNMA II program payments will be made to the registered holder through
Chemical Bank as paying agent. A further difference between the two programs is
that under the GNMA I program single issuer approach, an individual GNMA issuer
assembles a pool of mortgages against which it issues and markets GNMA I
Certificates, while under the GNMA II program multiple issuer pools may be
formed through the aggregation of loan packages of more than one GNMA issuer.
Under this option, packages submitted by various GNMA issuers for a particular
issue date and interest rate are aggregated into a single pool which backs a
single issue of GNMA II Certificates. However, single issuer pools may be formed
under the GNMA II program as well.
If specified in the related Prospectus Supplement, GNMA Certificates
included in the Pool for a Series of CitiCertificates may be held on deposit at
the Participants Trust Company ("PTC"), a limited trust company organized under
the banking laws of the State of New York. PTC operates a private sector,
industry owned depository and settlement facility for book-entry transfer of
interests in GMNA Certificates. Distribution of principal of and interest on
such GNMA Certificate held through PTC will be credited by PTC to the PTC
participant to whose account the GNMA is credited.
All mortgage loans underlying a particular GNMA I Certificate must have
the same annual interest rate (except for pools of mortgages secured by mobile
homes). The annual interest rate on each GNMA I Certificate is 50 basis points
less than the annual interest rate on the mortgage loans included in the pool of
mortgages backing such GNMA I Certificate.
Mortgages underlying a particular GNMA II Certificate may have annual
interest rates that vary from each other by up to 100 basis points. The annual
interest rate on each GNMA II Certificate will be between 50 basis points and
150 basis points per annum less than the highest annual interest rate on the
mortgage loans included in the pool of mortgages backing such GNMA II
Certificate.
All of the GNMA Certificates included in the Pool for a Series of
Certificates will have original maturities of not more than 30 years (but may
have original maturities of substantially less than 30 years). In general, GNMA
requires that at least 90% of the original principal amount of the mortgage pool
underlying a GNMA Certificate must be mortgage loans with maturities of 20 years
or more. However, in certain circumstances GNMA Certificates may be backed by
pools of mortgage loans at least 90% of the original principal amount of which
have original maturities of at least 15 years.
Each mortgage loan underlying a GNMA Certificate, at the time GNMA
issues its guarantee commitment, must be originated no more than 12 months prior
to such commitment date.
The GNMA Certificates do not constitute a liability of, or evidence any
recourse against, the issuer of the GNMA Certificates, the issuer of a Series of
CitiCertificates or any affiliates thereof, and the only recourse of a
registered holder of GNMA Certificates, such as the Trustee, is to enforce the
guaranty of GNMA.
GNMA will have approved the issuance of each of the GNMA Certificates
included in the Pool for a Series of CitiCertificates in accordance with a
guaranty agreement between GNMA and the servicer of the mortgage loans
underlying such GNMA Certificate, which is the issuer of the GNMA Certificates.
Pursuant to such agreement, such issuer is required to advance its own funds in
order to make timely payments of all amounts due on the GNMA Certificate, even
if the payments received by such issuer on the mortgage loans backing the GNMA
Certificate are less than the amounts due on such GNMA Certificate. If such
issuer is unable to make payments on a GNMA Certificate as it becomes due, it
must promptly notify GNMA and request GNMA to make such payment. Upon such
notification and request, GNMA will make such payments directly to the
registered holder of the GNMA Certificate. In the event no payment is made by
such issuer and
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such issuer fails to notify and request GNMA to make such payment, the
registered holder of the GNMA Certificate has recourse only against GNMA to
obtain such payment. The Trustee or its nominee, as registered holder of the
GNMA Certificates included in the Pool for a Series of CitiCertificates, is
entitled to proceed directly against GNMA under the terms of the guaranty
agreement or contract relating to such GNMA Certificates for any amounts that
are not paid when due under each GNMA Certificate.
The GNMA Certificates included in the Pool for a Series of
CitiCertificates may have other characteristics and terms, different from those
described above, so long as such GNMA Certificates and underlying mortgage loans
meet the criteria of the rating agency or agencies rating the CitiCertificates
of such Series. Such GNMA Certificates and underlying mortgage loans will be
described in the related Prospectus Supplement.
FHLMC
The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate
instrumentality of the United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the "FHLMC Act"). FHLMC's common
stock is owned by the Federal Home Loan Banks. FHLMC was established primarily
for the purpose of increasing the availability of mortgage credit for the
financing of urgently needed housing. It seeks to provide an enhanced degree of
liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional mortgages. The principal
activity of FHLMC currently consists of the purchase of first lien conventional
residential mortgage loans or participation interests in such mortgage loans and
the resale of the mortgage loans so purchased in the form of mortgage
securities. All mortgage loans purchased by FHLMC must meet certain standards
set forth in the FHLMC Act. FHLMC is confined to purchasing, so far as
practicable, conventional mortgage loans and participation interests therein
which it deems to be of such quality, type and class that generally meet the
purchase standards imposed by private institutional mortgage investors.
FHLMC Certificates
Each FHLMC Certificate represents an undivided interest in a group of
mortgages ("FHLMC Certificate Group").
Mortgage loans underlying the FHLMC Certificates included in the Pool
for a Series of CitiCertificates will consist of fixed rate mortgage loans with
original terms to maturity of between 10 and 30 years. Each such mortgage loan
must meet the applicable standards set forth in the FHLMC Act. A FHLMC
Certificate Group may include whole loans, participation interests in whole
loans and undivided interests in whole loans and/or participations comprising
another FHLMC Certificate Group.
With respect to certain FHLMC Certificates ("Original PCs"), the period
between the first day of the month in which the Certificate is issued and the
initial payment date in respect of the Certificate is approximately 75 days.
With respect to other FHLMC Certificates ("Gold PCs"), the period between the
first day of the month in which the Certificate is issued and the initial
payment date in respect of the Certificate is approximately 45 days. In addition
to the shorter payment delay, Gold PCs differ from Original PCs in that the
record date for payments of principal and interest on a Gold PC is the last day
of the month immediately preceding the month in which the related payment date
occurs, whereas the record date for payments of principal and interest on an
Original PC is the last day of the second month preceding the month in which the
payment date occurs.
FHLMC guarantees to each registered holder of a FHLMC Certificate the
timely payment of interest at the rate provided for by such FHLMC Certificate on
the registered holder's pro rata share of the unpaid
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principal balance outstanding on the related mortgage loans, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
the ultimate collection by such holder of all principal on the related mortgage
loans, without any offset or deduction, to the extent of such holder's pro rata
share thereof, but does not, except with respect to Gold PCs or if and to the
extent specified in the Prospectus Supplement relating to a Series of
CitiCertificates secured by Original PCs, guarantee the timely payment of
scheduled principal. Pursuant to its guarantees, FHLMC indemnifies holders of
FHLMC Certificates against any diminution in principal by reason of charges for
property repairs, maintenance and foreclosure. FHLMC may remit the amount due on
account of its guarantee of collection of principal at any time after default on
an underlying mortgage loan, but not later than (i) 30 days following
foreclosure sale, (ii) 30 days following payment of the claim by any mortgage
insurer, or (iii) 30 days following the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year after demand has
been made upon the mortgagor for accelerated payment of principal. In taking
actions regarding the collection of principal after default on the mortgage
loans underlying FHLMC Certificates, including the timing of demand for
acceleration, FHLMC reserves the right to exercise its servicing judgment with
respect to the mortgages in the same manner as for mortgages which it has
purchased but not sold.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States.
Registered holders of FHLMC Certificates are entitled to receive their
monthly pro rata share of all principal payments on the underlying mortgage
loans received by FHLMC, including any scheduled principal payments, full and
partial payments of principal, and principal received by FHLMC by virtue of
condemnation, insurance or foreclosure, and repurchases of the mortgages by
FHLMC or the sellers of the mortgages. FHLMC is required to remit to each
registered FHLMC Certificateholder its pro rata share of principal payments on
the underlying mortgage loans, interest at the FHLMC Certificate rate and any
other sums (such as prepayment fees), within 60 days of the date on which such
payments are deemed to have been received by FHLMC.
Under FHLMC's Cash Program, prior to June 1987 there was no limitation
on the amount by which interest rates on the mortgage loans underlying a FHLMC
Certificate may exceed the interest rate on the FHLMC Certificate. Under such
program, FHLMC purchases groups of whole mortgage loans from sellers at
specified percentages of their unpaid principal balances, adjusted for accrued
or prepaid interest, which, when applied to the interest rate of the mortgage
loans purchased, results in the yield (expressed as a percentage) required by
FHLMC. The required yield, which includes a minimum servicing fee retained by
the servicer, is calculated using the outstanding principal balance of the
mortgage loans, an assumed term and a prepayment period as determined by FHLMC.
No loan is purchased by FHLMC at greater than 100% of the outstanding principal
balance. The range of interest rates on the mortgage loans in a FHLMC
Certificate Group under the Cash Program formed prior to June 1987 will vary
since mortgage loans are purchased and assigned to a FHLMC Certificate Group
based upon their yield to FHLMC rather than on the interest rate on the mortgage
loans. Since June 1987, the range of interest rates on the mortgage loans and
participations in a FHLMC Certificate Group comprised of 15-and 30-year fixed
rate single family mortgage loans bought by FHLMC under the Cash Program is
restricted to one percentage point. Moreover, the lowest coupon on any mortgage
loan in the FHLMC Certificate Group is greater than or equal to the annual
pass-through rate on the related FHLMC Certificate, and the highest mortgage
interest rate is not more than two percentage points above such pass-through
rate. Under FHLMC's Guarantor Program, the annual pass-through rate on a FHLMC
Certificate is established based upon the lowest interest rate on the underlying
mortgage loans, minus a minimum servicing fee and the amount of FHLMC's
management and guarantee income as agreed upon between the seller and FHLMC. For
certain FHLMC Certificate Groups formed under the Guarantor Program prior to
December 1987, the range between the lowest and highest annual interest rates on
the mortgage loans in a FHLMC Certificate
B-4
<PAGE>
Group may not exceed two percentage points; beginning in December 1987, such
range may not exceed one percentage point.
FHLMC Certificates duly presented for registration of transfer on or
before the last business day of a month are registered effective as of the first
day of that month. The first remittance check to a registered holder of a FHLMC
Certificate will be mailed so as to be received normally by the 15th day of the
second month following the month in which the purchaser became a registered
holder of the FHLMC Certificate. Thereafter checks will be mailed monthly to the
registered holder so as to be received normally by the 15th day of each month.
The Federal Reserve Bank of New York maintains book-entry accounts with respect
to FHLMC Certificates sold by FHLMC on or after January 2, 1985, and makes
payments of interest and principal each month to the registered holders thereof
in accordance with such holders' instructions.
See "ADDITIONAL INFORMATION" in the body of the Prospectus for the
availability of further information respecting FHLMC and FHLMC Certificates.
The FHLMC Certificates included in the Pool for a Series of
CitiCertificates may have other characteristics and terms, different from those
described above, so long as such FHLMC Certificates and underlying mortgage
loans meet the criteria of the rating agency or agencies rating the
CitiCertificates of such Series. Such FHLMC Certificates and underlying mortgage
loans will be described in the related Prospectus Supplement.
FNMA
FNMA is a federally chartered and privately owned corporation organized
and existing under the Federal National Mortgage Association Charter Act, as
amended (the "Charter Act"). FNMA was originally established in 1938 as a United
States government agency to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder-owned and privately managed
corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from lenders, thereby replenishing their funds for additional
lending. FNMA acquires funds to purchase loans from many capital market
investors that may not ordinarily invest in mortgage loans, thereby expanding
the total amount of funds available for housing and, by operating nationwide,
FNMA helps to redistribute mortgage funds from capital-surplus to capital-short
areas. In addition, FNMA issues mortgage-backed securities primarily in exchange
for pools of mortgage loans from lenders.
Although the Secretary of the Treasury of the United States has
discretionary authority to advance funds to FNMA, neither the United States
government nor any agency or instrumentality thereof is obligated to assume
FNMA's obligations or assist FNMA in any manner.
FNMA Certificates
FNMA Certificates represent fractional undivided interests in a pool of
mortgage loans formed by FNMA. Each mortgage loan must meet the applicable
standards of the FNMA purchase program. Mortgage loans comprising a pool are
either provided by FNMA from its own portfolio or purchased pursuant to the
criteria of the FNMA purchase program.
Mortgage loans underlying FNMA Certificates included in the Pool for a
Series of CitiCertificates will consist of conventional mortgage loans, FHA
Loans or VA Loans. The original maturities of substantially all of the
conventional, level payment mortgage loans underlying a FNMA Certificate are
expected to be between
B-5
<PAGE>
either 8 and 15 years or 20 and 30 years. The original maturities of
substantially all of the level payment FHA Loans or VA Loans are expected to be
30 years.
Mortgage loans underlying a FNMA Certificate may have annual interest
rates that vary by as much as two percentage points from each other. The rate of
interest payable on a FNMA Certificate is equal to the lowest interest rate of
any mortgage loan in the related pool, less a specified minimum annual
percentage representing servicing compensation and FNMA's guaranty fee. Under a
regular servicing option (pursuant to which the mortgagee or other servicer
assumes the entire risk of foreclosure losses), the annual interest rates on the
mortgage loan underlying a FNMA Certificate will be between 50 basis points and
250 basis points greater than the annual interest rate for the FNMA
Certificates; and under a special servicing option (pursuant to which FNMA
assumes the entire risk for foreclosure losses), the annual interest rates on
the mortgage loans underlying a FNMA Certificate will generally be between 55
basis points and 255 basis points greater than the annual FNMA Certificate
interest rate.
FNMA guarantees to each registered holder of a FNMA Certificate that it
will distribute amounts representing scheduled principal and interest (at the
rate provided for by such FNMA Certificate) on the mortgage loans in the pool
represented by such FNMA Certificate, whether or not received, and the full
principal amount of any foreclosed or other finally liquidated mortgage loan,
whether or not such principal amount is actually recovered. The obligations of
FNMA under its guarantees are obligations solely of FNMA and are not backed by,
nor entitled to, the full faith and credit of the United States. Although the
Secretary of the Treasury of the United States has discretionary authority to
lend FNMA up to $2.25 billion outstanding at any time, neither the United States
nor any agency thereof is obligated to finance FNMA's operations or to assist
FNMA in any other manner. If FNMA were unable to satisfy its obligations,
distributions to holders of FNMA Certificates would consist solely of payments
and other recoveries on the underlying mortgage loans and, accordingly, monthly
distributions to holders of FNMA Certificates would be affected by delinquent
payments and defaults on such mortgage loans.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of CitiCertificates, FNMA Certificates evidencing interests in pools of
mortgage loans formed on or after May 1, 1985 are available in book-entry form
only and will not be convertible to definitive form. Distributions of principal
and interest on each FNMA Certificate will be made by FNMA on the 25th day of
each month to the persons in whose name the FNMA Certificate is entered on the
books of the Federal Reserve Bank (or registered in the FNMA Certificate
register in the case of fully registered FNMA Certificates) as of the close of
business on the last day of the preceding month. With respect to FNMA
Certificates issued in book-entry form, distributions thereon will be made by
wire, and with respect to fully registered FNMA Certificates, distributions
thereon will be made by check.
See "ADDITIONAL INFORMATION" in the body of the Prospectus for the
availability of further information respecting FNMA and FNMA Certificates.
The FNMA Certificates included in the Pool for a Series of
CitiCertificates may have other characteristics and terms, different from those
described above, so long as such FNMA Certificates and underlying mortgage loans
meet the criteria of the rating agency or agencies rating the CitiCertificates
of such Series. Such FNMA Certificates and underlying mortgage loans will be
described in the related Prospectus Supplement.
B-6
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
Term Page
- ---- ----
Accrual CitiCertificates........................................ 1
Acquisition Premium............................................. 55
Adjusted Balance................................................ A-3
Affiliated Mortgage Loans....................................... 17
Affiliated Originators.......................................... 1
Alternative Certificate Account................................. A-13
Amount Available................................................ 13
ARM Pool........................................................ A-1
ARMs............................................................ A-6
BIF............................................................. 24
Bankruptcy Code................................................. A-32
Buydown Mortgage Loans.......................................... 19
Certificate Account............................................. 24
Certificate Account Advance..................................... A-15
Certificate Distribution Amount................................. 8
Certificateholders.............................................. 3
Certificates.................................................... 1
CFSB............................................................ 1
CFSB Pool....................................................... A-1
Charter Act..................................................... B-5
Citibank........................................................ 1
Citibank Pool................................................... A-1
CitiCertificates................................................ 1
Citicorp........................................................ 39
CitiMae......................................................... 1
CitiMae Mortgage Loans.......................................... 17
CitiMae Originators............................................. 1
CitiMae Pool.................................................... A-1
CitiMortgageCertificates........................................ 2
Class........................................................... 1
Cleanup Costs................................................... A-36
CMI............................................................. 1
CMI Pool........................................................ A-1
CMSI Pool....................................................... A-1
Code............................................................ 1
Commission...................................................... 3
CERCLA.......................................................... A-36
Consolidation Agreements........................................ A-2
Converted Mortgage Loan......................................... A-6
Cooperative Loans............................................... A-1
Cooperative Notes............................................... A-1
Cooperatives.................................................... A-1
Credit Support Percentage....................................... 13
Cut-Off Date.................................................... A-10
Deferred Interest............................................... 56
Depository...................................................... A-12
Detailed Information............................................ 3
Determination Date.............................................. 7
i
<PAGE>
Term Page
- ---- ----
Disqualified Organization........................................ 63
Distribution Date................................................ 7
DTC.............................................................. 6
Due Period....................................................... 10
Eligible Investments............................................. 24
Enhancement Act.................................................. 47
EDGAR............................................................ 3
EPA.............................................................. A-37
ERISA............................................................ 45
Events of Default................................................ 41
Exchange Act..................................................... 3
FDIC............................................................. 24
FHA.............................................................. B-1
FHA Loans........................................................ B-1
FHLMC............................................................ 23
FHLMC Act........................................................ B-3
FHLMC Certificate Group.......................................... B-3
FHLMC Certificates............................................... 23
Fixed Rate Pool.................................................. A-1
FNMA............................................................. 23
FNMA Certificates................................................ 23
Foreign Investors................................................ 65
Form of Pooling Agreement........................................ 4
Garn-St Germain Act.............................................. A-33
GNMA............................................................. 23
GNMA Certificates................................................ 23
GNMA I Certificates.............................................. B-1
GNMA II Certificates............................................. B-1
Gold PCS......................................................... B-3
GPMs............................................................. A-6
Guaranty......................................................... 1
Housing Act...................................................... B-1
Index............................................................ A-7
Interest Accrual Period.......................................... 8
IRA.............................................................. 45
Issuer........................................................... 1
Issuer Certificates.............................................. 2
Last Scheduled Distribution Date................................. 15
Leasehold Loans.................................................. 23
Letter of Credit................................................. 12
Limited Guaranty................................................. 12
Liquidated Loan.................................................. 15
Liquidating Loan................................................. 14
Loss Allocation Event............................................ 10
Market Discount.................................................. 56
Mark to Market Regulations....................................... 66
Master Servicer.................................................. A-4
Master Servicing Fee............................................. A-5
ii
<PAGE>
Term Page
- ---- ----
Maximum Note Rate................................................ A-6
Minimum Note Rate................................................ A-6
Minimum Prepayment Agreement..................................... 25
Minimum Reinvestment Agreement................................... 25
Modification Agreements.......................................... A-2
Moody's.......................................................... A-12
Mortgage Certificates............................................ 2
Mortgage Loans................................................... 1
Mortgage Margin.................................................. A-6
Mortgaged Properties............................................. A-1
Mortgagor........................................................ A-2
Mortgagor Bankruptcy Bond........................................ 12
NCUA............................................................. 48
New Regulations.................................................. 69
1986 Act......................................................... 52
Non-Conforming Loans............................................. 20
Noneconomic Residual Interests................................... 63
Non-U.S. Person.................................................. 68
Note Rate........................................................ A-4
Notice Date...................................................... A-16
NYBU............................................................. 27
OCC.............................................................. 48
OID Regulations.................................................. 52
Original Issue Discount.......................................... 56
Original PCS..................................................... B-3
Original Value................................................... 30
Originators...................................................... 1
OTS.............................................................. 40
PA............................................................... A-1
Pass-Through Entity.............................................. 64
Pass-Through Rate................................................ A-4
Payment Period................................................... A-15
Periodic Ceiling................................................. A-6
Periodic Floor................................................... A-6
Plans............................................................ 45
Policy Statement................................................. 48
PCBs............................................................. A-36
Pool............................................................. 1
Pool Distribution Amount......................................... 7
Pool Insurance Policies.......................................... 13
Pool Value....................................................... 9
Pool Value Group................................................. 9
Pooling Agreement................................................ 4
Premium.......................................................... 57
Prepayment Assumption............................................ 53
Primary Mortgage Insurance Policy................................ A-21
Principal Prepayment............................................. 7
Prospectus Supplement............................................ A-3
iii
<PAGE>
Term Page
- ---- ----
PTC.............................................................. B-2
PTE 83-l......................................................... 46
Purchase Amount Advance.......................................... 14
Rating Requirements.............................................. A-13
Real Estate Loans................................................ A-1
Record Date...................................................... 7
Registration Statement........................................... 4
Regulations...................................................... 45
REMIC............................................................ 1
REMIC Regulations................................................ 49
REMIC Servicing Fee.............................................. 17
Reserve Fund..................................................... 13
Residual Certificates............................................ 1
Residual Holders................................................. 59
Retail Class CitiCertificate..................................... 53
SAIF............................................................. 24
SBJPA of 1996.................................................... 50
Scheduled Principal.............................................. A-14
Securities Act................................................... 6
Senior Certificates.............................................. 1
Senior/Subordinated Series....................................... 1
Series........................................................... 1
Servicer......................................................... 17
Servicing Account................................................ A-17
Servicing Compensation........................................... 17
Servicing Fee.................................................... 17
SFAS............................................................. 71
Similar Law...................................................... 47
Single Certificate............................................... 6
Special Distributions............................................ 11
Special Hazard Insurance Policies................................ 13
Spread........................................................... 10
S&P.............................................................. A-12
Startup Day...................................................... 25
Stated Amount.................................................... 8
Stated Rate...................................................... 8
Subclass......................................................... 1
Subordinated Certificates........................................ 1
Subordination Amount............................................. 12
Subordination Reserve Fund....................................... 12
Subservicer...................................................... 28
Superlien........................................................ A-36
Third Party Loans................................................ 17
Third Party Originators.......................................... 1
Third Party Pool................................................. A-1
Title V.......................................................... A-34
Title VIII....................................................... A-35
Transfer Instrument.............................................. 21
iv
<PAGE>
Term Page
- ---- ----
Trust............................................................ 1
Trustee.......................................................... 4
UCC.............................................................. A-29
Underlying Trustee............................................... 22
U.S. Person...................................................... 65
VA............................................................... 26
VA Loans......................................................... B-1
Variable Rate CitiCertificates................................... 55
Voluntary Advances............................................... A-14
Whole or Partial Pool Issuer Certificates........................ 22
Window Period Loans.............................................. A-33
Window Period States............................................. A-33
v
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement and, if given or made, such information or representations must not
be relied upon. Neither the Prospectus nor this Prospectus Supplement
constitutes an offer to sell or a solicitation of any offer to buy any
securities other than the Offered CitiCertificates described in this Prospectus
Supplement or an offer to sell or the solicitation of an offer to buy the
Offered CitiCertificates to any person in any state or other jurisdiction in
which such offer or solicitation would be unlawful. Neither the delivery of the
Prospectus nor this Prospectus Supplement nor any sale made thereunder or
hereunder at any time implies that information herein is correct as of any time
subsequent to the date hereof or thereof.
TABLE OF CONTENTS
Prospectus Supplement
Page
Summary of Prospectus and Prospectus Supplement.........
Description of the Pool and the Mortgaged Properties
Risk Factors for Purchasers of Class M CitiCertificates
and Offered Class B CitiCertificates..................
Description of the Offered CitiCertificates.............
ERISA Considerations....................................
Legal Investment........................................
Plan of Distribution....................................
Legal Matters .........................................
Incorporation of Certain Documents by Reference.........
Index of Principal Definitions in Prospectus Supplement
Prospectus
Reports to Certificateholders..................... 3
Additional Information............................ 3
Available Information............................. 3
Additional Detailed Information................... 3
Incorporation of Certain Documents by Reference... 4
Description of Certificates....................... 5
The Pools......................................... 18
Citicorp Mortgage Securities, Inc. ............... 26
The Originators................................... 26
Loan Underwriting Policies........................ 29
Delinquency, Foreclosure and Loss Considerations
and Experience.................................. 34
Citicorp.......................................... 39
Use of Proceeds................................... 39
The Pooling Agreements............................ 39
ERISA Considerations.............................. 45
Legal Investment.................................. 47
Certain Federal Income Tax Consequences........... 49
Plans of Distribution............................. 70
Experts........................................... 71
Appendix A: The Mortgage Loans and
CitiMortgageCertificates
Appendix B: The Agency Certificates
Index of Principal Definitions
$[ ]
(Approximate)
Citicorp Mortgage
Securities, Inc.
(Packager and Servicer)
REMIC Pass-Through Certificates
Series [ ]
[ ]
Dated [ ]
<PAGE>
[Alternate Page]
may be done through underwriting syndicates led by one or more managing
underwriters or through one or more firms acting alone. The specific managing
underwriter or underwriters, if any, with respect to the offer and sale of a
particular series of Certificates will be set forth on the cover of the
Prospectus Supplement relating to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement. The
Prospectus Supplement will describe any discounts and commissions to be allowed
or paid by the Issuer to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers or agents. The obligations of the underwriters will be
subject to certain conditions precedent. The underwriters with respect to a sale
of Certificates will be obligated to purchase all such Certificates if any are
purchased. The Issuer and Citicorp will indemnify the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act.
The Prospectus Supplement with respect to any Series of Certificates
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the Issuer
and dealers for the Certificates of such Series.
Affiliates of the Issuer may act as agents or underwriters in
connection with the sale of a Series of Certificates. Any affiliate of the
Issuer so acting will be named, and its affiliation with the Issuer and Citicorp
described, in the Prospectus Supplement with respect to such Series.
The Issuer anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
re-offers and sales by them of Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such re-offer or sale.
EXPERTS
Consolidated financial statements of Citicorp and subsidiaries included
in Citicorp's Annual Report and Form 10-K for 1996 have been incorporated herein
by reference in reliance upon the report set forth therein of KPMG Peat Marwick
LLP, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the December 31, 1996 financial statements refers to the fact that in
1994 Citicorp adopted Statement of Financial Accounting Standards ("SFAS") No.
112, "Employers' Accounting for Postemployment Benefits", and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
The consolidated financial statements of MBIA Insurance Corporation and
subsidiaries as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, incorporated by reference in this
Prospectus, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon incorporated by reference
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
71
<PAGE>
[Alternate Page]
may be done through underwriting syndicates led by one or more managing
underwriters or through one or more firms acting alone. The specific managing
underwriter or underwriters, if any, with respect to the offer and sale of a
particular series of Certificates will be set forth on the cover of the
Prospectus Supplement relating to such Series and the members of the
underwriting syndicate, if any, will be named in such Prospectus Supplement. The
Prospectus Supplement will describe any discounts and commissions to be allowed
or paid by the Issuer to the underwriters, any other items constituting
underwriting compensation and any discounts and commissions to be allowed or
paid to the dealers or agents. The obligations of the underwriters will be
subject to certain conditions precedent. The underwriters with respect to a sale
of Certificates will be obligated to purchase all such Certificates if any are
purchased. The Issuer and Citicorp will indemnify the several underwriters
against certain civil liabilities, including liabilities under the Securities
Act.
The Prospectus Supplement with respect to any Series of Certificates
offered other than through underwriters will contain information regarding the
nature of such offering and any agreements to be entered into between the Issuer
and dealers for the Certificates of such Series.
Affiliates of the Issuer may act as agents or underwriters in
connection with the sale of a Series of Certificates. Any affiliate of the
Issuer so acting will be named, and its affiliation with the Issuer and Citicorp
described, in the Prospectus Supplement with respect to such Series.
The Issuer anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
re-offers and sales by them of Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such re-offer or sale.
EXPERTS
Consolidated financial statements of Citicorp and subsidiaries included
in Citicorp's Annual Report and Form 10-K for 1996 have been incorporated herein
by reference in reliance upon the report set forth therein of KPMG Peat Marwick
LLP, independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the December 31, 1996 financial statements refers to the fact that in
1994 Citicorp adopted Statement of Financial Accounting Standards ("SFAS") No.
112, "Employers' Accounting for Postemployment Benefits", and SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
The consolidated financial statements of MBIA Insurance Corporation and
subsidiaries as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, incorporated by reference in this
Prospectus, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their report thereon incorporated by reference
herein in reliance upon the authority of such firm as experts in accounting and
auditing.
71
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the Certificates other than
underwriting discounts and commissions.
SEC filing fee.................................................. $1,475,000
Printing and engraving expenses................................. 1,500,000*
Accounting fees and expenses.................................... 1,125,000*
Legal fees and expenses......................................... 437,500*
Trustee fees and expenses....................................... 437,500*
Rating agency fees.............................................. 1,250,000*
Miscellaneous................................................... 187,500*
Total..................................................... $6,412,500
- ----
* Estimated.
Item 15. Indemnification of Directors and Officers.
a. Citicorp Indemnification. Subsection (a) of Section 145 of the General
Corporation Law of Delaware empowers a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the
<PAGE>
court in which such action or suit was brought shall determine that, despite the
adjudication of liability, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that expenses of the indemnified party may be paid by the
corporation in advance of a final disposition; that indemnification provided for
by Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The Certificate of Incorporation of Citicorp provides, in effect, that
to the extent and under the circumstances permitted by subsections (a) and (b)
of Section 145 of the General Corporation Law of the State of Delaware, Citicorp
(i) shall indemnify any person who was or is a party or is threatened to be made
a party to any action, suit or proceeding described in subsections (a) and (b)
by reason of the fact that he is or was a director or officer of Citicorp
against expenses, judgments, fines and amounts paid in settlement, and (ii) may
indemnify any person who was or is a party or is threatened to be made a party
to any such action, suit or proceeding if such person was an employee or agent
of Citicorp, and is or was serving at the request of Citicorp as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
b. CFSB Indemnification. Under Office of Thrift Supervision (the "OTS";
successor to the Federal Home Loan Bank Board) Regulation ss.545.121, a federal
association must indemnify any director or officer against whom any judicial or
administrative proceeding is brought or threatened for the amount of any
judgment against him and his reasonable costs and expenses (including attorney's
fees) either (1) if final judgment on the merits is in his favor or (2)
otherwise, if a majority of the disinterested directors determine that he was
acting in good faith within the scope of his employment or authority as he could
reasonably have perceived it under the circumstances and for a purpose he could
reasonably have believed under the circumstances was in the best interest of the
savings association or its members and the OTS does not object to such
indemnification. CFSB has adopted resolutions conforming to such regulation.
c. Citibank Indemnification. Under Interpretive Ruling 7.5217 of the United
States Comptroller of the Currency, a national bank may (i) provide in its
articles of association for the indemnification of its directors, officers and
employees against legal and other expenses incurred in defending lawsuits
brought against them by reason of their official duties subject to the
limitation that such provision shall not allow the indemnification of bank
personnel against expenses, penalties or other payments incurred in an action
instituted by the Office of the Comptroller of the Currency which results in a
final order assessing civil money penalties or requiring payments to the bank,
and (ii) pay premiums for insurance covering such indemnification, except that
such insurance shall explicitly exclude coverage for a formal order assessing
civil money penalties against bank personnel.
The Articles of Association of Citibank provide that any person, his
heirs, executors, or administrators, may be indemnified or reimbursed by
Citibank for reasonable expenses actually incurred in connection with any
action, suit, or proceeding, civil or criminal, to which he or they shall be
made a party by reason of his being or having been a director, officer, or
employee of Citibank or of any firm, corporation, or
<PAGE>
organization which he served in any such capacity at the request of Citibank.
However, no person may be indemnified or reimbursed in relation to any matter in
such action, suit, or proceeding as to which he shall finally be adjudged to
have been guilty of or liable for negligence or willful misconduct in the
performance of his duties to Citibank. Moreover, no person may be indemnified or
reimbursed in relation to any matter in such action, suit or proceeding which
has been made the subject of a compromise settlement except with the approval of
a court of competent jurisdiction, or the holders of record of a majority of the
outstanding shares of Citibank, or the Board of Directors, acting by vote of
directors not parties to the same or substantially the same action, suit, or
proceeding, constituting a majority of the whole number of the directors.
d. CMI Indemnification. The Certificate of Incorporation of CMI provides, in
effect, that, to the extent and under the circumstances permitted by subsections
(a) and (b) of Section 145 of the General Corporation Law of the State of
Delaware, CMI (i) shall indemnify any person who was or is a party or is
threatened to be made a party to any action, suit or proceeding described in
subsections (a) and (b) by reason of the fact that he is or was a director or
officer of CMI against expenses, judgments, fines and amounts paid in
settlement, and (ii) may indemnify any person who was or is a party or is
threatened to be made a party to any such action, suit or proceeding if such
person was an employee or agent of CMI and is or was serving at the request of
CMI as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
e. Issuer Indemnification. The Issuer's Certificate of Incorporation provides
that the Issuer shall (or, in the case of an employee or agent of the Issuer, or
a person who was serving at the request of the Issuer as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, may) indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Issuer) by reason of the fact
that he is or was a director, officer, employee or agent of the Issuer, or was
serving at the request of the Issuer as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the Issuer,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. The Issuer's Certificate of Incorporation
also provides that the termination of any such action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Issuer, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
The Issuer's Certificate of Incorporation further provides that the
Issuer shall (or, in the case of an employee or agent of the Issuer, or a person
who was serving at the request of the Issuer as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, may) indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Issuer to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the Issuer, or was
serving at the request of the Issuer as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Issuer and except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the
<PAGE>
Issuer unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of the State of Delaware
or such other court shall deem proper.
The Issuer's Certificate of Incorporation provides that any
indemnification thereunder (unless ordered by a court) shall be made by the
Issuer only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth therein. Such
determination shall be made (a) by the Board of Directors by a majority vote of
a quorum (as defined in the by-laws of the Issuer) consisting of directors who
were not parties to such action, suit or proceeding, or (b) if such quorum is
not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
The Issuer's Certificate of Incorporation provides that expenses of the
indemnified party may be paid by the Issuer in advance of a final disposition
and that the indemnification and advancement of expenses provided for therein
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled. The Issuer's Certificate of Incorporation empowers the Issuer
to purchase and maintain insurance, in such amounts as the Board of Directors
deems appropriate, on behalf of any person who is or was a director, officer,
employee or agent of the Issuer, or of any corporation a majority of the voting
stock of which is owned by the Issuer, or is serving at the request of the
Issuer as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Issuer would have the power or would be
required to indemnify him against such liability under the provisions of the
Issuer's Certificate of Incorporation or of the General Corporation Law of the
State of Delaware.
The Issuer's Certificate of Incorporation provides that a director of
the Issuer shall not be personally liable to the Issuer or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent such exemption from liability or limitations thereof is not permitted
under the Delaware General Corporation Law as the same existed at the time of
the Issuer's incorporation or may thereafter be amended; and that any repeal or
modification of the foregoing provision by the stockholders of the Issuer shall
not adversely affect any right or protection of a director of the Issuer
existing at the time of such repeal or modification.
f. Insurance. Pursuant to Section 145 of the General Corporation Law of
Delaware, OTS Regulation 545.121 and Interpretive Ruling 7.5217 of the United
States Comptroller of the Currency, liability insurance is maintained covering
directors and principal officers of Citicorp CFSB, CSF, Citibank, CMI and the
Issuer.
Item 16. Exhibits.
1.1 - Form of Underwriting Agreement (incorporated by reference to Exhibit
1.1 of the Registration Statement on Forms S-11 and S-3 filed by the
Issuer and others (File No. 33-48263)).
<PAGE>
4.1 - Form of Pooling and Servicing Agreement with respect to REMIC
Certificates representing interests in fixed-rate mortgage loans
backed by Guaranty, between Citicorp Mortgage Securities, Inc., as
packager and servicer, and the Trustee, including forms of
Certificates, Subservicing Agreement, Custodial Agreement and Guaranty
(incorporated by reference to Exhibit 4.1 of the Registration
Statement on Forms S-11 and S-3 filed by the Issuer and others (File
No. 33-33448)).
4.2 - Standard Terms of Pooling and Servicing Agreements with respect to
REMIC Certificates representing interests in fixed-rate mortgage loans
backed by Guaranty (incorporated by reference to Exhibit 4.2 of the
Registration Statement on Forms S-11 and S-3 filed by the Issuer and
others (File No. 33-33448)).
4.3 - Form of Pooling and Servicing Agreement with respect to REMIC
Certificates representing interests in adjustable-rate mortgage loans
backed by Guaranty between Citicorp Mortgage Securities, Inc., as
packager and servicer, and the Trustee, including forms of
Certificates, Custodial Agreement, Subservicing Agreement and Guaranty
(incorporated by reference to Exhibit 4.3 of the Registration
Statement on Forms S-11 and S-3 filed by the Issuer and others (File
No. 33-33448)).
4.4 - Standard Terms of Pooling and Servicing Agreements with respect to
REMIC Certificates representing interests in adjustable-rate mortgage
loans backed by Guaranty (incorporated by reference to Exhibit 4.4 of
the Registration Statement on Forms S-11 and S-3 filed by the Issuer
and others (File No. 33-33448)).
4.5 - Form of Pooling and Servicing Agreement with respect to REMIC
Certificates representing interests in adjustable-rate convertible
mortgage loans backed by Guaranty, between Citicorp Mortgage
Securities Inc., as packager and servicer, and the Trustee, including
forms of CitiCertificates, Limited Guaranty, Custodial Agreement,
Subservicing Agreement and Power of Attorney (incorporated by
reference to Exhibit 4.13 of the Registration Statement on Forms S-11
and S-3 filed by the Issuer and others (File No. 33-37536)).
4.6 - Form of Pooling and Servicing Agreement with respect to REMIC
Certificates having three Senior/Subordinated classes representing
interests in mortgage loans between Citicorp Mortgage Securities,
Inc., as packager and servicer, and the Trustee, including forms of
Certificates, Subservicing Agreement, Deposit Agreement, Mortgage Note
Custodial Agreement, Guaranty and Mortgage Document Custodial
Agreement (incorporated by reference to Exhibit 4.22 of the
Registration Statement on Forms S-11 and S-3 filed by the Issuer and
others (File No. 33-37536)).
4.7 - Standard Terms of Pooling and Servicing Agreements with respect to
REMIC Certificates having three Senior/Subordinated classes
representing interests in mortgage loans (incorporated by reference to
Exhibit 4.23 of the Registration Statement on Forms S-11 and S-3 filed
by the Issuer and others (File No. 33-37536)).
4.8 - Form of Pooling and Servicing Agreement with respect to REMIC
Certificates representing interests in mortgage loans backed by other
forms of credit support between Citicorp Mortgage Securities, Inc., as
packager and servicer and the Trustee, including forms of
Certificates, Custodial Agreement, Subservicing Agreement, Deposit
Agreement and Letter of Credit (incorporated by reference to Exhibit
4.24 of the Registration Statement on Forms S-11 and S-3 filed by the
Issuer and others (File No. 33-37536)).
4.9 - Standard Terms of Pooling and Servicing Agreements with respect to
REMIC Certificates backed by other forms of credit support
representing interests in mortgage loans (incorporated by reference to
Exhibit 4.25 of the Registration Statement on Forms S-11 and S-3 filed
by the Issuer and others (File No. 33-37536)).
4.10 - Form of Pooling and Servicing Agreement with respect to REMIC
Certificates representing interests in mortgage loans backed by a
mortgage pool insurance policy, between Citicorp Mortgage Securities,
Inc., as packager and servicer, and the Trustee, including forms of
Certificates, Subservicing Agreement, Custodial Agreement and Mortgage
Pool Insurance Policy (incorporated by reference to Exhibit 4.10 of
the Registration Statement on Forms S-11 and S-3 filed by the Issuer
and others (File No. 33-66222)).
4.11 - Standard Terms of Pooling and Servicing Agreements with respect to
REMIC Certificates representing interests in mortgage loans backed by
a mortgage pool insurance policy (incorporated by reference to Exhibit
4.11 of the Registration Statement on Forms S-11 and S-3 filed by the
Issuer and others (File No. 33-66222)).
<PAGE>
4.12 - Form of Pooling and Servicing Agreement with respect to shifting
interest REMIC Certificates representing interests in mortgage loans
between Citicorp Mortgage Securities, Inc., as packager and servicer,
and the Trustee, including forms of Certificates, Subservicing
Agreement and Custodial Agreement (incorporated by reference to
Exhibit 4.12 of the Registration Statement on Forms S-11 and S-3 filed
by the Issuer and others (File No. 33-66222)).
4.13 - Standard Terms of Pooling and Servicing Agreements with respect to
shifting interest REMIC Certificates representing interests in
mortgage loans (incorporated by reference to Exhibit 4.13 of the
Registration Statement on Forms S-11 and S-3 filed by the Issuer and
others (File No. 33-66222)).
4.14 - Form of financial guaranty insurance policy issued by MBIA Insurance
Corporation (incorporated by reference to Exhibit 4.26 of the
Registration Statement on Forms S-11 and S-3 filed by the Issuer and
others (File No. 33-37536)).
4.15 - Form of financial guaranty insurance policy issued by Financial
Security Assurance Inc. (incorporated by reference to Exhibit 4.15 of
the Registration Statement on Forms S-11 and S-3 filed by the Issuer
and others (File No. 33-66222)).
5.1 - Opinion of Stephen E. Dietz, Esq. with respect to the Certificates,
CitiMortgageCertificates and Guaranties being registered.*
8.1 - Opinion of Rona Daniels, Esq. with respect to certain tax matters.*
23.1 - Consent of KPMG Peat Marwick.*
23.2 - Consents of Stephen E. Dietz, Esq., and Rona Daniels, Esq. are
contained in their opinions filed herewith as Exhibits 5.1 and 8.1,
respectively.*
23.3 - Consent of Coopers & Lybrand L.L.P. regarding MBIA Insurance
Corporation.*
23.4 - Consent of Coopers & Lybrand L.L.P. regarding Financial Security
Assurance Inc.*
24.1 - Powers of Attorney of Messrs. Reed, Calloway, Collins, Derr, Deutch,
Mark, Parsons, Rhodes, Ruding, Shapiro, Shrontz, Thomas and Woolard
and Ms. Ridgway as Directors and/or officers of Citicorp and/or
Citibank.*
----------
* Filed herewith
Item 17. Undertakings.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of Citicorp's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrants pursuant to the foregoing provisions or otherwise,
the registrants have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrants of expenses incurred or paid by a director, officer
or controlling person of the registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrants will,
unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Citicorp
Mortgage Securities, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of New York, State of New York, on
December 23, 1997.
CITICORP MORTGAGE SECURITIES, INC.
By: /s/ Andrew E. La Barbera
----------------------------------
Andrew E. La Barbera
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on December 23, 1997 by the following
persons in the capacities indicated.
Each person whose signature appears below hereby constitutes and
appoints each of Andrew E. LaBarbera and John H. Outland, jointly and severally,
his or her true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution, to sign any and all post-effective amendments
to this registration statement and to file the same with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, which amendments may make such changes in the registration statement
as such attorney-in-fact and agent deems appropriate, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to so
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person. Each
person whose signature appears below hereby ratifies and confirms all that each
of said attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done by virtue hereof.
Signature Capacity
--------- --------
/s/ Andrew E. La Barbera President
(Andrew E. La Barbera) and a Director
(Principal Executive
Officer)
/s/ John H. Outland Senior Vice President and
(John H. Outland) Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
/s/ James Levites Director
(James Levites)
/s/ David W. Young Director
(David W. Young)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Citicorp
Mortgage, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Stamford, State of Connecticut, on December 23,
1997.
CITICORP MORTGAGE, INC.
By: /s/ Carl E. Levinson
---------------------------
Carl E. Levinson
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on December 23, 1997 by the following
persons in the capacities indicated.
Each person whose signature appears below hereby constitutes and
appoints each of Andrew E. LaBarbera and John H. Outland, jointly and severally,
his or her true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution, to sign any and all post-effective amendments
to this registration statement and to file the same with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, which amendments may make such changes in the registration statement
as such attorney-in-fact and agent deems appropriate, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to so
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person. Each
person whose signature appears below hereby ratifies and confirms all that each
of said attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done by virtue hereof.
Signature Capacity
/s/ Carl E. Levinson Chairman of the Board
(Carl E. Levinson) and a Director
(Principal Executive
Officer)
/s/ Russell A. Schaub Treasurer and Chief Financial Officer
(Russell A. Schaub) (Principal Financial Officer and
Principal Accounting Officer)
____________________________ Director
(Beth L. Bronner)
/s/ Franklin Burnside Director
(Franklin Burnside)
<PAGE>
/s/ Pamela P. Flaherty
(Pamela P. Flaherty) Director
____________________________ Director
(Stephen Liguori)
/s/ Richard G. Thornberry Director
(Richard G. Thornberry)
/s/ Edward T. Walsh Director
(Edward T. Walsh)
/s/ John W. Watkins Director
(John W. Watkins)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Citicorp
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on December 23, 1997.
CITICORP
By: /s/ Gregory C. Ehlke
-----------------------------
Gregory C. Ehlke
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on December 23, 1997 by the following
persons in the capacities indicated.
Signature Capacity
* Chairman and Director
(John S. Reed) (Principal Executive Officer)
/s/ Victor J. Menezes Executive Vice President
(Victor J. Menezes) (Chief Financial Officer)
/s/ Thomas E. Jones Executive Vice President
(Thomas E. Jones) (Principal Financial Officer)(a)
_______________________________
(Alain J. P. Belda) Director
* Director
(D. Wayne Calloway)
(a) Primary responsibility for financial control, tax accounting and reporting.
<PAGE>
* Director
(Paul J. Collins)
* Director
(Kenneth T. Derr)
* Director
(John M. Deutch)
* Director
(Reuben Mark)
* Director
(Richard D. Parsons)
* Director
(William R. Rhodes)
* Director
(Rozanne L. Ridgway)
* Director
(H. Onno Ruding)
* Director
(Robert B. Shapiro)
* Director
(Frank A. Shrontz)
* Director
(Franklin A. Thomas)
<PAGE>
* Director
(Edgar S. Woolard, Jr.)
- ----------
* GREGORY C. EHLKE, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange Commission.
/s/ Gregory C. Ehlke
--------------------
Gregory C. Ehlke
Attorney-in-Fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Citibank,
N.A. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on December 23, 1997.
CITIBANK, N.A.
By: /s/ Gregory C. Ehlke
----------------------------
Gregory C. Ehlke
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on December 23, 1997 by the following
persons in the capacities indicated.
Signature Capacity
* Chairman and Director
(John S. Reed) (Principal Executive Officer)
/s/ Victor J. Menezes Executive Vice President
(Victor J. Menezes) (Chief Financial Officer)
/s/ Thomas E. Jones Executive Vice President
(Thomas E. Jones) (Principal Financial Officer)(a)
* Director
(D. Wayne Calloway)
* Vice Chairman and Director
(Paul J. Collins)
(a) Primary responsibility for financial control, tax accounting and reporting.
<PAGE>
* Director
(John M. Deutch)
* Director
(Ruben Mark)
* Director
(Richard D. Parsons)
* Vice Chairman and Director
(William R. Rhodes)
* Director
(Rozanne L. Ridgway)
* Director
Robert B. Shapiro
* Director
(Frank A. Shrontz)
*
(Franklin A. Thomas) Director
- ----------
* GREGORY C. EHLKE, by signing his name hereto, does sign this document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange Commission.
/s/ Gregory C. Ehlke
--------------------
Gregory C. Ehlke
Attorney-in-Fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Citibank,
Federal Savings Bank certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Long Island City, State of New York, on December
23, 1997.
CITIBANK, FEDERAL SAVINGS BANK
By: /s/ Carlos Palomares
Carlos Palomares
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on December 23, 1997 by the following
persons in the capacities indicated.
Each person whose signature appears below hereby constitutes and
appoints each of Andrew E. LaBarbera and John H. Outland, jointly and severally,
his or her true and lawful attorney-in-fact and agent, each with full power of
substitution and resubstitution, to sign any and all post-effective amendments
to this registration statement and to file the same with all exhibits thereto
and other documents in connection therewith with the Securities and Exchange
Commission, which amendments may make such changes in the registration statement
as such attorney-in-fact and agent deems appropriate, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to so
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person. Each
person whose signature appears below hereby ratifies and confirms all that each
of said attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done by virtue hereof.
Signature Capacity
/s/ Carlos Palomares Chief Executive Officer and a Director
(Carlos Palomares) (Principal Executive
Officer)
/s/ Thomas Tolda Chief Financial Officer and a Director
(Thomas Tolda) (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Donald Bender Director
(Donald Bender)
/s/ John J. Botcheller Director
(John J. Botcheller)
<PAGE>
/s/ Alvaro de Souza Director
(Alvaro de Souza)
/s/ Russell R. Greenfield Director
(Russell R. Greenfield)
/s/ Susan Harnett Director
(Susan Harnett)
______________________________________ Director
(Robert R. Hunt)
/s/ Jerry W. Johnson Director
(Jerry W. Johnson)
Director
(Carl E. Levinson)
December 23, 1997
Citicorp Mortgage Securities, Inc. Citibank, Federal Savings Bank
909 Third Avenue One Sansome Street
New York, New York 10043 San Francisco, California 94104
Citicorp Citibank, N.A.
399 Park Avenue 399 Park Avenue
New York, New York 10043 New York, New York 10043
Citicorp Mortgage, Inc.
12855 North Outer Forty Drive
St. Louis, Missouri 63141
Re: REMIC Pass-Through Certificates
Gentlemen:
I am a Vice President of Citibank, N.A., and have acted as your tax
counsel in connection with the proposed issuance of REMIC Pass-Through
Certificates (the "Certificates") pursuant to a Registration Statement on Form
S-3 (the "Registration Statement), which is being filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"). Capitalized terms used and not otherwise defined herein are
intended to have the respective meanings ascribed to such terms in the
Registration Statement.
In rendering the opinion set forth below, I have examined and relied
upon the following: (1) the Registration Statement and the Prospectus forming a
part thereof (the "Prospectus"), substantially in the form to be filed with the
Commission; (2) the forms of Pooling and Servicing Agreements filed and being
filed as exhibits to the Registration Statement; and (3) such other documents,
materials, and authorities as I have deemed necessary in order to enable me to
render my opinion set forth below.
As your tax counsel, I have advised you with respect to certain federal
income tax aspects of the proposed issuance of the Certificates. Such advice has
formed the basis for the description of material federal income tax consequences
for holders of the Certificates that appears under the heading "Certain Federal
Income Tax Consequences" in the Prospectus. Such description does not purport to
discuss all possible federal income tax ramifications of the proposed issuance
of the
1
<PAGE>
Citicorp Mortgage Securities
Citicorp
Citicorp Mortgage, Inc.
Citibank, Federal Savings Bank
Citibank, N.A.
December 23, 1997
Page 2
Certificates, but, with respect to those federal income tax consequences which
are discussed, in my opinion the description is accurate in all material
respects.
It is also my opinion that, when applicable, a trust created by an
Originator (a "Mortgage Trust") described in the Prospectus Supplement and the
related Pooling Agreement (the "Mortgage Pooling Agreement") will qualify as a
real estate mortgage investment conduit ("REMIC") within the meaning of Section
860D of the Internal Revenue Code of 1986, as amended (the "Code"), that the
CitiMortgageCertificates described in the Prospectus Supplement and the Mortgage
Pooling Agreement will be treated as "regular interests" in the respective REMIC
for purposes of Code Section 860G(a)(1) and that the Residual Certificates
described in the Mortgage Pooling Agreement will be treated as "residual
interests" in the respective REMIC for purposes of Code Section 860G(a)(2),
assuming: (i) an election is made to treat the Mortgage Trust as a REMIC, (ii)
compliance with the Mortgage Pooling Agreement, and (iii) compliance with
changes in the law, including any amendments to the Code or applicable Treasury
regulations thereunder.
The foregoing opinions are based on the facts and circumstances set
forth in the Prospectus and in the other documents reviewed by me. My opinion as
to the matters set forth herein could change with respect to a particular Series
of Certificates or CitiMortgageCertificates as a result of changes in facts and
circumstances, change in the terms of the documents reviewed by me, or changes
in the law subsequent to the date hereof. As the Registration Statement
contemplates Series of Certificates or CitiMortgageCertificates with numerous
different characteristics, the particular characteristics of each Series of
Certificates or CitiMortgageCertificates must be considered in determining the
applicability of this opinion to a particular Series of Certificates or
CitiMortgageCertificates.
I hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this opinion under the heading
"Certain Federal Income Tax Consequences" in each Prospectus, without admitting
that I am an "expert" within the meaning of the Act or the rules or regulations
of the Commission issued thereunder.
Very truly yours,
/s/ Rona Daniels
Independent Auditors' Consent
The Board of Directors
Citicorp:
We consent to the incorporation by reference of our report dated January 21,
1997 relating to the consolidated balance sheets of Citicorp and subsidiaries as
of December 31, 1996 and 1995, the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, and the related consolidated balance
sheets of Citibank, N.A. and subsidiaries as of December 31, 1996 and 1995, in
the Registration Statement on Form S-3, and the reference to our firm under the
heading "Experts" in the Registration Statement. Our report with respect to
these consolidated financial statements, which contains an added explanatory
paragraph, is included in the 1996 Citicorp Annual Report and Form 10-K.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
December 23, 1997
CONSENT of INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-3 of Citicorp Mortgage Securities, Inc. of our
report dated January 24, 1997 on our audits of the consolidated
financial statements of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996. We also consent to
the reference to our Firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
December 23, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of Citicorp Mortgage Securities, Inc. of our report dated February 3,
1997, on our audits of the consolidated financial statements of MBIA Insurance
Corporation and Subsidiaries as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996. We also consent to the
reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
December 23, 1997
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ John S. Reed
--------------------------------
Name: John S. Reed
Title: Chairman and Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE AND MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ D. Wayne Calloway
--------------------------------
Name: D. Wayne Calloway
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ Paul J. Collins
--------------------------------
Name: Paul J. Collins
Title: Vice Chairman and Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ Kenneth T. Derr
--------------------------------
Name: Kenneth T. Derr
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ John M. Deutch
--------------------------------
Name: John M. Deutch
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ Reuben Mark
--------------------------------
Name: Reuben Mark
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ Parsons
--------------------------------
Name: Parsons
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ William R. Rhodes
--------------------------------
Name: William R. Rhodes
Title: Vice Chairman and Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ H. Onno Ruding
--------------------------------
Name: H. Onno Ruding
Title: Vice Chairman and Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof.
Remember to re-insert the following language which was removed from the standard
form of power of attorney as 1994 was Shapiro's first year on the Board; and
HEREBY revokes all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ Robert B. Shapiro
--------------------------------
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ Frank A. Shrontz
--------------------------------
Name: Frank A. Shrontz
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/Franklin A. Thomas
--------------------------------
Name: Franklin A. Thomas
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS his true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in his capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand.
Dated: April 25, 1997.
/s/ Edgar S. Woolard, Jr.
--------------------------------
Name: Edgar S. Woolard, Jr.
Title: Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned Director
and/or Officer of CITICORP, a Delaware corporation, and/or CITIBANK, N.A., a
national association hereby constitutes and appoints each of GREGORY C. EHLKE,
PETER M. GALLANT, ROBERT N. LAUGHLIN, MICHAEL T. NUGENT, JOHN F. RICE and MARTIN
A. WATERS her true and lawful attorney and agent, in the name and on behalf of
the undersigned, to do any and all acts and things in connection with the
registration statement dated the date hereof (the "Registration Statement") to
be filed with the United States Securities and Exchange Commission or the Office
of the Comptroller of the Currency, including specifically, but without limiting
the generality of the foregoing, the power and authority to execute the
Registration Statement in the name of the undersigned in her capacity as
Director and/or Officer of Citicorp and/or Citibank, N.A., any and all
amendments, including post-effective amendments, to the Registration Statement,
any and all documents and instruments filed as part of or in connection with the
Registration Statement or amendments thereto, any and all documents and
instruments which the said attorney and agent may deem necessary or advisable to
enable Citicorp and/or Citibank, N.A. to comply with the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the United States Securities and Exchange
Commission in respect thereof, or with any rules and regulations of the Office
of the Comptroller of the Currency, and any and all documents and instruments
which the said attorney and agent may deem necessary or advisable to enable
Citicorp and/or Citibank, N.A. to comply with the securities or other similar
laws of jurisdictions outside of the United States of America in respect
thereof; and
HEREBY RATIFIES AND CONFIRMS all that the said attorneys and agents, or
any of them, has done, shall do or cause to be done by virtue hereof; and
HEREBY REVOKES all prior powers of attorney relating to the foregoing
acts.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand.
Dated: April 25, 1997.
/s/ Rozanne L. Ridgway
--------------------------------
Name: Rozanne L. Ridgway
Title: Director
December 23, 1997
Citicorp Mortgage Securities, Inc. Citibank, Federal Savings Bank
909 Third Avenue One Sansome Street
New York, NY 10043 San Francisco, CA 94104
Citicorp Citibank, N.A.
399 Park Avenue 399 Park Avenue
New York, NY 10043 New York, NY 10043
Citicorp Mortgage, Inc.
12855 North Outer Forty Drive
St. Louis, MO 63141
Ladies and Gentlemen:
This opinion is being provided by the undersigned, as an Associate General
Counsel of Citibank, N.A. I have acted as your counsel in connection with the
Registration Statement on Form S-3 (the "Registration Statement") being filed
today with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"). The Registration Statement covers a total of $5
billion aggregate principal amount of Certificates (the "Certificates") of one
or more series to be issued by Citicorp Mortgage Securities, Inc. ("CMSI")
evidencing fractional undivided interests in a trust or trusts to be created by
CMSI; CitiMortgageCertificates (the "CitiMortgageCertificates") to be issued by
Citibank, Federal Savings Bank (with its principal places of business in
California and Illinois) ("CFSB"), Citibank, N.A. ("Citibank") or Citicorp
Mortgage, Inc. ("CMI") (collectively, the "Packagers"); and guaranties (the
"Guaranties") which may be issued by Citicorp with respect to the Certificates
and the CitiMortgageCertificates.
Each series of Certificates and CitiMortgageCertificates will be issued pursuant
to a separate Pooling and Servicing Agreement (the "Pooling and Servicing
Agreement" for such series) between CMSI or the related Packager and a
commercial bank, savings and loan association or trust company (the "Trustee"
for such series). The Trustee for a series will be entitled to the benefits of
any Guaranty for such series.
I, or attorneys under my supervision, have examined originals or copies,
certified or otherwise identified to my satisfaction, of such corporate records
of CMSI, the Packagers and Citicorp, such other documents and certificates of
public officials, officers and representatives of CMSI, the Packagers and
Citicorp and other persons and such other documents, agreements and instruments,
and I have made such investigations of law, as I have deemed appropriate as a
basis for the opinions expressed below. In arriving at the opinions expressed
below, I have assumed that the signatures on all documents that I have examined
are genuine. In addition, I have assumed that each of the Certificates, each of
the CitiMortgageCertificates, each Pooling and Servicing Agreement and each
Guaranty will be in substantially the form set forth in the applicable form of
Pooling and Servicing Agreement filed or to be filed as an exhibit to the
Registration Statement; and that each Trustee will have the power, authority and
legal right to enter into the related Pooling and Servicing Agreement.
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<PAGE>
Based on the foregoing, I am of the opinion that:
1. Each of Citicorp, CMI and CMSI is a corporation duly incorporated and
validly existing under the laws of the State of Delaware;
2. CFSB is a federal savings bank duly organized and validly existing under
the laws of the United States of America;
3. Citibank is a national banking association duly organized and validly
existing under the laws of the United States of America;
4. When the issuance, execution and delivery of any particular series of
Certificates have been duly authorized by CMSI, and when the Certificates
of such series have been duly executed and delivered by CMSI, duly
authenticated by the applicable Trustee and issued and sold as contemplated
by the Registration Statement and the prospectus delivered pursuant to
Section 5 of the Act in connection therewith, such Certificates will be
legally and validly issued, fully paid and nonassessable and entitled to
the benefits provided by the applicable Pooling and Servicing Agreement;
5. When the issuance, execution and delivery of any particular series of
CitiMortgageCertificates have been duly authorized by the related Packager,
and when the CitiMortgageCertificates of such series have been duly
executed and delivered by such Packager, duly authenticated by the
applicable Trustee and issued and sold as contemplated by the Registration
Statement and the prospectus delivered pursuant to Section 5 of the Act in
connection therewith, such CitiMortgageCertificates will be legally and
validly issued, fully paid and nonassessable, and the holders of such
CitiMortgageCertificates will be entitled to the benefits provided by the
applicable Pooling and Servicing Agreement;
6. When a Pooling and Servicing Agreement has been duly and validly
authorized, executed and delivered by CMSI or a Packager and a Trustee,
such Pooling and Servicing Agreement will constitute a valid and binding
obligation of CMSI or such Packager, as the case may be, subject, as to
enforcement, to applicable bankruptcy, reorganization, insolvency,
moratorium and other laws affecting the rights of creditors generally and
to general principles of equity and the discretion of the court (regardless
of whether enforceability is considered in a proceeding in equity or at
law); and
7. When a series of Certificates or CitiMortgageCertificates which has the
benefit of a Guaranty has been duly issued under a Pooling and Servicing
Agreement and issued and sold as contemplated by the Registration Statement
and the prospectus delivered pursuant to Section 5 of the Act in connection
therewith, and when the issuance of a Guaranty for such series of
Certificates or CitiMortgageCer tificates has been duly authorized by
Citicorp and such Guaranty has been duly executed and delivered to such
Trustee, such Guaranty will be a valid and binding obligation of Citicorp,
subject, as to enforcement, to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting the rights of creditors
generally and to general principles of equity and the discretion of the
court (regardless of whether enforceability is considered in a proceeding
in equity or at law).
The opinions expressed herein are limited to the laws of the State of New York,
the General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
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<PAGE>
I hereby consent to the use and filing of this opinion as an exhibit to the
Registration Statement and to the reference to this opinion under the heading
"Legal Matters" in any prospectus filed in connection with the Registration
Statement. In giving such consent, I do not thereby admit that I come within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Stephen E. Dietz
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