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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 12, 1997)
[News America Holdings Inc. logo appears right here!]
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$97,750,000 (APPROXIMATE)
CITICORP MORTGAGE SECURITIES, INC.
(PACKAGER AND SERVICER)
ADJUSTABLE RATE REMIC PASS-THROUGH CERTIFICATES, SERIES 1997-6,
SENIOR CLASS A CITICERTIFICATES
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The Adjustable Rate REMIC Pass-Through Certificates, Series 1997-6, will
consist of one senior class of REMIC Pass-Through Certificates (the "Class A
CitiCertificates") in an approximate aggregate Initial Stated Amount of
$97,750,000, subject to a permitted upward or downward variance of up to
5.0%, one subordinated class of REMIC Pass-Through Certificates (the "Class B
CitiCertificates") in an approximate aggregate Initial Stated Amount of
$2,250,000, subject to a permitted variance based on final credit enhancement
levels, and one class of residual interests (the "Residual Certificates"),
representing interests in a trust (the "Trust") to be created by Citicorp
Mortgage Securities, Inc. (the "Issuer" or "CMSI") on or about November 25,
1997. An election will be made to treat the Trust as a real estate mortgage
investment conduit (a "REMIC") for federal tax purposes. The Class A and
Class B CitiCertificates are collectively referred to as the
"CitiCertificates". The Class B CitiCertificates will consist of Class B-1,
Class B-2 and Class B-3 CitiCertificates (each, a "Class B Subclass"). The
Class A CitiCertificates will initially evidence an undivided beneficial
ownership interest in the property of the Trust ranging from 96.75% to 98.75%
and the Class B CitiCertificates will evidence the remaining undivided
interest therein. Only the Class A CitiCertificates (the "Offered
CitiCertificates") are offered hereby.
On or before the issuance of the Class A CitiCertificates, CMSI will obtain
from MBIA Insurance Corporation (the "Insurer"), a certificate guaranty
insurance policy (the "Policy") in favor of the Trustee. The Policy will
unconditionally and irrevocably guarantee payments of amounts due to the
Owners of the Class A CitiCertificates to the extent described herein.
[LOGO] MBIA
(Continued on following page)
THE OFFERED CITICERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF
CMSI, CITIBANK, CMI, ANY OTHER AFFILIATE OF CMSI OR THEIR ULTIMATE PARENT,
CITICORP, EXCEPT AS SET FORTH HEREIN. NEITHER THE OFFERED CITICERTIFICATES
NOR THE MORTGAGE LOANS ARE INSURED OR GUARANTEED BY THE UNITED STATES
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Class A CitiCertificates are being offered by Deutsche Morgan Grenfell
Inc. (the "Underwriter") from time to time in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. The Class A
CitiCertificates will be acquired by the Underwriter from the Issuer upon
initial issuance in a negotiated transaction, concurrently with the transfer
of the Mortgage Loans from the Underwriter to the Issuer, as described
herein. See "Plan of Distribution" herein.
The Class A CitiCertificates are offered subject to receipt and acceptance by
the Underwriter, to prior sale and to the Underwriter's right to reject any
order in whole or in part. It is expected that delivery of the Class A
CitiCertificates will be made on or about November 25, 1997 through the
facilities of The Depository Trust Company ("DTC").
The date of this Prospectus Supplement is November 12, 1997.
[LOGO] DEUTSCHE MORGAN GRENFELL
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(Continued from previous page)
The Trust Property (the "Pool") will consist primarily of a pool of 20- to
30-year conventional one-year adjustable rate one- to four-family mortgage
loans (the "Mortgage Loans") with an aggregate Adjusted Balance as of the Cut-
Off Date (the "Initial Mortgage Loan Balance") equal to approximately
$100,000,000, subject to a permitted upward or downward variance of up to
5.0%, and certain related property, as described herein. The Mortgage Loans
will be acquired by the Issuer from the Underwriter on the date of issuance of
the CitiCertificates. The Mortgage Loans were acquired in 1997 by an affiliate
of the Underwriter from Citicorp Mortgage, Inc. ("CMI"), which originated or
acquired the Mortgage Loans. Mortgage Loans acquired by CMI include Mortgage
Loans originated or acquired by Citibank, Federal Savings Bank ("CFSB") or
originated by Citibank, N.A. ("Citibank"). Payments on the Mortgage Loans will
be distributed on the CitiCertificates in accordance with the priorities
stated under "Summary of Prospectus and Prospectus Supplement--Priority of
Distributions" in this Prospectus Supplement. The Note Rate on each Mortgage
Loan, and monthly Mortgagor payments, are adjusted annually based upon changes
in the weekly average yield on U.S. Treasury securities adjusted to a constant
maturity of one year (the "Index"), as made available by the Federal Reserve
Board, as calculated and subject to certain adjustment limitations as
described herein.
Interest on each Class A CitiCertificate will be distributed on the 25th day
of each month (or, if such day is not a business day, on the next succeeding
business day), commencing in December 1997 (each, a "Distribution Date").
Interest will accrue on the Class A CitiCertificates from the first through
the last day of the month preceding the month of each Distribution Date. The
Stated Rate for the Class A CitiCertificates in effect from time to time will
equal the weighted average of the Net Mortgage Rates then in effect for the
individual Mortgage Loans, as described under "Summary of Prospectus and
Prospectus Supplement--Stated Rate" in this Prospectus Supplement. The Initial
Stated Rate of the Class A CitiCertificates for the first Interest Accrual
Period is expected to be at least 5.32% but no more than 5.52% per annum. The
rights of holders of the Class B CitiCertificates to receive distributions of
interest will be subordinated to the rights of holders of the Class A
CitiCertificates to receive distributions to the extent described herein.
On each Distribution Date, distributions in reduction of Stated Amount of
the Class A CitiCertificates, in an amount equal to the Class A Principal
Distribution Amount, will be allocated to the Class A CitiCertificates. The
rights of holders of the Class B CitiCertificates to receive distributions in
reduction of Stated Amount will be subordinated to the rights of holders of
the Class A CitiCertificates to receive distributions to the extent described
herein.
THE YIELD TO INVESTORS IN THE OFFERED CITICERTIFICATES WILL BE SENSITIVE TO
THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE MORTGAGE LOANS,
WHICH GENERALLY CAN BE PREPAID AT ANY TIME, GENERALLY WITHOUT PENALTY. THE
YIELD TO INVESTORS IN THE OFFERED CITICERTIFICATES WILL BE ADVERSELY AFFECTED
BY ANY SHORTFALLS IN INTEREST COLLECTED ON THE MORTGAGE LOANS DUE TO
PREPAYMENTS OR LIQUIDATIONS. SUCH SHORTFALLS IN INTEREST COLLECTED WILL BE
OFFSET TO THE EXTENT DESCRIBED HEREIN. IN ADDITION, THE YIELD TO MATURITY ON
THE OFFERED CITICERTIFICATES MAY VARY DEPENDING ON THE EXTENT TO WHICH SUCH
CITICERTIFICATES ARE PURCHASED AT A PREMIUM. HOLDERS OF OFFERED
CITICERTIFICATES SHOULD CONSIDER, IN THE CASE OF ANY OFFERED CITICERTIFICATE
PURCHASED AT A PREMIUM, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS WOULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE
ANTICIPATED YIELD. NO REPRESENTATION IS MADE AS TO THE ANTICIPATED RATE OF
PREPAYMENT ON THE MORTGAGE LOANS OR AS TO THE ANTICIPATED YIELD TO MATURITY OF
ANY OFFERED CITICERTIFICATES.
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The Offered CitiCertificates may not be an appropriate investment for all
prospective investors. The Offered CitiCertificates would not be an
appropriate investment for an investor requiring a distribution of a
particular amount in reduction of Stated Amount on a specific date or an
otherwise predictable stream of distributions. In addition, there is currently
no secondary market for the Offered CitiCertificates. There will not be a
market for the Offered CitiCertificates prior to the issuance thereof. There
can be no assurance that such a market will develop or, if it does develop,
that it will provide holders of the Offered CitiCertificates with liquidity of
investment or will continue for the life of the Offered CitiCertificates.
There can be no assurance that the investor will be able to sell an Offered
CitiCertificate at a price which is equal to or greater than the price at
which such investor purchased such Offered CitiCertificate or at a price which
fully reflects the fair market value of the underlying Mortgage Loans.
The closing of the sale of the Class A CitiCertificates is conditioned upon
the closing of the sale of the Class B CitiCertificates. Deutsche Morgan
Grenfell Inc. is committed to purchase all of the Class B CitiCertificates if
any Class A CitiCertificates are purchased.
The Offered CitiCertificates will be issued in book-entry form only (the
"Book-Entry CitiCertificates"), and purchasers thereof will not be entitled to
receive definitive certificates except in the limited circumstances set forth
herein. The Book-Entry CitiCertificates will be registered in the name of Cede
& Co. ("Cede"), as nominee of DTC, which will be the "holder" or
"Certificateholder" of such Book-Entry CitiCertificates, as such terms are
used herein. See "Description of the Offered CitiCertificates--Book-Entry
Registration" and "--Definitive Certificates" herein.
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE OFFERED
CITICERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE OFFERED CITICERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE OFFERED CITICERTIFICATES
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
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SUMMARY OF PROSPECTUS AND PROSPECTUS SUPPLEMENT
The following summary is qualified by reference to the detailed information
appearing elsewhere in this Prospectus Supplement and in the Prospectus.
Capitalized terms used herein shall have the meanings given elsewhere in this
Prospectus Supplement and in the Prospectus. See "Index of Principal
Definitions in Prospectus Supplement" at the end of this Prospectus Supplement.
Securities Offered........ Adjustable Rate REMIC Pass-Through Certificates,
Series 1997-6, Senior Class A CitiCertificates.
Each Offered CitiCertificate represents an
undivided beneficial ownership interest in the
Trust created under the Pooling Agreement, the
property of which will consist of a pool of assets
comprised primarily of the Mortgage Loans conveyed
to the Issuer by CMI and simultaneously conveyed to
such Trust by the Issuer.
Each Class A CitiCertificate will qualify at
issuance as a "mortgage related security" within
the meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") and will retain
such qualification so long as it is rated in one of
the two highest rating categories by at least one
nationally recognized statistical rating
organization. See "Legal Investment" in this
Prospectus Supplement and "Legal Investment" in the
Prospectus.
In addition to the Class A CitiCertificates, the
Adjustable Rate REMIC Pass-Through Certificates,
Series 1997-6, include Class B CitiCertificates,
consisting of the Class B-1, Class B-2 and Class B-
3 CitiCertificates, and the Residual Certificates
representing the residual interest in the Trust.
The rights of holders of the Class B
CitiCertificates to receive distributions will be
subordinated to the rights of holders of the Class
A CitiCertificates to receive distributions to the
extent described herein. The Class B
CitiCertificates and the Residual Certificates will
be acquired by Deutsche Morgan Grenfell Inc. in a
private transaction. None of the Class B
CitiCertificates or the Residual Certificates are
being offered by this Prospectus Supplement and the
related Prospectus. Accordingly, to the extent this
Prospectus Supplement contains information relating
to the terms of the Class B CitiCertificates and
the Residual Certificates, such information is
provided solely because of its potential relevance
to a prospective purchaser of the Class A
CitiCertificates. The issuance and sale of the
Class A CitiCertificates are conditioned upon the
issuance and sale of the Class B CitiCertificates.
The CitiCertificates and the Residual Certificates
will be issued pursuant to a pooling and servicing
agreement (the "Pooling Agreement") dated as of
November 1, 1997, between the Issuer and The Bank
of New York, a New York banking corporation, in its
individual capacity and as trustee (the "Trustee").
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Stated Amount of the
CitiCertificates ........ The aggregate Initial Stated Amount of the Class A
CitiCertificates will be approximately $97,750,000,
subject to a permitted upward or downward variance
of up to 5.0%, and will be initially from 96.75% to
98.75% of the Initial Mortgage Loan Balance. The
aggregate Initial Stated Amount of the Class B
CitiCertificates will be approximately $2,250,000,
subject to a permitted upward or downward variance
based on final credit enhancement levels, and will
represent the remainder of the Initial Mortgage
Loan Balance. The Initial Mortgage Loan Balance
will be approximately $100,000,000, subject to a
permitted upward or downward variance of up to
5.0%. The "Initial Stated Amount" of a
CitiCertificate represents the maximum specified
dollar amount to which the holder of such
CitiCertificate is entitled (in addition to
distributions of interest) from the cash flow on
the assets in the Pool.
Cut-Off Date.............. November 1, 1997.
Denominations ............ The denominations of the Class A CitiCertificates
will be an Initial Stated Amount of $1,000 and any
whole dollar amount in excess thereof (except one
Class A CitiCertificate may be in a different
denomination).
Book-Entry Form .......... The Offered CitiCertificates will be issued in
book-entry form. No person acquiring an interest in
the Book-Entry CitiCertificates (a "Beneficial
Owner") will be entitled to receive a definitive
certificate representing such person's interest in
the Trust, except under the limited circumstances
described herein. The Book-Entry CitiCertificates
will be represented initially by a single
certificate registered in the name of Cede, as the
nominee of DTC, which will be the "holder" or
"Certificateholder" of such CitiCertificates, as
such terms are used herein. The rights of
Beneficial Owners may only be exercised through DTC
and its participating organizations, except as
otherwise specified herein. See "Description of the
Offered CitiCertificates-Book-Entry Registration"
and "--Definitive Certificates" in this Prospectus
Supplement.
Closing Date.............. On or about November 25, 1997 (the "Closing Date").
Issuer and Servicer ...... CMSI. The Servicer intends to subcontract its
servicing duties to CMI.
The Insurer .............. MBIA Insurance Corporation (the "Insurer"). See
"The Certificate Guaranty Insurance Policy and the
Insurer" in this Prospectus Supplement.
Stated Rate .............. The Stated Rate for the Class A CitiCertificates in
effect from time to time will equal the weighted
average of the Net Mortgage Rates then in effect
for the individual Mortgage
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Loans. The "Net Mortgage Rate" for each Mortgage
Loan will equal the Note Rate thereof, less the
portion of interest received on each Mortgage Loan
used to pay the Servicing Fee and the
Administrative Fee. The Note Rate for a Mortgage
Loan will be a rate per annum equal to the sum of
the Index and the applicable Mortgage Margin
(rounded to the nearest 0.125%), subject to the
applicability of a Maximum Note Rate and/or a
maximum periodic adjustment to the Note Rate. The
Index used to adjust the Note Rate is the weekly
average yield on U.S. Treasury securities adjusted
to a constant maturity of one year. See
"Description of the Pool and the Mortgaged
Properties" in this Prospectus Supplement.
The "Initial Stated Rate" of the Class A
CitiCertificates is the Stated Rate of the Class A
CitiCertificates for the first Interest Accrual
Period. The Initial Stated Rate is expected to be
at least 5.32% but no more than 5.52% per annum.
Credit Enhancement ....... As described herein, the Class A CitiCertificates
will be protected from losses and delinquencies on
the Mortgage Loans by (a) the subordination of the
Class B CitiCertificates to the Class A
CitiCertificates and (b) amounts paid under the
Policy as and to the extent described herein. The
rights of holders of the Class B CitiCertificates
to receive distributions will be subordinated to
the rights of holders of the Class A
CitiCertificates to receive distributions to the
extent described herein. This subordination
provides a certain amount of protection to holders
of the Class A CitiCertificates (to the extent of
the subordination of the Class B CitiCertificates)
against delays in the receipt of scheduled payments
of interest and principal and against losses
associated with the liquidation of defaulted
Mortgage Loans and certain losses resulting from
the bankruptcy of a Mortgagor.
In addition, in order to increase the period during
which the principal balance of the Class B
CitiCertificates remains available as credit
enhancement to the Class A CitiCertificates, a
disproportionate amount of prepayments and certain
unscheduled recoveries with respect to the Mortgage
Loans will be allocated to the Class A
CitiCertificates. This allocation has the effect of
accelerating the amortization of the Class A
CitiCertificates while, in the absence of Realized
Losses, increasing the respective percentage
interest in the Trust evidenced by the Class B
CitiCertificates. See "-Distributions in Reduction
of Stated Amount of the Offered CitiCertificates"
below. To the extent that on a Distribution Date a
Class A Unpaid Interest Shortfall would occur or
any Realized Loss would be
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allocated to the Class A CitiCertificates, the
Insurer will pay, subject to the terms of the
Policy, the related Insured Payment to the Trustee
for the benefit of the holders of the Class A
CitiCertificates. See "The Certificate Guaranty
Insurance Policy and the Insurer" in this
Prospectus Supplement.
EXTENT OF LOSS COVERAGE. Realized Losses on
Mortgage Loans, including Realized Losses that are
(i) attributable to Special Hazards not insured
against under a standard hazard insurance policy,
(ii) incurred on defaulted Mortgage Loans as to
which there was fraud in the origination of such
Mortgage Loans or (iii) attributable to certain
actions which may be taken by a bankruptcy court in
connection with a Mortgage Loan, including a
reduction by a bankruptcy court of the principal
balance of or the interest rate on a Mortgage Loan
or an extension of its maturity, in each case up to
the respective limits described below, will not be
allocated to the Class A CitiCertificates until the
date on which the Stated Amount of the Class B
CitiCertificates has been reduced to zero (the
"Subordination Depletion Date"). Upon the
Subordination Depletion Date, such Realized Losses
will be allocated to the Class A CitiCertificates
for so long as they are outstanding. The Policy
will cover any Realized Losses allocated to the
Class A CitiCertificates.
With respect to any Distribution Date subsequent to
the first Distribution Date, the availability of
the credit enhancement provided by the Class B
CitiCertificates will be affected by the prior
reduction of the Stated Amount of the Class B
CitiCertificates, which reduction will result from
(i) the prior allocation of losses to the Class B
CitiCertificates due to the liquidation of
defaulted Mortgage Loans, including losses due to
Special Hazards and fraud losses up to the
respective limits referred to below, (ii) the prior
allocation of bankruptcy losses up to the limit
referred to below and (iii) the prior receipt of
distributions in reduction of Stated Amount by
holders of the Class B CitiCertificates. As of the
Closing Date, the amount of losses attributable to
Special Hazards, fraud and bankruptcy that will be
absorbed first by holders of the Class B
CitiCertificates (in reverse numerical order) will
be approximately 1.91%, 2.00% and 0.10%,
respectively, of the Initial Mortgage Loan Balance.
The maximum amount of losses attributable to
Special Hazard, fraud or bankruptcy that will be
absorbed solely by holders of the Class B
CitiCertificates will be those amounts required by
the rating agency (or rating agencies) rating the
Offered CitiCertificates as a condition to the
issuance of the ratings set forth below under "--
Certificate Ratings" and by the Insurer in
connection with issuing the Policy. Under certain
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circumstances, the limits set forth above may be
reduced. If losses due to Special Hazards, fraud or
bankruptcy exceed any of such respective amounts
prior to the Subordination Depletion Date, such
excess losses will be shared pro rata by the Class
A CitiCertificates and the Class B
CitiCertificates. Any such losses allocated to the
Class A CitiCertificates will be covered by the
Policy. In addition, such losses will be covered by
the Policy subsequent to the Subordination
Depletion Date as and to the extent described
therein. See "The Certificate Guaranty Insurance
Policy and the Insurer" in this Prospectus
Supplement. See "Description of the Offered
CitiCertificates--Subordination--Allocation of
Losses" in this Prospectus Supplement.
CERTIFICATE GUARANTY INSURANCE POLICY. The Class A
CitiCertificates will be entitled to the benefit of
a certificate guaranty insurance policy (the
"Policy") to be issued by the Insurer. Under the
Policy the Insurer will unconditionally and
irrevocably guarantee the payment of the Class A
Unpaid Interest Shortfall and the payment of
Realized Losses allocated to the Class A
CitiCertificates.
Priority of Distributions On each Distribution Date, the Pool Distribution
......................... Amount will be distributed to pay the following
amounts in the following order of priority: (1) the
Class A Interest Amount, (2) to the Insurer as
reimbursement for any Insured Payment relating to
the Class A Interest Amount, (3) the Class A
Principal Distribution Amount, (4) to the Insurer
as reimbursement for any Insured Payment relating
to the Class A Principal Distribution Amount and in
payment of any other amount payable to the Insurer
under the insurance agreement pursuant to which the
Policy is issued and (5) to the Class B Subclasses
of the Class B CitiCertificates, sequentially in
numerical order, such that no Class B Subclass of
the Class B CitiCertificates with a higher
numerical designation receives any distribution in
reduction of Stated Amount or in respect of
interest before each Class B Subclass with a lower
numerical designation receives its required
distributions.
Distributions of Interest The Class A CitiCertificates will accrue interest
......................... on the Stated Amount thereof at the Initial Stated
Rate per annum for the first Interest Accrual
Period, and, in the case of subsequent Interest
Accrual Periods, at the then-current Stated Rate,
in each case, for any Distribution Date, net of (i)
any Non-Supported Interest Shortfalls allocated to
the Class A CitiCertificates, as described below
and (ii) any Relief Act Shortfalls allocated to the
Class A CitiCertificates, as described under
"Description of the Offered CitiCertificates-
Distributions of Interest" in this Prospectus
Supplement (the "Class A Interest Amount").
Interest on each Offered
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CitiCertificate will be distributable monthly on
each Distribution Date commencing in December 1997
to holders of record on the applicable Record Date.
Interest will accrue on the Offered
CitiCertificates from the first through the last
day of the month preceding the month of the then
current Distribution Date (each such period, an
"Interest Accrual Period"). Interest accrued on the
Offered CitiCertificates during any Interest
Accrual Period will be calculated on the assumption
that distributions in reduction of Stated Amount
made on the Offered CitiCertificates then entitled
to such distributions were made on the day
immediately following the last day of the preceding
Interest Accrual Period, and not on the following
Distribution Date when actually made, added or
allocated. See "Description of the Offered
CitiCertificates--Distributions of Interest" in
this Prospectus Supplement.
The effective yield to holders of the Offered
CitiCertificates will be reduced below the yield
otherwise produced by the Stated Rate thereof
because distributions of interest and distributions
in reduction of Stated Amount distributable with
respect to an Interest Accrual Period will not be
distributed until the 25th day of the month
following the end of such Interest Accrual Period
and the amount distributable in reduction of Stated
Amount on the related Distribution Date will not
accrue interest during such delay.
To the extent that collections of interest from
Mortgagors on account of full or partial principal
prepayments on Mortgage Loans are less than one
full month's interest at the applicable Note Rate
("Prepayment Interest Shortfalls"), such Prepayment
Interest Shortfalls will be paid by the Servicer to
the extent of the "Compensating Cap," which will be
an amount for any Distribution Date equal to the
lesser of (a) the amount of the Servicing Fee
actually received with respect to the related
Distribution Date and (b) the product of (x) one-
twelfth of the Pool Adjusted Balance as of the
preceding Distribution Date and (y) 0.125%.
The aggregate Prepayment Interest Shortfalls
related to the Mortgage Loans with respect to a
Distribution Date will be allocated proportionately
between the Class A Citi-Certificates and the Class
B CitiCertificates based on interest accrued. Any
excess of the amount of aggregate Prepayment
Interest Shortfalls so allocated to the
CitiCertificates over the Compensating Cap (the
"Non-
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<PAGE>
Supported Interest Shortfall") will be allocated
among the CitiCertificates proportionately on the
basis of interest accrued. Any Non-Supported
Interest Shortfall allocated to the Class A
CitiCertificates will not be covered by the Policy.
In the unlikely event that on a particular
Distribution Date prior to the Subordination
Depletion Date, the Pool Distribution Amount is
less than the Class A Interest Amount, the
aggregate amount of the shortfall (the "Class A
Unpaid Interest Shortfall") will be paid, subject
to the terms of the Policy, by the Insurer to the
Trustee, for the benefit of holders of the Class A
CitiCertificates, as an Insured Payment. The amount
of any Class A Unpaid Interest Shortfall will be
carried forward and will be reimbursed to the
Insurer, to the extent funds are available therefor
on future Distribution Dates.
Distributions in
Reduction of Stated
Amount of the Offered
CitiCertificates ........
Distributions in reduction of Stated Amount will be
made on each Distribution Date to the Class A
CitiCertificates as set forth below. Amounts
distributed in reduction of Stated Amount of the
Class A CitiCertificates will be allocated pro rata
to all Class A CitiCertificates until the aggregate
amount of such distributions has reduced the Stated
Amount of each such Class A CitiCertificate to
zero.
The amount to be distributed on any Distribution
Date in reduction of Stated Amount of the Class A
CitiCertificates (the "Class A Principal
Distribution Amount") will be the lesser of (i) the
Pool Distribution Amount after distribution on such
Distribution Date of all interest distributable on
the Class A CitiCertificates and reimbursements to
the Insurer in respect of any Class A Unpaid
Interest Shortfalls and (ii) the Class A Optimal
Principal Amount.
The "Pool Distribution Amount" for a particular
Distribution Date will be equal to the aggregate of
all previously undistributed amounts of principal
(including any full or partial principal
prepayments) and interest in respect of the
Mortgage Loans received and posted after the Cut-
Off Date and before the related Determination Date
(including, with respect to such Distribution Date,
amounts advanced by the Servicer or the Trustee (in
its individual capacity), advanced from amounts in
the Certificate Account or paid by the Servicer
with respect to Prepayment Interest Shortfalls),
excluding in each case (i) payments due on or
before the Cut-Off Date, (ii) full or partial
principal prepayments posted during the month of
such Distribution Date and any related payments of
interest representing all or a portion of interest
for such month, (iii) payments representing early
receipts of scheduled principal and interest due
subsequent to the first
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day of the month in which such Distribution Date
occurs, (iv) the portion of interest received on
each Mortgage Loan used to pay the Servicing Fee
and the Administrative Fee, (v) the portion of the
liquidation proceeds of defaulted Mortgage Loans
used to pay the Servicing Fee and (vi) receipts of
overdue amounts with respect to which the Servicer
or the Trustee (in its individual capacity) has
made advances and certain other amounts
reimbursable to the Servicer. See "Description of
Certificates--Distributions to Certificateholders--
General" in the Prospectus.
The allocation of a disproportionate amount of
prepayments and certain recoveries as described
above to the Class A CitiCertificates in reduction
of Stated Amount will have the effect of
accelerating the amortization of such Class A
CitiCertificates while, in the absence of Realized
Losses, increasing the respective percentage
interest in the Trust evidenced by the Class B
CitiCertificates. Increasing the respective
percentage interest of the Class B CitiCertificates
relative to that of the Class A CitiCertificates is
intended to preserve the availability of the
subordination provided by the Class B
CitiCertificates.
Prepayment and Yield
Considerations........... The yield to maturity and weighted average lives of
the Offered CitiCertificates will be sensitive in
varying degrees to, among other things, the rate of
prepayment of the Mortgage Loans, the allocation of
such prepayments to the CitiCertificates, and the
timing and extent of losses, if any, allocated to
the CitiCertificates. No representation is made as
to whether the Mortgage Loans will prepay at any
particular rate. See "Description of the Offered
Citi-Certificates--Prepayment and Yield
Considerations" in this Prospectus Supplement.
AN INVESTOR THAT PURCHASES ANY OFFERED
CITICERTIFICATE AT A PREMIUM SHOULD CONSIDER THE
RISK THAT A FASTER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS ON THE MORTGAGE LOANS WILL
RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN SUCH
INVESTOR'S EXPECTED YIELD.
The Mortgage Loans A.
General.................. The Mortgage Loans will have Note Rates as of the
Cut-Off Date ranging from 5.125% to 8.375% per
annum. The initial weighted average mortgage rate
of the Mortgage Loans as of the Cut-Off Date is
expected to be at least 5.577% but no more than
5.977% per annum. The weighted average remaining
term to stated maturity of the Mortgage Loans as of
the Cut-Off Date will be at least 349 months but no
more than 355 months.
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<PAGE>
The Mortgage Loans will consist of 20- to 30-year
conventional one-year adjustable rate one- to-four-
family mortgage loans and will include loans
secured by shares issued by cooperative housing
corporations. The Mortgage Loans will be acquired
by the Issuer from the Underwriter on the date of
issuance of the CitiCertificates. The Mortgage
Loans were acquired in 1997 by an affiliate of the
Underwriter from CMI, which originated or acquired
the Mortgage Loans. Mortgage Loans acquired by CMI
include Mortgage Loans originated or acquired by
CFSB or originated by Citibank. See "Description of
the Pool and the Mortgaged Properties" in this
Prospectus Supplement and "The Pools--Mortgage
Loans" in the Prospectus for additional information
concerning the Mortgage Loans.
B. Certificate Account....
All payments received in respect of the Mortgage
Loans, beginning with the December 1997
distribution, will be remitted directly to a
certificate account or accounts (the "Certificate
Account") to be established with the Trustee on the
Closing Date. Such payments will be available for
distribution in reduction of Stated Amount of, and
of interest on, the CitiCertificates on the
Distribution Date on which such funds are remitted
to the Certificate Account.
Advances ................. The Servicer intends to make advances in respect of
delinquencies on the Mortgage Loans in an amount
equal to the delinquent payments to the extent the
Servicer determines that such advances will be
recoverable from future payments and collections on
the Mortgage Loans. The Servicer will contract with
the Trustee (in its individual capacity and not as
Trustee) for the limited purpose of providing for
advances by the Trustee (in such individual
capacity) in respect of delinquencies to the extent
that the Servicer fails to make such advances. The
Trustee (in such individual capacity) will make
such advances to the extent it determines that such
advances will be recoverable from future payments
and collections on the related Mortgage Loans.
Recoveries in respect of amounts advanced will be
applied to reimbursement of the advances. On each
Distribution Date, the Servicer and the Trustee
will be entitled to withdraw funds from the
Certificate Account (a) in reimbursement of all
unreimbursed advances deemed by the Servicer or the
Trustee, as the case may be, to be nonrecoverable
and (b) in reimbursement of all other unreimbursed
advances made by them, but only (in the case of
clause (b)) from funds not distributable to holders
of CitiCertificates on such Distribution Date.
S-12
<PAGE>
Holders of CitiCertificates may receive final
Optional Termination ..... distributions in connection with a termination of
the Trust made at the option of CMSI on any
Distribution Date after which the Pool Adjusted
Balance is less than 5% of the Initial Mortgage
Loan Balance. The price paid by CMSI for the Trust
property will generally equal the sum of (i) 100%
of the unpaid principal balance of the Mortgage
Loans, together with accrued interest thereon at
the Net Mortgage Rate, plus, to the extent not
previously paid, the portion of the Administrative
Fee representing the insurance premium on the
respective Mortgage Loans, and (ii) the current
appraised value of acquired property. Holders of
the CitiCertificates, to the extent of funds
available, will receive the unpaid Stated Amount of
their CitiCertificates plus accrued and unpaid
interest thereon. See "Description of the Offered
CitiCertificates-- Optional Termination" in this
Prospectus Supplement.
Record Date .............. The Record Date for each Distribution Date will be
the close of business on the last day of the month
preceding the month of the applicable Distribution
Date.
Certain Federal Income
Tax Consequences ........ The Offered CitiCertificates will be designated as
regular interests in a REMIC and generally will be
treated as newly originated debt instruments for
federal income tax purposes. Beneficial Owners of
the Offered CitiCertificates will be required to
report interest income on such Offered
CitiCertificates in accordance with the accrual
method of accounting. It is anticipated that the
Class A CitiCertificates will be issued at a
premium for federal income tax purposes.
The Prepayment Assumption on the Mortgage Loans, as
described in the Prospectus, that is to be used to
amortize premium is based on a constant prepayment
rate of 18%, which represents a constant rate of
prepayment on the Mortgage Loans each month
relative to the outstanding principal balance of
the Mortgage Loans for the life thereof. No
representation is made as to the rate at which the
Mortgage Loans will prepay.
The Offered CitiCertificates will be treated as
"loans . . . secured by an interest in real
property which is . . . residential real property"
and as "regular interests in a REMIC" for domestic
building and loan associations, and as "real estate
assets" for real estate investment trusts, to the
extent described in the Prospectus. See "Certain
Federal Income Tax Consequences" in the Prospectus.
ERISA Considerations ..... A fiduciary that is investing or that could be
deemed to be investing the assets of any employee
benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or the corresponding
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<PAGE>
provisions of the Code (an "ERISA Plan") or a
governmental plan as defined in Section 3(32) of
ERISA, subject to any federal, state or local law
("Similar Law"), which is, to a material extent,
similar to the foregoing provisions of ERISA or the
Code (collectively, with an ERISA Plan, a "Plan"),
should carefully review with its own legal advisors
whether the purchase or holding of the Offered
CitiCertificates could give rise to a transaction
prohibited or otherwise impermissible under ERISA,
the Code or Similar Law, and should carefully
review the discussion in this Prospectus Supplement
and the Prospectus under the caption "ERISA
Considerations."
Pursuant to the expedited processing procedure
provided under Prohibited Transaction Class
Exemption 96-62, the Department of Labor issued to
the Underwriter an administrative exemption,
Department of Labor exemption application number E-
00003, granted effective December 7, 1996 (the
"Exemption"), which Exemption generally was
intended to apply to the purchase and holding by
ERISA Plans of securities, such as the Class A
CitiCertificates, which represent beneficial
interests in pass-through trusts that meet the
requirements of the Exemption. The Exemption should
apply to the acquisition, holding and resale of the
Class A CitiCertificates by an ERISA Plan, provided
that specified conditions (certain of which are
described herein, including the condition that the
ERISA Plan be an "accredited investor" (as defined
in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission (the "Commission") under
the Securities Act of 1933)) are met. See "ERISA
Considerations" in this Prospectus Supplement.
Trustee .................. The Bank of New York.
Certificate Ratings ...... It is a condition of issuance of the Class A
CitiCertificates that they be rated "AAA" by
Standard & Poor's Ratings Group ("S&P") and "Aaa"
by Moody's Investors Service, Inc. ("Moody's").
Ratings of the Class A CitiCertificates other than
those indicated above have not been requested.
However, there can be no assurance as to whether
another rating agency will rate the Class A
CitiCertificates, and, if so, what ratings would be
so assigned to the Class A CitiCertificates. The
ratings so assigned may be lower than those
indicated above.
The ratings of the Class A CitiCertificates should
be evaluated independently from similar ratings on
other types of securities. The ratings do not
address the possibility that as a result of
prepayments holders of Class A CitiCertificates may
receive a lower than anticipated yield. A security
rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning rating
agency.
S-14
<PAGE>
DESCRIPTION OF THE POOL
AND THE MORTGAGED PROPERTIES
The Pool to be evidenced by the CitiCertificates will include Mortgage Loans
evidenced by mortgage notes with an aggregate Adjusted Balance as of the Cut-
Off Date of approximately $100,000,000. This amount is subject to a permitted
upward or downward variance of up to 5.0%. None of the Mortgage Loans will be
CitiMae Mortgage Loans.
The "Adjusted Balance" of any Mortgage Loan as of the first day of any month
is the scheduled principal balance thereof as of the close of business on such
day (whether or not any scheduled payments have been received and before any
adjustment to the related amortization schedule by reason of bankruptcy (other
than a Deficient Valuation)), less any 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 Cut-Off Date).
A detailed description (the "Detailed Description") of the Mortgage Loans
will be available at the time of issuance of the CitiCertificates. The
Detailed Description will specify the Initial Mortgage Loan Balance as of the
Cut-Off Date and will also set forth tables reflecting the following
information regarding the Mortgage Loans: years of origination, types of
dwellings on the underlying properties, sizes of Mortgage Loans, loan-to-value
ratios, Note Rates, Maximum Note Rates, Mortgage Margins and geographical
distribution by state of the Mortgage Loans. The Detailed Description will
also specify the Special Hazard Loss Amount, Fraud Loss Amount and Bankruptcy
Loss Amount as of the Cut-Off Date and the aggregate Initial Stated Amounts of
the Class A CitiCertificates and the Class B CitiCertificates. The information
contained in the Detailed Description will be set forth in a report on Form 8-
K which will be filed with the Commission within 15 days of the issuance of
the CitiCertificates.
The following paragraphs set forth detailed information as of the Cut-Off
Date with respect to the Mortgage Loans expected to be in the Pool. To the
extent that the Mortgage Loans differ from the descriptions contained herein,
immaterial variances in such information may result.
The weighted average Note Rate of the Mortgage Loans as of the Cut-Off Date
will be at least 5.577% but no more than 5.977% per annum. All Mortgage Loans
will have Note Rates as of the Cut-Off Date of at least 5.125% but no more
than 8.375% per annum. All of the Mortgage Loans will have a weighted average
Maximum Note Rate of at least 11.429% but no more than 11.829% per annum. The
weighted average Mortgage Margin as of the Cut-Off Date will be at least
2.562% but no more than 2.962%. All of the Mortgage Loans will have a Mortgage
Margin of at least 2.625% but no more than 3.000%. The weighted average
remaining term to stated maturity of the Mortgage Loans as of the Cut-Off Date
will be at least 349 months but no longer than 355 months. All Mortgage Loans
have original maturities of 20 to 30 years. None of the Mortgage Loans will
have been originated prior to September 1, 1996 or after November 1, 1997.
None of the Mortgage Loans will have a scheduled maturity later than November
1, 2027.
Each Mortgage Loan provides for a Note Rate equal to the sum of the Index
and the Mortgage Margin specified in the mortgage note with respect to such
Mortgage Loan, rounded to the nearest 0.125%, subject to the applicability of
a Maximum Note Rate. To accommodate changes in the amount of interest that
will accrue on the principal balance of the Mortgage Loans due to annual
adjustments to the Note Rate, each Mortgage Note provides for annual
adjustments to the Mortgagor's monthly payment. Such annual adjustments,
however, are limited to a Periodic Ceiling or a Periodic Floor, as the case
may be, equal to a 2.0% increase or decrease in the Mortgagor's Note Rate from
that in effect during the previous twelve-month
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<PAGE>
period. At all times the monthly payment is such that it will amortize fully
the Mortgage Loan during the remaining term of the Mortgage Loan at the then
current Note Rate.
The Mortgage Loans will have the following additional characteristics as of
the Cut-Off Date (expressed as a percentage of the aggregate Adjusted Balance
of the Mortgage Loans having such characteristics relative to the Adjusted
Balance of all Mortgage Loans):
At least 95% of the Mortgage Loans will be Mortgage Loans originated using
loan underwriting policies which require, among other things, proof of income
and liquid assets and telephone verification of employment or are refinanced
Mortgage Loans originated using alternative or streamlined loan underwriting
policies. No more than 15% of the Mortgage Loans will be refinanced Mortgage
Loans originated using alternative or streamlined loan underwriting policies.
See "Loan Underwriting Policies and Loss and Delinquency Considerations" in
the Prospectus.
At least 5% of the Mortgage Loans will be Mortgage Loans each having an
Adjusted Balance of less than $250,000.
At least 55% of the Mortgage Loans will be Mortgage Loans each having an
Adjusted Balance of less than $500,000.
No more than 45% of the Mortgage Loans will be Mortgage Loans each having an
Adjusted Balance of at least $500,000 but less than $1,000,000.
No more than 10% of the Mortgage Loans will have had loan-to-value ratios at
origination in excess of 80%; no more than 5% of the Mortgage Loans will have
had loan-to-value ratios at origination in excess of 90%; and none of the
Mortgage Loans will have had loan-to-value ratios at origination in excess of
95%. The weighted average loan-to-value ratio at origination of the Mortgage
Loans as of the Cut-Off Date will be no more than 72%. For more information on
Mortgage Loans having loan-to-value ratios at origination in excess of 80%,
see "Appendix A: The Mortgage Loans and CitiMortgageCertificates-The Mortgage
Loans-General" in the Prospectus.
At least 95% of the Mortgage Loans will be secured by one-family dwellings.
No more than 10% of the Mortgage Loans will be secured by condominiums,
townhouses, rowhouses and shares issued by cooperative housing corporations.
No more than 5% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one zip code.
No more than 45% and 20% of the Mortgage Loans will be secured by Mortgaged
Properties located in California and Illinois, respectively. No more than 10%
of the Mortgage Loans will be secured by Mortgaged Properties located in any
other state.
At least 95% of the Mortgage Loans will be determined by the Issuer to be
secured by a Mortgage on the primary residence of the borrower. None of the
Mortgage Loans will be secured by investment properties. See "Appendix A: The
Mortgage Loans and CitiMortgageCertificates-The Mortgage Loans-General" in the
Prospectus.
INDEX
For each Note Rate adjustment date, the Index used to adjust the Note Rate
on a Mortgage Loan is the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of
S-16
<PAGE>
one year (as published in Federal Reserve Statistical Release H.15(519) or its
successor, if any), most recently available as of a date 45 days prior to such
Note Rate adjustment date. Statistical Release H.15(519) may be obtained by
writing or calling the Publications Department at the Board of Governors of
the Federal Reserve System, 21st and C Streets, N.W., Washington, D.C. 20551;
(202) 452-3245.
Listed below are the historical values of the one-year constant maturity
Treasury index since January 1992:
<TABLE>
<CAPTION>
MONTH YEAR (1)
----- ----------------------------------
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January..................................... 5.61% 5.09% 7.05% 3.54% 3.50% 4.15%
February.................................... 5.53 4.94 6.70 3.87 3.39 4.29
March....................................... 5.80 5.34 6.43 4.32 3.33 4.63
April....................................... 5.99 5.54 6.27 4.82 3.24 4.30
May......................................... 5.87 5.64 6.00 5.31 3.36 4.19
June........................................ 5.69 5.81 5.64 5.27 3.54 4.17
July........................................ 5.54 5.85 5.59 5.48 3.47 3.60
August...................................... 5.56 5.67 5.75 5.56 3.44 3.47
September................................... 5.52 5.83 5.62 5.76 3.36 3.18
October..................................... 5.46 5.55 5.59 6.11 3.39 3.30
November.................................... N/A 5.42 5.43 6.54 3.58 3.68
December.................................... N/A 5.47 5.31 7.14 3.61 3.71
</TABLE>
- --------
(1) Figures are averages of weekly rates and do not necessarily correspond to
the one-year constant maturity index values determined as provided in any
related mortgage note.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF ONE-YEAR TREASURY ARMS
The Originators and their affiliates began originating mortgage loans the
Note Rates with respect to which are adjusted annually based upon changes in
the Index ("One-Year Treasury ARMs") in the early 1980's. The Servicer's
delinquency and foreclosure experience with respect to One-Year Treasury ARMs
has been that such loans historically have had higher delinquency and
foreclosure rates than the rates experienced for the mortgage loans in the
serviced and securitized portfolios; however, analysis of recent originations
indicates that the delinquency and foreclosure rates for recently originated
One-Year Treasury ARMs are similar to the rates experienced for the mortgage
loans in the serviced and securitized portfolios. There can be no assurance,
however, that the delinquency and foreclosure experience for the Mortgage
Loans will be similar to the historical results experienced for the One-Year
Treasury ARMs or to the results experienced for the serviced or securitized
portfolios. See "Delinquency and Foreclosure Experience" in the Prospectus.
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<PAGE>
DESCRIPTION OF THE OFFERED CITICERTIFICATES
The Offered CitiCertificates will be issued pursuant to the Pooling
Agreement, a form of which is filed as an exhibit to the Registration
Statement of which this Prospectus Supplement is a part. The Trustee will make
available for inspection a copy of the Pooling Agreement (without attachments)
to holders of CitiCertificates upon written request. Reference is made to the
Prospectus for important additional information regarding the terms and
conditions of the Pooling Agreement and the CitiCertificates. Each Class A
CitiCertificate at the time of issuance will qualify as a "mortgage related
security" within the meaning of SMMEA and will retain such qualification so
long as it is rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization.
Distributions on the Offered CitiCertificates generally will be made by the
Trustee by wire transfer (if wiring instructions are received from the Person
entitled thereto) in the case of a holder of Offered CitiCertificates having
an aggregate Initial Stated Amount of $1,000,000 or more, or by check or by
such other means as the Person entitled thereto and the Trustee shall agree.
Unless and until Definitive Certificates are issued, Cede, as nominee of DTC,
will be the holder of the Book-Entry CitiCertificates. However, the final
distribution in reduction of Stated Amount will be made only upon presentation
and surrender of such CitiCertificate at the office of the Trustee. Payments
will be made to or for the account of the Person entitled thereto or as
specified by such Person in accordance with the terms of the Pooling
Agreement.
DISTRIBUTIONS OF INTEREST
The amount of interest that will accrue on the Class A CitiCertificates
during each Interest Accrual Period is referred to herein as the "Class A
Interest Amount". The Class A Interest Amount will equal (a) the interest
accrued for each Interest Accrual Period at the then-applicable Stated Rate on
the Class A Stated Amount, reduced by (b) (i) the portion of any Non-Supported
Interest Shortfall allocable to the Class A CitiCertificates and (ii) any
Relief Act Shortfall allocable to the Class A CitiCertificates.
The "Class A Stated Amount" as of any Distribution Date before the
Subordination Depletion Date will be the aggregate Initial Stated Amount of
the Class A CitiCertificates, less (i) all amounts previously distributed to
holders of the Class A CitiCertificates in reduction of the Stated Amount of
the Class A CitiCertificates (including any Insured Payments in respect of
principal) and (ii) the Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses previously allocated to the Class A CitiCertificates
in the manner described below under "-Subordination-Allocation of Losses."
After the Subordination Depletion Date, the Class A Stated Amount may be
subject to further reduction in an amount equal to the difference, if any,
between (a) the Class A Stated Amount as of such Distribution Date without
regard to this provision and (b) the Pool Adjusted Balance for the preceding
Distribution Date. To the extent described therein, the Policy covers any
deficiency to the extent of the excess of (a) the aggregate Class A Stated
Amount of all Class A CitiCertificates then outstanding over (b) the Pool
Adjusted Balance for such preceding Distribution Date. See "The Certificate
Guaranty Insurance Policy and the Insurer" in this Prospectus Supplement.
With respect to any Distribution Date, the "Pool Adjusted Balance" will
equal the aggregate Adjusted Balances of the Mortgage Loans as of such
Distribution Date.
Interest shortfalls resulting from full or partial principal prepayments of
Mortgage Loans ("Prepayment Interest Shortfalls") will be offset to the extent
of the Compensating Cap on the related Distribution Date. Any excess of the
amount of aggregate Prepayment Interest Shortfalls over the Compensating Cap
(the "Non-Supported Interest Shortfall") will be allocated between the Class A
CitiCertificates and the Class B CitiCertificates proportionately on the basis
of
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<PAGE>
interest accrued on each such Class before deductions and accordingly will
reduce the amount of interest due to be distributed to holders of the
CitiCertificates then entitled to distributions in respect of interest. Any
Non-Supported Interest Shortfall allocated to the Class A CitiCertificates
will not be covered by the Policy.
The interest portion of any Excess Special Hazard Losses, Excess Fraud
Losses or Excess Bankruptcy Losses with respect to a Mortgage Loan will be
allocated proportionately between the Class A CitiCertificates and the Class B
CitiCertificates based on the amount of interest accrued on each such Class
before deductions. Such interest losses with respect to the Class A
CitiCertificates are "Class A Excess Interest Losses". Class A Excess Interest
Losses will be covered by the Policy.
Allocations of the interest portion of Realized Losses (other than Excess
Special Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses) and
Relief Act Shortfalls will not be allocated pro rata but instead will be
allocated first to the Class B CitiCertificates in reverse numerical and then
to the Class A CitiCertificates as a result of the priority of distributions
of the Pool Distribution Amount. Any Relief Act Shortfalls allocated to the
Class A CitiCertificates will not be covered by the Policy.
"Relief Act Shortfalls" are interest shortfalls arising from relief provided
by the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Civil
Relief Act"). The Civil Relief Act allows individuals on active duty in the
military to cap the interest rate on debts incurred before the call to active
duty to 6%.
On each Distribution Date, prior to the Subordination Depletion Date, on
which the Pool Distribution Amount equals or exceeds the Class A Interest
Amount, distributions in respect of interest to the Class A CitiCertificates
will equal the Class A Interest Amount.
In the unlikely event that, on any Distribution Date, the Pool Distribution
Amount is less than the Class A Interest Amount, the Class A Unpaid Interest
Shortfall will be paid by the Insurer to the Trustee, for the benefit of
holders of the Class A CitiCertificates, as an Insured Payment in accordance
with and subject to the terms of the Policy. The amount of any Class A Unpaid
Interest Shortfall will be carried forward and will be reimbursed to the
Insurer, to the extent funds are available therefor on future Distribution
Dates.
On each Distribution Date on which the Pool Distribution Amount exceeds the
Class A Interest Amount, any excess will then be allocated first to reimburse
the Insurer for any Insured Payments made by the Insurer for any Class A
Unpaid Interest Shortfall.
DISTRIBUTIONS IN REDUCTION OF STATED AMOUNT
Distributions in reduction of Stated Amount of the Class A CitiCertificates
will be made on each Distribution Date in an aggregate amount equal to the
Class A Principal Distribution Amount. The "Class A Principal Distribution
Amount" with respect to any Distribution Date will be the lesser of (i) the
Pool Distribution Amount after distribution on such Distribution Date of all
interest distributable on the Class A CitiCertificates and reimbursements to
the Insurer in respect of any Class A Unpaid Interest Shortfalls and (ii) the
Class A Optimal Principal Amount.
The "Class A Optimal Principal Amount" with respect to each Distribution
Date will be an amount equal to the sum of (i) the Class A Percentage of (A)
all scheduled payments of principal due on each outstanding Mortgage Loan
(including each defaulted Mortgage Loan, other than a Liquidated Loan, with
respect to which the related Mortgaged Property has been acquired by the
Trust) on the first day of the month in which the Distribution Date occurs,
less (B) if the Bankruptcy Coverage Termination Date has occurred, the
principal portion of Debt Service
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<PAGE>
Reductions, (ii) the Class A Prepayment Percentage of the Adjusted Balance of
each Mortgage Loan which, during the month preceding the month of such
Distribution Date was repurchased by the Issuer, as described in "Appendix A:
The Mortgage Loans and CitiMortgageCertificates-Assignment of Loans" in the
Prospectus, (iii) the Class A Prepayment Percentage of the aggregate net
Liquidation Proceeds on all Mortgage Loans that became Liquidated Loans during
such preceding month, less the amounts allocable to principal of any
unreimbursed advances previously made by the Servicer or the Trustee with
respect to such Liquidated Loans and the portion of the net Liquidation
Proceeds allocable to interest, (iv) the Class A Prepayment Percentage of the
Adjusted Balance of each Mortgage Loan which was the subject of a principal
prepayment in full during the month preceding the month of such Distribution
Date and (v) the Class A Prepayment Percentage of all partial principal
prepayments received by the Servicer in the month preceding the month in which
such Distribution Date occurs.
In addition, in the event that there is any recovery of an amount in respect
of principal which had previously been allocated as a Realized Loss to the
Class A CitiCertificates, the amount of such recovery will be allocated first
to the Class A CitiCertificates for reimbursement to the Insurer, to the
extent and up to the amount of any Realized Losses allocated to the Class A
CitiCertificates and paid by the Insurer (or if such loss was not paid by the
Insurer, to the Class A CitiCertificates).
The principal balance of the Class A CitiCertificates will be reduced on any
Distribution Date by the Class A CitiCertificates share of Excess Special
Hazard Losses, Excess Fraud Losses and Excess Bankruptcy Losses. See "-
Subordination" below. Any such reduction will be covered by the Policy as and
to the extent described therein.
The principal portion of Realized Losses allocated to the Class A
CitiCertificates will be covered by the Policy as and to the extent described
therein.
A "Liquidated Loan" is a Mortgage Loan with respect to which the Servicer
has determined that all recoverable liquidation and insurance proceeds have
been received or the Issuer has accepted payment by a Mortgagor in
consideration for the release of the Mortgage in an amount equal to less than
the outstanding principal balance of the Mortgage Loan as a result of a
determination that liquidation expenses for 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.
A "Liquidated Loan Loss" on a Liquidated Loan is equal to the excess, if
any, of (i) the unpaid principal balance of such Liquidated Loan, plus
interest thereon in accordance with the amortization schedule at the Note Rate
through the last day of the month in which such Mortgage Loan was liquidated,
over (ii) net Liquidation Proceeds. For purposes of calculating the amount of
any Liquidated Loan Loss, all net Liquidation Proceeds (after reimbursement to
the Servicer and the Trustee for any previously unreimbursed related advances
and related liquidation expenses) will be applied first to accrued interest
and then to the unpaid principal balance of the Liquidated Loan. "Liquidation
Proceeds" are all amounts received by the Servicer in connection with the
liquidation of defaulted Mortgage Loans or property acquired in respect
thereof. A "Special Hazard Loss" is a Liquidated Loan Loss occurring as a
result of a Special Hazard. "Special Hazards" are all risks of direct physical
loss or damage which occur from any cause excluding any risk of direct
physical loss or damage that is insured against under either (i) the
Mortgagor's homeowner's policy, fire insurance policy, flood insurance (if
otherwise required) and extended coverage policies (if any), as required to be
maintained pursuant to the applicable Mortgage Loan or (ii) hazard insurance
with respect to such Mortgaged Property which is required to be maintained by
the Servicer under the Pooling Agreement. A "Fraud Loss" is a Liquidated Loan
Loss incurred on a Liquidated Loan as to which there was fraud in
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<PAGE>
the origination of such Mortgage Loan. A "Bankruptcy Loss" is a loss
attributable to certain actions which may be taken by a bankruptcy court in
connection with a Mortgage Loan, including a reduction by a bankruptcy court
of the principal balance of or the interest rate on a Mortgage Loan or an
extension of its maturity. A "Debt Service Reduction" means a reduction in the
amount of monthly payments due to certain bankruptcy proceedings, but does not
include any permanent forgiveness of principal. A "Deficient Valuation" with
respect to a Mortgage Loan means a valuation by a court of the Mortgaged
Property in an amount less than the outstanding indebtedness under the
Mortgage Loan or any reduction in the amount of monthly payments that results
in a permanent forgiveness of principal, which valuation or reduction results
from a bankruptcy proceeding. Liquidated Loan Losses (including Special Hazard
Losses and Fraud Losses) and Bankruptcy Losses are referred to herein as
"Realized Losses."
The "Class A Percentage" for any Distribution Date occurring prior to the
Subordination Depletion Date is the percentage, which in no event will exceed
100%, obtained by dividing the Class A Stated Amount by the Adjusted Pool
Balance, both as of the immediately preceding Distribution Date (after taking
into account distributions in reduction of Stated Amount and the allocation of
any losses on such date). The Class A Percentage for the first Distribution
Date is expected to be between 96.75% and 98.75%. The Class A Percentage will
decrease as a result of the allocation of certain unscheduled payments in
respect of principal according to the Class A Prepayment Percentage for a
specified period to the Class A CitiCertificates and will increase as a result
of the allocation of Realized Losses to the Class B CitiCertificates.
The "Class A Prepayment Percentage" for any Distribution Date occurring
during the ten years beginning on the first Distribution Date will equal 100%.
Thereafter, the Class A Prepayment Percentage will be subject to gradual
reduction, except as provided below, as described in the following paragraph.
This disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Class A
CitiCertificates while, in the absence of Realized Losses, increasing the
respective interest in the Trust evidenced by the Class B CitiCertificates.
Increasing the respective interest of the Class B CitiCertificates relative to
that of the Class A CitiCertificates is intended to preserve the availability
of the subordination provided by the Class B CitiCertificates. See "--
Subordination" below.
The Class A Prepayment Percentage for any Distribution Date occurring during
the periods set forth below will be as follows:
<TABLE>
<CAPTION>
PERIOD (DATES INCLUSIVE) CLASS A PREPAYMENT PERCENTAGE
------------------------ -----------------------------
<S> <C>
December 2007-November 2008............... Class A Percentage plus 70% of the
Class B Percentage
December 2008-November 2009............... Class A Percentage plus 60% of the
Class B Percentage
December 2009-November 2010............... Class A Percentage plus 40% of the
Class B Percentage
December 2010-November 2011............... Class A Percentage plus 20% of the
Class B Percentage
December 2011 and thereafter.............. Class A Percentage
</TABLE>
Notwithstanding the foregoing, if the Class A Percentage on any Distribution
Date exceeds the initial Class A Percentage, the Class A Prepayment Percentage
for such Distribution Date will once again equal 100%.
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<PAGE>
In addition, no reduction of the Class A Prepayment Percentage will occur on
a Distribution Date unless the following tests are satisfied: (i) as of the
first Distribution Date as to which any such reduction applies, either (A) the
Adjusted Balance of the Mortgage Loans delinquent 60 days or more (including,
for this purpose, Mortgage Loans in foreclosure and real estate owned by the
Trust as a result of Mortgagor default) averaged over the last six months, as
a percentage of the sum of the Class B Stated Amount averaged over the last
six months, is less than 50% or (B) the Adjusted Balance of such delinquent
Mortgage Loans averaged over such period, as a percentage of the Adjusted
Balance of all Mortgage Loans averaged over such period, is less than 2%, and
(ii) cumulative Realized Losses with respect to the Mortgage Loans are less
than (a) with respect to each Distribution Date in December 2007 through
November 2008, inclusive, 30% of the aggregate Initial Stated Amount of the
Class B CitiCertificates (the "Original Subordinated Stated Amount"), (b) with
respect to each Distribution Date in December 2008 through November 2009,
inclusive, 35% of the Original Subordinated Stated Amount, (c) with respect to
each Distribution Date in December 2009 through November 2010, inclusive, 40%
of the Original Subordinated Stated Amount, (d) with respect to each
Distribution Date in December 2010 through November 2011, inclusive, 45% of
the Original Subordinated Stated Amount, and (e) with respect to each
Distribution Date in December 2011 and thereafter, 50% of the Original
Subordinated Stated Amount.
The "Class B Percentage" for any Distribution Date will be calculated as the
difference between 100% and the Class A Percentage for such date. The Class B
Percentage on the Closing Date is expected to be between 3.25% and 1.25%.
The "Class B Stated Amount" for any Distribution Date will be equal to the
Pool Adjusted Balance minus the Class A Stated Amount for the preceding
Distribution Date (after giving effect to any distributions in reduction of
Stated Amount and the allocation of any Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses on such date).
SUBORDINATION
The rights of holders of the Class B CitiCertificates to receive
distributions with respect to the Mortgage Loans will be subordinated to such
rights of holders of Class A CitiCertificates to the extent described below.
This subordination is intended to enhance the likelihood of timely receipt by
holders of the Class A CitiCertificates (to the extent of the subordination of
the Class B CitiCertificates) of the full amount of their scheduled monthly
payments of interest and principal and to afford protection against Realized
Losses, as more fully described below. If Realized Losses exceed the credit
support provided through subordination to the Class A CitiCertificates, any
losses that are allocated to the Class A CitiCertificates will be covered by
the Policy as and to the extent described therein. If any Excess Special
Hazard Losses, Excess Fraud Losses or Excess Bankruptcy Losses occur, all or a
portion of such losses will be borne by the Class A CitiCertificates and the
Policy will cover such losses.
The protection afforded to holders of the Class A CitiCertificates by means
of the subordination feature will be accomplished by the preferential right of
such holders to receive, prior to any distribution being made on a
Distribution Date in respect of the Class B CitiCertificates, the amounts in
reduction of Stated Amount and of interest due the Class A
CitiCertificateholders on each Distribution Date out of the Pool Distribution
Amount with respect to such date and, if necessary, by the right of such
holders to receive future distributions on the Mortgage Loans that would
otherwise have been payable to holders of Class B CitiCertificates.
The Class B CitiCertificates will be entitled, on each Distribution Date, to
the remaining portion, if any, of the applicable Pool Distribution Amount,
after payment of the Class A Interest Amount, any unreimbursed Class A Unpaid
Interest Shortfall payable to the Insurer, the Class A
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<PAGE>
Optimal Principal Amount and any other amounts payable to the Insurer. Amounts
so distributed to Class B CitiCertificateholders will not be available to
cover delinquencies or Realized Losses in respect of subsequent Distribution
Dates.
Allocation of Losses
Realized Losses (other than Excess Special Hazard Losses, Excess Fraud
Losses and Excess Bankruptcy Losses) will not be allocated to holders of the
Class A CitiCertificates until the date on which the amount of principal
payments on the Mortgage Loans to which holders of the Class B
CitiCertificates are entitled has been reduced to zero (the "Subordination
Depletion Date"). Until the Subordination Depletion Date, Realized Losses will
ultimately be borne first by the Class B Subclasses in reverse numerical
order, since such losses are reimbursable from certain funds otherwise
distributable on the Class B CitiCertificates.
The allocation of the principal portion of Realized Losses (other than a
Debt Service Reduction, Excess Special Hazard Losses, Excess Fraud Losses and
Excess Bankruptcy Losses) will be effected, as a result of the priority of
distributions described above, by the adjustment of the Stated Amount of the
most subordinate of the Class B Subclasses then outstanding (that is, the
Stated Amount of the Class B Subclasses in reverse numerical order), in such
amounts as are necessary to cause the sum of the Class A Stated Amount, and
the Class B Stated Amount to equal the Pool Adjusted Balance.
Allocations to the Class B CitiCertificates in reverse numerical order of
(i) the principal portion of Debt Service Reductions, (ii) the interest
portion of Realized Losses (other than Excess Special Hazard Losses, Excess
Fraud Losses and Excess Bankruptcy Losses), (iii) any interest shortfalls
resulting from delinquencies for which neither the Servicer nor the Trustee
advances and (iv) any Relief Act Shortfall will result from the priority of
distribution of the Pool Distribution Amount first to the Class A
CitiCertificates and second to the Class B CitiCertificates.
The principal portion of any Realized Loss allocated to the Class A
CitiCertificates on or after the Subordination Depletion Date will be covered
by the Policy as and to the extent described therein.
The principal portion of any Excess Special Hazard Losses, Excess Fraud
Losses or Excess Bankruptcy Losses will be allocated on a pro rata basis among
the Class A and Class B CitiCertificates based on the aggregate Stated Amounts
of each such Class. The interest portion of Excess Special Hazard Losses,
Excess Fraud Losses and Excess Bankruptcy Losses will be allocated on a pro
rata basis among the Class A and the Class B CitiCertificates based on
interest accrued before deductions. Any losses so allocated to the Class A
CitiCertificates will be covered by the Policy. Any such losses allocated to
the Class B CitiCertificates will reduce the amount of accrued interest
payable on the Class B CitiCertificates.
After the Subordination Depletion Date, any Relief Act Shortfall will be
allocated to the Class A CitiCertificates. Any Relief Act Shortfalls allocated
to the Class A CitiCertificates will not be covered by the Policy.
As described above, the Pool Distribution Amount for any Distribution Date
will include current receipts (other than certain unscheduled payments and
recoveries in respect of principal) from the Mortgage Loans otherwise payable
to holders of the Class B CitiCertificates. In general, if the Pool
Distribution Amount is not sufficient to cover the amount of the Class A
Optimal Principal Amount on a particular Distribution Date, the percentage of
principal payments on the Mortgage Loans to which holders of the Class A
CitiCertificates will be entitled (i.e., the Class A Percentage) on and after
the next Distribution Date will be proportionately
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<PAGE>
increased, thereby reducing, as a relative matter, the respective interest of
the Class B CitiCertificates in future payments of principal on the Mortgage
Loans. Such a shortfall could occur, for example, if a considerable number of
Mortgage Loans were to become Liquidated Loans in a particular month.
Special Hazard Losses will be allocated first to the Class B Subclasses in
reverse numerical order, and then to the Class A CitiCertificates, but only
prior to the Special Hazard Termination Date. The "Special Hazard Termination
Date" will be the date on which such Special Hazard Losses exceed the Special
Hazard Loss Amount (or, if earlier, the Subordination Depletion Date). On the
Closing Date, the "Special Hazard Loss Amount" with respect thereto will be
equal to approximately 1.91% of the Initial Mortgage Loan Balance. As of any
Distribution Date, the Special Hazard Loss Amount will equal the initial
Special Hazard Loss Amount less the sum of (A) any Special Hazard Losses since
the Cut-Off Date and (B) the Adjustment Amount. The "Adjustment Amount" on
each anniversary of the Cut-Off Date will be equal to the amount, if any, by
which the Special Hazard Amount, without giving effect to the deduction of the
Adjustment Amount for such anniversary, exceeds the greater of (i) 1.00% (or,
if greater than 1.00%, the highest percentage of Mortgage Loans by principal
balance in any California ZIP code) times the Pool Adjusted Balance on such
anniversary and (ii) twice the Adjusted Balance of the single Mortgage Loan
having the largest Adjusted Balance. Special Hazard Losses in excess of the
Special Hazard Loss Amount are "Excess Special Hazard Losses."
Fraud Losses will be allocated first to the Class B Subclasses in reverse
numerical order, and then to the Class A CitiCertificates, but only prior to
the Fraud Coverage Termination Date. The "Fraud Coverage Termination Date"
will be the date on which such Fraud Losses exceed the Fraud Loss Amount (or,
if earlier, the Subordination Depletion Date). On the Closing Date, the "Fraud
Loss Amount" with respect thereto will be equal to approximately 2.00% of the
Initial Mortgage Loan Balance. On each Distribution Date thereafter, the Fraud
Loss Amount will equal (X) prior to the first anniversary of the Cut-Off Date
an amount equal to the initial Fraud Loss Amount minus the aggregate amount of
Fraud Losses since the Cut-Off Date up to the related Determination Date, and
(Y) from the first through fifth anniversary of the Cut-Off Date, an amount
equal to (1) the lesser of (a) the Fraud Loss Amount as of the most recent
anniversary of the Cut-Off Date and (b) 1.00% of the Pool Adjusted Balance as
of the most recent anniversary of the Cut-Off Date minus (2) the aggregate
amounts of Fraud Losses since the most recent anniversary of the Cut-Off Date.
After the fifth anniversary of the Cut-Off Date, the Fraud Loss Amount will be
zero and thereafter any Fraud Losses will be shared pro rata among the
CitiCertificates as described above. Fraud Losses in excess of the Fraud Loss
Amount are "Excess Fraud Losses."
Bankruptcy Losses will be allocated first to the Class B Subclasses in
reverse numerical order, and then to the Class A CitiCertificates, but only
prior to the Bankruptcy Coverage Termination Date. The "Bankruptcy Coverage
Termination Date" will be the date on which such Bankruptcy Losses exceed the
Bankruptcy Loss Amount (or, if earlier, the Subordination Depletion Date). On
the Closing Date, the "Bankruptcy Loss Amount" with respect thereto will be
equal to approximately 0.10% of the Initial Mortgage Loan Balance. As of any
Distribution Date prior to the first anniversary of the Cut-Off Date, the
Bankruptcy Loss Amount will equal the initial Bankruptcy Loss Amount minus the
aggregate amount of Bankruptcy Losses since the Cut-Off Date up to the related
Determination Date. As of any Distribution Date on or after the first
anniversary of the Cut-Off Date, the Bankruptcy Loss Amount will equal the
excess, if any, of (1) the lesser of (a) the Bankruptcy Loss Amount as of the
business day next preceding the most recent anniversary of the Cut-Off Date
and (b) $100,000 minus the aggregate amount of Bankruptcy Losses since such
anniversary. The Bankruptcy Loss Amount and the related coverage levels
described above may be reduced or modified, with the written consent of the
Insurer, upon written confirmation from S&P and Moody's that such reduction or
modification
S-24
<PAGE>
will not adversely affect the then-current ratings assigned to the
CitiCertificates by S&P and Moody's. Such a reduction or modification may
adversely affect the coverage provided by subordination with respect to
Bankruptcy Losses. Bankruptcy Losses in excess of the Bankruptcy Loss Amount
are "Excess Bankruptcy Losses."
The exact amounts of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses to be allocated first to the Class B CitiCertificates and then to the
Class A CitiCertificates (but in each case only prior to the related
termination date) will be those amounts required by the rating agency (or
rating agencies) rating the CitiCertificates as a condition of the ratings as
set forth above under "Summary of Prospectus and Prospectus Supplement-
Certificate Ratings" and by the Insurer in connection with issuing the Policy.
Notwithstanding the foregoing, the provisions relating to subordination will
not be applicable in connection with a Bankruptcy Loss so long as the Servicer
has notified the Trustee in writing that the Servicer is diligently pursuing
any remedies that may exist in connection with the representations and
warranties made regarding the related Mortgage Loan and when (A) the related
Mortgage Loan is not in default with regard to the payments due thereunder or
(B) delinquent payments of principal and interest under the related Mortgage
Loan and any premiums on any applicable standard hazard insurance policy and
any related escrow payments in respect of such Mortgage Loan are being
advanced on a current basis by the Servicer, in either case without giving
effect to any Debt Service Reduction.
Since the aggregate Initial Stated Amount of the Class B CitiCertificates
will be substantially less than the aggregate Initial Stated Amount of the
Class A CitiCertificates, the risk of Special Hazard Losses, Fraud Losses and
Bankruptcy Losses will be separately borne by the Class B CitiCertificates to
a lesser extent (i.e., only up to the Special Hazard Loss Amount, Fraud Loss
Amount and Bankruptcy Loss Amount, respectively) than the risk of other
Realized Losses, which they will bear to the full extent of their respective
aggregate Initial Stated Amounts. See "Appendix A: The Mortgage Loans and
CitiMortgageCertificates" in the Prospectus.
PREPAYMENT AND YIELD CONSIDERATIONS
The yield to maturity and weighted average lives of the Offered
CitiCertificates will be sensitive in varying degrees to, among other things,
the rate of prepayment of the Mortgage Loans, the allocation of such
prepayments to the Class A and Class B CitiCertificates and the timing and
extent of losses, if any, allocable to the Class A and Class B
CitiCertificates. No representation is made as to whether the Mortgage Loans
will prepay at any particular rate.
If the purchaser of an Offered CitiCertificate which was offered at a
premium over its parity price calculates the anticipated yield to maturity of
such Offered CitiCertificate on an assumed rate of payment of principal that
is slower than that actually received on the Mortgage Loans, assuming all
other relevant circumstances are unchanged, the actual yield to maturity will
be lower than that so calculated. Parity price is the price at which an
Offered CitiCertificate will yield its coupon, after giving effect to any
payment delay.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with an investor's
expectation. In general, the earlier a prepayment of principal on the Mortgage
Loans the greater the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered CitiCertificates will not be
offset by a subsequent like reduction (or increase) in the rate of principal
payments.
S-25
<PAGE>
Because the rate of principal payments (including prepayments) on the
Mortgage Loans may significantly affect the weighted average life and other
characteristics on the Class A CitiCertificates, prospective investors are
urged to consult their investment advisors and to consider their own estimates
as to the anticipated rate of future prepayments on the Mortgage Loans and the
suitability of the Class A CitiCertificates to their investment objectives.
OPTIONAL TERMINATION
Holders of all outstanding CitiCertificates may receive a distribution
reducing the Stated Amount of such CitiCertificates to zero upon the
repurchase by CMSI of the underlying Mortgage Loans and any property acquired
in respect thereof in full, at CMSI's option, at any time after the Pool
Adjusted Balance is less than 5% of the Initial Mortgage Loan Balance,
provided CMSI and the Insurer have received an opinion of counsel or other
evidence in form and substance acceptable to CMSI and the Insurer that such
repurchase and the related distribution will constitute a "qualified
liquidation" within the meaning of Code Section 860F(a)(4)(A), will not affect
the REMIC status of the Trust and will not otherwise subject the Trust to tax.
See "The Pooling Agreements-Termination; Repurchase of Mortgage Loans and
Mortgage Certificates" in the Prospectus. Any such final distribution in
reduction of Stated Amount with respect to the CitiCertificates will be paid
to Certificateholders in order of their priority of distribution as described
under "Summary of Prospectus and Prospectus Supplement-Priority of
Distributions." The proceeds from such a distribution may not be sufficient to
distribute the full amount to which each Class is entitled if the purchase
price is based in part on the fair market value of the acquired property of
the Trust.
TRUSTEE AND AGENTS
The trustee for the CitiCertificates will be The Bank of New York, which
will also act as Paying Agent, Transfer Agent and Certificate Registrar for
the CitiCertificates.
SERVICING COMPENSATION AND OTHER FEES
CMSI will act as servicer of the Mortgage Loans, as well as REMIC servicer
for the Pool (together, the "Servicer"). CMSI will be entitled to Servicing
Compensation equal to a monthly fee of 0.25% per annum of the aggregate
Adjusted Balance of the Mortgage Loans (the "Servicing Fee"), payable from
interest payments received in respect of the Mortgage Loans, as well as late
payment charges, assumption fees and other similar amounts set forth in the
Pooling Agreement. CMSI currently intends to subcontract its duties as
Servicer of the Mortgage Loans to CMI.
A monthly fee of approximately 0.105% per annum of the aggregate Adjusted
Balance of the Mortgage Loans (the "Administrative Fee") will be payable from
amounts received in respect of the Mortgage Loans, The Administrative Fee will
be used to pay amounts owing to the Insurer in respect of the insurance
premium and to CMSI in respect of certain administrative services performed by
CMSI with respect to the Mortgage Loans and the Trust.
The Servicer will pay the expenses of the Trust, including the Trustee's
fee, accounting fees and other related expenses. See "Description of
Certificates-The Servicer" in the Prospectus.
BOOK-ENTRY REGISTRATION
The Offered CitiCertificates will initially be issued in book-entry form and
will be represented by a single physical certificate registered in the name of
Cede, as nominee of DTC, which will be the "holder" or "Certificateholder" of
such Class A CitiCertificates as such terms
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are used herein. No Beneficial Owner will be entitled to receive a certificate
representing such person's interest in the Book-Entry CitiCertificates or the
Trust, except as set forth below under "-Definitive Certificates." Unless and
until Definitive Certificates (as defined herein) are issued under the limited
circumstances described herein, all references to actions taken by
Certificateholders or holders shall refer to actions taken by DTC upon
instructions from its Participants (as defined below), and all references
herein to distributions and notices of redemption to Certificateholders or
holders shall refer to distributions and notices of redemption to DTC or Cede,
as the registered holder of the Book-Entry CitiCertificates for distribution
to Participants in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code as adopted in the State of
New York and a "clearing agency" registered pursuant to Section 17A of the
Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations ("Participants") and to
facilitate the clearance and settlement of securities transactions between
Participants through electronic book-entries, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers (including the Underwriter), banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry CitiCertificates among Participants on whose behalf it acts with
respect to the Book-Entry CitiCertificates and to receive and transmit
distributions of principal of and interest on the Book-Entry CitiCertificates.
Participants and Indirect Participants with which Beneficial Owners have
accounts with respect to the Book-Entry CitiCertificates similarly are
required to make book-entry transfers and receive and transmit such payments
on behalf of their respective Beneficial Owners.
Beneficial Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry CitiCertificates may do so only through Participants
and Indirect Participants. In addition, Beneficial Owners will receive all
distributions of principal and interest from the Trustee, or a paying agent on
behalf of the Trustee, through DTC Participants. DTC will forward such
distributions to its Participants, which thereafter will forward them to
Indirect Participants or Beneficial Owners. Beneficial Owners will not be
recognized by the Trustee, the Servicer or any paying agent as
Certificateholders, as such term is used in the Pooling Agreement, and
Beneficial Owners will be permitted to exercise the rights of
Certificateholders only indirectly through DTC and its Participants.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner to pledge Book-Entry CitiCertificates to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such Book-
Entry CitiCertificates, may be limited due to the lack of a physical
certificate for such Book-Entry CitiCertificates. In addition, under a book-
entry format, Beneficial Owners may experience delays in receipt of their
payments, since distributions will be made by the Servicer, or a paying agent
on behalf of the Servicer, to Cede, as nominee for DTC.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Certificateholder under the Pooling Agreement only at the direction
of one or more Participants to whose accounts with DTC the Book-Entry
CitiCertificates are credited. Additionally, DTC has advised the Issuer that
it will take such actions only at the direction of and on behalf of
Participants whose holdings of Book-Entry CitiCertificates evidence the
corresponding
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<PAGE>
percentage of ownership interests. DTC may take conflicting actions to the
extent that Participants whose holdings of Book-Entry CitiCertificates
evidence such percentage of ownership interests authorize divergent action.
Neither the Issuer, the Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of Book-Entry CitiCertificates held
by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE CERTIFICATES
The Class B CitiCertificates and the Residual Certificates will be issued in
fully registered, certificated form ("Definitive Certificates"). The Book-
Entry CitiCertificates will be issued as Definitive Certificates to Beneficial
Owners or their nominees, rather than to DTC or its nominee, only if (i) the
Servicer advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depository with respect to the
Book-Entry CitiCertificates and the Servicer is unable to locate a qualified
successor, (ii) the Servicer, at its option, elects to terminate the book-
entry system through DTC or (iii) after the occurrence of a dismissal or
resignation of the Servicer under the Pooling Agreement, Beneficial Owners
representing not less than 51% of the ownership interests of the Book-Entry
CitiCertificates advise the Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the Beneficial Owners' best interest.
Upon the occurrence of any event described in the preceding paragraph, the
Trustee will be required to notify all Beneficial Owners through Participants
of the availability of Definitive Certificates.
Upon surrender by DTC of the definitive CitiCertificates representing the
Book-Entry CitiCertificates and receipt of instructions for re-registration,
the Trustee will reissue the Book-Entry CitiCertificates as Definitive
Certificates to Beneficial Owners. Distributions of principal of, and interest
on, the Book-Entry CitiCertificates will thereafter be made by the Trustee, or
a paying agent on behalf of the Trustee, directly to holders of Definitive
Certificates in accordance with the procedures set forth in the Pooling
Agreement.
Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued in respect of the Book-
Entry CitiCertificates, monthly and annual reports containing information
concerning the Trust and prepared by the Servicer pursuant to the Pooling
Agreement will be sent to Cede as nominee of DTC and registered holder of the
Book-Entry CitiCertificates, as well as to holders of the Definitive
Certificates. The Pooling Agreement does not require the sending of any
financial reports to the Beneficial Owners. Beneficial Owners may obtain
copies of any Distribution Date statement free of charge upon request from the
Servicer at (314) 256-6406.
CERTAIN MATTERS REGARDING THE INSURER
The Insurer will be subrogated to the rights of the Owners of the Class A
CitiCertificates in an amount equal to Insured Payments for which the Insurer
has not received reimbursement.
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Pursuant to the Pooling Agreement, the consent and direction of the Insurer
will be required with respect to certain matters, including (i) the
termination of the rights and obligations of the Servicer, (ii) the
appointment of any successor Servicer and (iii) amendments to the Pooling
Agreement.
THE CERTIFICATE GUARANTY INSURANCE POLICY AND THE INSURER
The following information has been supplied by MBIA Insurance Corporation
(the "Insurer") for use herein. Certain terms used in this summary of the
terms of the Policy are defined below.
The Insurer, in consideration of the payment of the premium, and subject to
the terms of the Certificate Guaranty Insurance Policy (the "Policy"), thereby
unconditionally and irrevocably guarantees to any Owner that an amount equal
to each full and complete Insured Payment will be received by the Trustee, or
its successor, as trustee for the Owners, on behalf of the Owners from the
Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Insurer's obligations under
the Policy with respect to a particular Insured Payment shall be discharged to
the extent funds equal to the applicable Insured Payment are received by the
Trustee, whether or not such funds are properly applied by the Trustee.
Insured Payments shall be made only at the time set forth in the Policy and no
accelerated Insured Payments shall be made regardless of any acceleration of
the Class A CitiCertificates, unless such acceleration is at the sole option
of the Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust , any REMIC or
the Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability). The Policy also does not cover Non-Supported
Interest Shortfalls or Relief Act Shortfalls.
The Insurer will pay any Insured Payment that is a Preference Amount on the
Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of
a preference payment, (ii) an opinion of counsel satisfactory to the Insurer
that such order is final and not subject to appeal, (iii) an assignment in
such form as is reasonably required by the Insurer, irrevocably assigning to
the Insurer all rights and claims of the Owner relating to or arising under
the Class A CitiCertificates against the debtor which made such preference
payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Insurer as agent for
such Owner in any legal proceeding related to such preference payment, such
instruments being in a form satisfactory to the Insurer, provided that if such
documents are received after 12:00 noon New York City time on such Business
Day, they will be deemed to be received on the following Business Day. Such
payments shall be disbursed to the receiver or trustee in bankruptcy named in
the final order of the court exercising jurisdiction on behalf of the Owner
and not any Owner directly unless such Owner has returned principal or
interest paid on the Class A CitiCertificates to such receiver or trustee in
bankruptcy, in which case such payment shall be disbursed to such Owner.
The Insurer will pay any other amount payable under the Policy no later than
12:00 noon New York City time on the later of the Distribution Date on which
the related payment is due or the second Business Day following receipt in New
York City on a Business Day by State Street Bank and Trust Company, N.A., as
Fiscal Agent for the Insurer or any successor fiscal agent appointed by the
Insurer (the "Fiscal Agent") of a Notice (as described below); provided that
if such Notice is received after 12:00 noon New York City time on such
Business Day, it will be deemed to be received on the following Business Day.
If any such Notice received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making claim under
S-29
<PAGE>
the Policy it shall be deemed not to have been received by the Fiscal Agent
for purposes of this paragraph, and the Insurer or the Fiscal Agent, as the
case may be, shall promptly so advise the Trustee and the Trustee may submit
an amended Notice.
Insured Payments due under the Policy unless otherwise stated therein will
be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by
wire transfer or immediately available funds in the amount of the Insured
Payment less, in respect of Insured Payments related to Preference Amounts,
any amount held by the Trustee for the payment of such Insured Payment and
legally available therefor.
The Fiscal Agent is the agent of the Insurer only and the Fiscal Agent shall
in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit or cause to be deposited sufficient funds to
make payments due under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of November
1, 1997, between the Issuer and the Trustee, in its individual capacity and as
trustee, without regard to any amendment or supplement thereto.
"Business Day" means any other day than a Saturday, a Sunday or a day on
which the Insurer or banking institutions in New York City or in the city in
which the corporate trust office of the Trustee under the Agreement is located
are authorized or obligated by law or executive order to close.
"Deficiency Amount" means, with respect to the Class A CitiCertificates as
of any Distribution Date, the sum of (i) any Class A Unpaid Interest
Shortfall, (ii) the principal portion of any Realized Losses allocated to the
Class A CitiCertificates and, after the Subordination Depletion Date, without
duplication, the excess, if any, of (a) the aggregate Class A Stated Amount of
all of the Class A CitiCertificates then outstanding over (b) the Pool
Adjusted Balance for the preceding Distribution Date, and (iii) without
duplication of the amount specified in clause (ii), the aggregate Class A
Stated Amount of all of the Class A CitiCertificates to the extent unpaid upon
the termination of the Trust pursuant to the terms of the Agreement.
"Insured Payment" means (i) any Deficiency Amount and (ii) any Preference
Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable Distribution Date.
"Owner" means each Holder (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Class A CitiCertificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Class A CitiCertificates that is recoverable and sought to be recovered as
a voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Policy and not otherwise defined in the Policy
shall have the respective meanings set forth in the Agreement as of the date
of the execution of the Policy, without giving effect to any subsequent
amendment or modification to the Agreement unless such amendment or
modification has been approved in writing by the Insurer.
S-30
<PAGE>
Any notice under the Policy or service of process on the Fiscal Agent may be
made at the address listed below for the Fiscal Agent or such other address as
the Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New York,
New York 10006 Attention: Municipal Registrar and Paying Agency or such other
address as the Fiscal Agent shall specify to the Trustee in writing.
The Policy is being issued under and pursuant to, and shall be construed
under, the laws of the State of New York, without giving effect to the
conflict of laws of principles thereof.
The insurance provided by the Policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
The Policy is not cancelable for any reason. The premium on the Policy is
not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the Class A CitiCertificates.
The Insurer is the principal operating subsidiary of MBIA, Inc., a New York
Stock Exchange listed company. MBIA, Inc. is not obligated to pay the debts of
or claims against the Insurer. The Insurer is domiciled in the State of New
York and licensed to do business in and is subject to regulation under the
laws of all 50 states, the District of Columbia, the Commonwealth of Puerto
Rico, the Commonwealth of the Northern Mariana Islands, the Virgin Islands of
the United States and the Territory of Guam. The Insurer has two European
branches, one in the Republic of France and the other in the Kingdom of Spain.
New York has laws prescribing minimum capital requirements, limiting classes
and concentrations of investments and requiring the approval of policy rates
and forms. State laws also regulate the amount of both the aggregate and
individual risks that may be insured, the payment of dividends by the Insurer,
changes in control and transactions among affiliates. Additionally, the
Insurer is required to maintain contingency reserves on its liabilities in
certain amounts and for certain periods of time.
The consolidated financial statements of the Insurer, a wholly owned
subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1996 and
December 31, 1995 and for the three years ended December 31, 1996, prepared in
accordance with generally accepted accounting principles, included in the
Annual Report on Form 10-K of MBIA Inc. for the year ended December 31, 1996
and the consolidated financial statements of the Insurer and its subsidiaries
for the six months ended June 30, 1997 and for the periods ending June 30,
1997 and June 30, 1996 included in the Quarterly Report on Form 10-Q of MBIA
Inc. for the period ending June 30, 1997, are hereby incorporated by reference
into this Prospectus Supplement and shall be deemed to be a part hereof. Any
statement contained in a document incorporated by reference herein shall be
modified or superseded for purposes of this Prospectus Supplement to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus
Supplement.
All financial statements of the Insurer and its subsidiaries included in
documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, subsequent to the date of
this Prospectus Supplement and prior to the termination of the offering of the
Class A CitiCertificates shall be deemed to be incorporated by reference into
this Prospectus Supplement and to be a part hereof from the respective dates
of filing such documents.
S-31
<PAGE>
The tables below present selected financial information of the Insurer
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
-------------------------------
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Admitted Assets................................. $4,476 $4,824
Liabilities..................................... 3,009 3,259
Capital and Surplus............................. 1,467 1,565
<CAPTION>
GAAP
-------------------------------
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(AUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Assets.......................................... $5,066 $5,408
Liabilities..................................... 2,262 2,412
Shareholder's Equity............................ 2,804 2,996
</TABLE>
Copies of the financial statements of the Insurer incorporated by reference
herein and copies of the Insurer's 1996 year-end audited financial statements
prepared in accordance with statutory accounting practices are available,
without charge, from the Insurer. The address of the Insurer is 113 King
Street, Armonk, New York 10504. The telephone number of the Insurer is (914)
273-4545.
The Insurer does not accept any responsibility for the accuracy or
completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding the Policy and Insurer set forth under the
heading "The Certificate Guaranty Insurance Policy and the Insurer."
Additionally, the Insurer makes no representation regarding the
CitiCertificates or the advisability of investing in the CitiCertificates.
Moody's rates the claims paying ability of the Insurer "Aaa."
S&P rates the claim paying ability of the Insurer "AAA."
Fitch Investors Service, L.P. ("Fitch") rates the claims paying ability of
the Insurer "AAA."
Each rating of the Insurer should be evaluated independently. The ratings
reflect the respective rating agency's current assessment of the
creditworthiness of the Insurer and its ability to pay claims on its policies
of insurance. Any further explanation as to the significance of the above
ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Class A
CitiCertificates, and such ratings may be subject to revision or withdrawal at
any time by the rating agencies. Any downward revision or withdrawal of any of
the above ratings may have an adverse effect on the market price of the Class
A CitiCertificates. The Insurer does not guaranty the market price of the
Class A CitiCertificates nor does it guaranty that the ratings on the Class A
CitiCertificates will not be revised or withdrawn.
S-32
<PAGE>
ERISA CONSIDERATIONS
Pursuant to the expedited processing procedure provided under Prohibited
Transaction Class Exemption 96-62, the Department of Labor has granted to the
Underwriter an administrative exemption, Department of Labor exemption
application number E-00003, granted effective December 7, 1996 (the
"Exemption"), from certain of the prohibited transaction rules of ERISA and
certain of the excise taxes imposed by Section 4975 of the Code with respect
to the initial purchase, the holding, and the subsequent resale by ERISA Plans
of certificates in pass-through trusts that meet the conditions and
requirements of the Exemption. The Exemption should apply to the acquisition,
holding, and resale of the Offered CitiCertificates by an ERISA Plan, provided
that specified conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the acquisition by an ERISA Plan of the Offered CitiCertificates are the
following: (1) the acquisition of the Offered CitiCertificates by an ERISA
Plan is on terms (including the price for such CitiCertificates) that are at
least as favorable to the ERISA Plan as they would be in an arm's-length
transaction with an unrelated party; (2) the rights and interests evidenced by
the Offered CitiCertificates acquired by the ERISA Plan are not subordinated
to the rights and interests evidenced by other certificates of the Trust; (3)
the Offered CitiCertificates acquired by the ERISA Plan have received a rating
at the time of such acquisition that is in one of the three highest generic
rating categories from any of S&P, Fitch, Duff & Phelps Credit Rating Co. or
Moody's; (4) the sum of all payments made to the Underwriter in connection
with the distribution of the Offered CitiCertificates represents not more than
reasonable compensation for underwriting such CitiCertificates; and (5) the
sum of all payments made to and retained by the Servicer represents not more
than reasonable compensation for the Servicer's services under the Pooling
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith.
In addition, it is a condition that the ERISA Plan investing in the Offered
CitiCertificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act of 1933, as amended
(the "Securities Act").
The Exemption does not apply to the acquisition and holding of Offered
CitiCertificates by ERISA Plans sponsored by the Issuer, the Underwriter, the
Trustee, the Servicer, or any affiliate of such parties. Moreover, the
Exemption provides relief from certain self-dealing/conflict of interest
prohibited transactions, only if, among other requirements (i) an ERISA Plan's
investment in the Class A CitiCertificates does not exceed 25% of all of the
Class A CitiCertificates outstanding at the time of the acquisition and (ii)
immediately after the acquisition, no more than 25% of the assets of an ERISA
Plan with respect to which the person who has discretionary authority or
renders advice are invested in certificates representing an interest in a
trust containing assets sold or serviced by the same person.
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 or ERISA or Section 4975 of the Code ("Similar Law"). A
fiduciary of a governmental plan should make its own determination as to the
need for the availability of any exemptive relief under Similar Law.
Fiduciaries that are investing or that could be deemed to be investing
assets of Plans should consult their legal advisors, and refer to the
discussion under "ERISA Considerations" in the Prospectus.
S-33
<PAGE>
LEGAL INVESTMENT
The Class A CitiCertificates will constitute "mortgage related securities"
for purposes of SMMEA, so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization. As "mortgage related securities" such CitiCertificates will
constitute legal investments for certain entities to the extent provided in
SMMEA. However, there are regulatory requirements and considerations
applicable to regulated financial institutions and restrictions on the ability
of such institutions to invest in certain types of mortgage related
securities.
Prospective purchasers of the Offered CitiCertificates should consult their
own legal, tax and accounting advisors in determining the suitability of and
consequences to them of the purchase, ownership and disposition of the Offered
CitiCertificates. See "Legal Investment" in the Prospectus.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement among
Citicorp, the Issuer and the Underwriter (the "Underwriting Agreement"), the
Class A CitiCertificates are being purchased from the Issuer by the
Underwriter upon issuance in consideration for the transfer by the Underwriter
to the Issuer of the Mortgage Loans. The Underwriter is committed to purchase
all of the Class A CitiCertificates if any Class A CitiCertificates are
purchased. The closing of the sale of the Class A CitiCertificates is a
condition to the closing of the sale of the Class B CitiCertificates, and vice
versa. The Class A CitiCertificates will be acquired by the Underwriter from
the Issuer upon initial issuance in a negotiated transaction, concurrently
with the transfer of the Mortgage Loans from the Underwriter to the Issuer.
Subject to the terms and conditions of the purchase agreement among
Citicorp, the Issuer and Deutsche Morgan Grenfell Inc. (the "Purchase
Agreement"), the Class B CitiCertificates (not offered hereby) will be
acquired by Deutsche Morgan Grenfell Inc. upon issuance in a private
transaction concurrently with the transfer of the Mortgage Loans. The Class B
CitiCertificates will be offered through Deutsche Morgan Grenfell Inc. in one
or more negotiated transactions, as a private placement to a limited number of
institutional investors. The closing of the sale of the Class B
CitiCertificates under the Purchase Agreement is a condition to the closing of
the sale of the Class A CitiCertificates to the Underwriter.
The Underwriting Agreement provides that the Issuer and Citicorp will
indemnify the Underwriter against certain civil liabilities under the
Securities Act or contribute to payments the Underwriter may be required to
make in respect thereof.
S-34
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Issuer and Citicorp by
Stephen E. Dietz, as an Associate General Counsel of Citibank, N.A., and for
the Underwriter by Cadwalader, Wickersham & Taft, New York, New York. Certain
federal income tax matters will be passed upon for the Issuer by Rona Daniels,
Vice President and Tax Counsel for Asset Securitization of Citibank, N.A. Each
of Mr. Dietz and Ms. Daniels owns or has the right to acquire a number of
shares of common stock of Citicorp equal to less than .01% of the outstanding
common stock of Citicorp. Certain ERISA matters will be passed upon for the
Issuer by Cadwalader, Wickersham & Taft, New York, New York. Certain legal
matters will be passed upon for the Insurer by Kutak Rock, Omaha, Nebraska
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports filed by the Issuer 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 CitiCertificates offered hereby shall
be deemed to be incorporated by reference into this Prospectus Supplement and
Prospectus and to be a part hereof.
S-35
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS IN PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Adjusted Balance........................................................... S-15
Adjustment Amount.......................................................... S-24
Administrative Fee......................................................... S-26
Agreement.................................................................. S-30
Bankruptcy Coverage Termination Date....................................... S-24
Bankruptcy Loss............................................................ S-21
Bankruptcy Loss Amount..................................................... S-24
Beneficial Owner........................................................... S-5
Book-Entry CitiCertificates................................................ S-3
Business Day............................................................... S-30
Cede....................................................................... S-3
Certificate Account........................................................ S-12
Certificateholder.......................................................... S-3
CFSB....................................................................... S-2
Citibank................................................................... S-2
CitiCertificates........................................................... S-1
Civil Relief Act........................................................... S-19
Class A CitiCertificates................................................... S-1
Class A Excess Interest Losses............................................. S-19
Class A Interest Amount.................................................... S-8
Class A Optimal Principal Amount........................................... S-19
Class A Percentage......................................................... S-21
Class A Prepayment Percentage.............................................. S-21
Class A Principal Distribution Amount...................................... S-10
Class A Stated Amount...................................................... S-18
Class A Unpaid Interest Shortfall.......................................... S-10
Class B CitiCertificates................................................... S-1
Class B Percentage......................................................... S-22
Class B Stated Amount...................................................... S-22
Class B Subclass........................................................... S-1
Closing Date............................................................... S-5
CMI........................................................................ S-2
CMSI....................................................................... S-1
Commission................................................................. S-14
Compensating Cap........................................................... S-9
Cut-Off Date............................................................... S-1
Debt Service Reduction..................................................... S-21
Deficiency Amount.......................................................... S-30
Deficient Valuation........................................................ S-21
Definitive Certificates.................................................... S-27
Detailed Description....................................................... S-15
Distribution Date.......................................................... S-2
DTC........................................................................ S-1
ERISA...................................................................... S-13
ERISA Plan................................................................. S-14
Excess Bankruptcy Losses................................................... S-25
Excess Fraud Losses........................................................ S-24
Excess Special Hazard Losses............................................... S-24
Exemption.................................................................. S-14
Fitch...................................................................... S-32
Fiscal Agent............................................................... S-29
Fraud Coverage Termination Date............................................ S-24
Fraud Loss................................................................. S-20
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fraud Loss Amount.......................................................... S-24
GAAP....................................................................... S-32
Index...................................................................... S-2
Indirect Participants...................................................... S-27
Initial Mortgage Loan Balance.............................................. S-2
Initial Stated Amount...................................................... S-5
Initial Stated Rate........................................................ S-6
Insured Payment............................................................ S-30
Insurer.................................................................... S-1
Issuer..................................................................... S-1
Interest Accrual Period.................................................... S-9
Liquidated Loan............................................................ S-20
Liquidated Loan Loss....................................................... S-20
Liquidation Proceeds....................................................... S-20
Moody's.................................................................... S-14
Mortgage Loans............................................................. S-2
Net Mortgage Rate.......................................................... S-6
Non-Supported Interest Shortfall........................................... S-9
Notice..................................................................... S-30
Offered CitiCertificates................................................... S-1
One-Year Treasury ARMs..................................................... S-17
Original Subordinated Stated Amount........................................ S-22
Owner...................................................................... S-30
Participants............................................................... S-27
Plan....................................................................... S-14
Policy..................................................................... S-1
Pool....................................................................... S-2
Pool Adjusted Balance...................................................... S-18
Pool Distribution Amount................................................... S-10
Pooling Agreement.......................................................... S-4
Preference Amount.......................................................... S-30
Prepayment Interest Shortfalls............................................. S-9
Purchase Agreement......................................................... S-34
Realized Losses............................................................ S-21
Relief Act Shortfalls...................................................... S-19
REMIC...................................................................... S-1
Residual Certificates...................................................... S-1
Rules...................................................................... S-27
SAP........................................................................ S-32
Securities Act............................................................. S-33
Servicer................................................................... S-26
Servicing Fee.............................................................. S-26
Similar Law................................................................ S-14
SMMEA...................................................................... S-4
Special Hazard Loss........................................................ S-20
Special Hazard Loss Amount................................................. S-24
Special Hazard Termination Date............................................ S-24
Special Hazards............................................................ S-20
S&P........................................................................ S-14
Subordination Depletion Date............................................... S-7
Trust...................................................................... S-1
Trustee.................................................................... S-4
Underwriter................................................................ S-1
Underwriting Agreement..................................................... S-33
</TABLE>
S-37
<PAGE>
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-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 NOVEMBER 12, 1997.
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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. 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 intends to offer 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
Certificates. The Detailed Information will reflect 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 will identify 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.
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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, 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
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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 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
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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.
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 (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.
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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;
(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
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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 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.
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
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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, or, 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.
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. 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 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)
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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) 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 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
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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.
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 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, which amount will be set forth in the related Prospectus
Supplement. The amount and principal terms of any such coverage will be set
forth in the 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 (as defined in
Appendix A) 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 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.
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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 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.
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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 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
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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 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
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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 66 2/3% 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."
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. Mortgage Loans in a Pool may be covered by a guaranty or
certain other credit support, as described in the related Prospectus
Supplement.
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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 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.
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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 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 Non-Conforming 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
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subservicer). The Mortgage Loans may be covered by certain credit support
described in the Prospectus Supplement.
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 whose name such CitiMortgageCertificates are
registered at the close of business on the last business day of the preceding
month.
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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 (as defined in
Appendix A) with an aggregate Adjusted Balance exceeding 10% of the aggregate
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
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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.
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.
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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.
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
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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. See
"--Substitution of Mortgage Loans" below.
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.
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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.
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.
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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.
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".
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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.
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
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<PAGE>
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 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
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<PAGE>
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 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 insurance. Since February 1993, it has been the
policy of each Affiliated Originator not to make one- to four-family real
estate
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<PAGE>
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 (as defined in Appendix A), 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 (as defined in
"The Pools-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.
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
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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 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.
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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
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.
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The Mortgaged Properties (as defined in Appendix A) 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.
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> <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 Delinquen-
cy(/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 (each as defined in Appendix A).
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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.
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.
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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.
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.
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<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
(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;
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<PAGE>
(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)
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 66 2/3% of the Stated Amount
of the Certificates and of more than 66 2/3% 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
35
<PAGE>
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 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 66 2/3% 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 66 2/3% 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)
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<PAGE>
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 66 2/3% 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 66 2/3% 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 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 66 2/3% 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 66
2/3% 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
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<PAGE>
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 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),
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<PAGE>
(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 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)
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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
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
acquisition 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 (as defined in Appendix A).
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 defined in Appendix A) as well as Real Estate
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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 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,
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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 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. (S) 1.5), certain "Type IV
securities," defined in 12 C.F.R. (S) 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
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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. (S) 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 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
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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 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)(5)(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)(5)(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
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"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.
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
mortgages or permitted
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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 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
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"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.
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
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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.
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.
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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.
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
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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 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.
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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 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
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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.
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 or short-term depending on whether the
CitiCertificate has been held for the long-term capital gain holding period
(currently more than one year, except to the extent 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). Capital gains of certain non-corporate taxpayers are
subject to a lower maximum tax rate than ordinary income of such taxpayers.
The Taxpayer Relief Act of 1997 (the "1997 Act") has reduced the maximum
capital gains tax rate to 20% for non-corporate taxpayers with respect to
sales or exchanges of certain capital assets held for more than 18 months. The
maximum tax rate for corporations is the same with respect to both ordinary
income and capital gains. Non-corporate investors should consult their tax
advisors regarding the consequences to them of the 1997 Act.
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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 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
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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.
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."
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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 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
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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.
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
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record holder of the Residual Certificate, the Pass-Through Entity does not
have actual knowledge that such affidavit is false.
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 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, and (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.
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 of a noneconomic residual
interest, the transferee may incur tax liabilities in excess of cash flows
generated by the interest and that the
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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 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).
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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 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
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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.
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
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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 statement, 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 statement, or any other
required statement, 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.
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
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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.
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."
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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 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.
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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 the
Prospectus Supplement, have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon incorporated by
reference therein in reliance upon the authority of such firm as experts in
accounting and auditing.
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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) 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
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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 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 Balance (as defined below) of 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 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
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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 Cut-Off 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- tofour-family real estate loans with current loan-to-value ratios in
excess of 80%.
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
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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 Securities and Exchange 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 servicer-
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 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
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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 (as defined
below) 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;
(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
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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 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.
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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 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.
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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.
<TABLE>
<C> <S>
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.
</TABLE>
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 CitiMortgage Certificates. 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,
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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.
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 Cut-Off 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,
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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
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
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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 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
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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
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
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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):
(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)
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
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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 Payment Period. Principal Prepayments posted during
31................... 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).
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.
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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. 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.
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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)
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
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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.
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)
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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. 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
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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.
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.
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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.
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
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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. 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
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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 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
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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 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
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notice of sale. In addition, the trustee in some states must provide notice to
any other individual having an 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.
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
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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 By-laws, 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 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.
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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 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.
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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.
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 must 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
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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
amount bid for the mortgaged property at the foreclosure sale is less than the
debt, 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. 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 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
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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.
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
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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 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 33 1/3% 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
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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 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.
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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.
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
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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.
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, 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.
A-34
<PAGE>
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
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
B-1
<PAGE>
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 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.
B-2
<PAGE>
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 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.
B-3
<PAGE>
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 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.
B-4
<PAGE>
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 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.
B-5
<PAGE>
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
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Accrual CitiCertificates................................................... 1
Acquisition Premium........................................................ 48
Adjusted Balance........................................................... A-3
Affiliated Mortgage Loans.................................................. 14
Affiliated Originators..................................................... 1
Alternative Certificate Account............................................ A-12
Amount Available........................................................... 11
ARM Pool................................................................... A-1
ARMs....................................................................... A-6
BIF........................................................................ 21
Bankruptcy Code............................................................ A-29
Buydown Mortgage Loans..................................................... 16
Certificate Account........................................................ 21
Certificate Account Advance................................................ A-14
Certificate Distribution Amount............................................ 7
Certificateholders......................................................... 2
Certificates............................................................... 1
CFSB....................................................................... 1
CFSB Pool.................................................................. A-1
Charter Act................................................................ B-5
Citibank................................................................... 1
Citibank Pool.............................................................. A-1
CitiCertificates........................................................... 1
Citicorp................................................................... 34
CitiMae.................................................................... 1
CitiMae Mortgage Loans..................................................... 14
CitiMae Originators........................................................ 1
CitiMae Pool............................................................... A-1
CitiMortgageCertificates................................................... 1
Class...................................................................... 1
Cleanup Costs.............................................................. A-33
CMI........................................................................ 1
CMI Pool................................................................... A-1
CMSI Pool.................................................................. A-1
Code....................................................................... 1
Commission................................................................. 2
CERCLA..................................................................... A-33
Consolidation Agreements................................................... A-2
Converted Mortgage Loan.................................................... A-6
Cooperative Loans.......................................................... A-1
Cooperative Notes.......................................................... A-1
Cooperatives............................................................... A-1
Credit Support Percentage.................................................. 11
Cut-Off Date............................................................... A-9
Deferred Interest.......................................................... 50
Depository................................................................. A-11
Detailed Information....................................................... 2
Determination Date......................................................... 5
Disqualified Organization.................................................. 56
Distribution Date.......................................................... 5
DTC........................................................................ 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Due Period................................................................. 9
Eligible Investments....................................................... 21
Enhancement Act............................................................ 42
EDGAR...................................................................... 2
EPA........................................................................ A-34
ERISA...................................................................... 40
Events of Default.......................................................... 36
Exchange Act............................................................... 2
FDIC....................................................................... 21
FHA........................................................................ B-1
FHA Loans.................................................................. B-1
FHLMC...................................................................... 20
FHLMC Act.................................................................. B-3
FHLMC Certificate Group.................................................... B-3
FHLMC Certificates......................................................... 20
Fixed Rate Pool............................................................ A-1
FNMA....................................................................... 20
FNMA Certificates.......................................................... 20
Foreign Investors.......................................................... 57
Form of Pooling Agreement.................................................. 3
Garn-St Germain Act........................................................ A-30
GNMA....................................................................... 20
GNMA Certificates.......................................................... 20
GNMA I Certificates........................................................ B-1
GNMA II Certificates....................................................... B-1
Gold PCS................................................................... B-3
GPMs....................................................................... A-5
Guaranty................................................................... 1
Housing Act................................................................ B-1
Index...................................................................... A-7
Interest Accrual Period.................................................... 6
IRA........................................................................ 40
Issuer..................................................................... 1
Issuer Certificates........................................................ 1
Last Scheduled Distribution Date........................................... 13
Leasehold Loans............................................................ 20
Letter of Credit........................................................... 10
Limited Guaranty........................................................... 10
Liquidated Loan............................................................ 13
Liquidating Loan........................................................... 12
Loss Allocation Event...................................................... 8
Market Discount............................................................ 50
Mark to Market Regulations................................................. 59
Master Services............................................................ A-4
Master Servicing Fee....................................................... A-4
Maximum Note Rate.......................................................... A-6
Minimum Note Rate.......................................................... A-6
Minimum Prepayment Agreement............................................... 21
Minimum Reinvestment Agreement............................................. 22
Modification Agreements.................................................... A-2
Moody's.................................................................... A-12
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Mortgage Certificates...................................................... 1
Mortgage Loans............................................................. 1
Mortgage Margin............................................................ A-6
Mortgaged Properties....................................................... A-1
Mortgagor.................................................................. A-2
Mortgagor Bankruptcy Bond.................................................. 11
NCUA....................................................................... 42
1986 Act................................................................... 46
1997 Act................................................................... 52
Non-Conforming Loans....................................................... 17
Noneconomic Residual Interests............................................. 57
Non-U.S. Person............................................................ 61
Note Rate.................................................................. A-4
Notice Date................................................................ A-15
NYBU....................................................................... 24
OCC........................................................................ 42
OID Regulations............................................................ 46
Original Issue Discount.................................................... 46
Original PCS............................................................... B-3
Original Value............................................................. 26
Originators................................................................ 1
OTS........................................................................ 35
PA......................................................................... A-1
Pass-Through Entity........................................................ 57
Pass-Through Rate.......................................................... A-4
Payment Period............................................................. A-14
Periodic Ceiling........................................................... A-6
Periodic Floor............................................................. A-6
Plans...................................................................... 40
Policy Statement........................................................... 43
PCBs....................................................................... A-33
Pool....................................................................... 1
Pool Distribution Amount................................................... 6
Pool Insurance Policies.................................................... 11
Pool Value................................................................. 7
Pool Value Group........................................................... 7
Pooling Agreement.......................................................... 3
Premium.................................................................... 51
Prepayment Assumption...................................................... 47
Primary Mortgage Insurance Policy.......................................... A-19
Principal Prepayment....................................................... 6
Prospectus Supplement...................................................... A-3
PTC........................................................................ B-2
PTE 83-l................................................................... 40
Purchase Amount Advance.................................................... 12
Rating Requirements........................................................ A-12
Real Estate Loans.......................................................... A-1
Record Date................................................................ 5
Registration Statement..................................................... 3
Regulations................................................................ 40
REMIC...................................................................... 1
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
REMIC Regulations.......................................................... 43
REMIC Servicing Fee........................................................ 15
Reserve Fund............................................................... 11
Residual Certificates...................................................... 1
Residual Holders........................................................... 53
Retail Class CitiCertificate............................................... 46
SAIF....................................................................... 21
SBJPA of 1996.............................................................. 44
Scheduled Principal........................................................ A-13
Securities Act............................................................. 5
Senior Certificates........................................................ 1
Senior/Subordinated Series................................................. 1
Series..................................................................... 1
Servicer................................................................... 14
Servicing Account.......................................................... A-16
Servicing Compensation..................................................... 15
Servicing Fee.............................................................. 15
SFAS....................................................................... 63
Similar Law................................................................ 41
Single Certificate......................................................... 5
Special Distributions...................................................... 9
Special Hazard Insurance Policies.......................................... 11
Spread..................................................................... 8
S&P........................................................................ A-11
Startup Day................................................................ 22
Stated Amount.............................................................. 7
Stated Rate................................................................ 6
Subclass................................................................... 1
Subordinated Certificates.................................................. 1
Subordination Amount....................................................... 10
Subordination Reserve Fund................................................. 10
Subservicer................................................................ 25
Superlien.................................................................. A-33
Third Party Loans.......................................................... 14
Third Party Originators.................................................... 1
Third Party Pool........................................................... A-1
Title V.................................................................... A-32
Title VIII................................................................. A-32
Transfer Instrument........................................................ 18
Trust...................................................................... 1
Trustee.................................................................... 3
UCC........................................................................ A-27
Underlying Trustee......................................................... 19
U.S. Person................................................................ 58
VA......................................................................... 23
VA Loans................................................................... B-1
Variable Rate CitiCertificates............................................. 49
Voluntary Advances......................................................... A-13
Whole or Partial Pool Issuer Certificates.................................. 19
Window Period Loans........................................................ A-30
Window Period States....................................................... A-30
</TABLE>
iv
<PAGE>
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THE
PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMA-
TION 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 DE-
SCRIBED 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
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary of Prospectus and Prospectus
Supplement.............................................................. S-4
Description of the Pool and the Mortgaged Properties..................... S-15
Description of the Offered CitiCertificates.............................. S-18
The Certificate Guaranty Insurance Policy and the Insurer................ S-29
ERISA Considerations..................................................... S-33
Legal Investment......................................................... S-34
Plan of Distribution..................................................... S-34
Legal Matters............................................................ S-35
Incorporation of Certain Documents by Reference.......................... S-35
Index of Principal Definitions in Prospectus Supplement.................. S-36
PROSPECTUS
Report to Certificateholders............................................. 2
Additional Information................................................... 2
Available Detailed Information........................................... 2
Incorporation of Certain Documents By Reference.......................... 3
Description of Certificates.............................................. 4
The Pools................................................................ 15
Citicorp Mortgage Securities, Inc. ...................................... 23
The Originators.......................................................... 23
Loan Underwriting Policies............................................... 25
Delinquency, Foreclosure and Loss Considerations......................... 30
Citicorp................................................................. 34
Use of Proceeds.......................................................... 34
The Pooling Agreements................................................... 34
ERISA Considerations..................................................... 40
Legal Investment......................................................... 42
Certain Federal Income Tax Consequences.................................. 43
Plans of Distribution.................................................... 63
Experts.................................................................. 63
Appendix A: The Mortgage Loans and CitiMortgage Certificates
Appendix B: The Agency Certificates
Index of Principal Definitions
</TABLE>
- --------------------------------------------------------------------------------
CITICORP MORTGAGE SECURITIES, INC.
(PACKAGER AND SERVICER)
ADJUSTABLE RATE REMIC
PASS-THROUGH CERTIFICATES
SERIES 1997-6
$97,750,000
(APPROXIMATE)
Senior Class A CitiCertificates
----------------------
PROSPECTUS SUPPLEMENT
----------------------
[LOGO] DEUTSCHE MORGAN GRENFELL
DATED NOVEMBER 12, 1997
