PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MARCH 25, 1999)
$298,592,684 (APPROXIMATE)
CITICORP MORTGAGE SECURITIES, INC.
(PACKAGER AND SERVICER)
REMIC PASS-THROUGH CERTIFICATES, SERIES 1999-1,
$288,960,684 (APPROXIMATE) SENIOR CLASS A CITICERTIFICATES
$5,719,000 (APPROXIMATE) SENIOR SUBORDINATED CLASS M CITICERTIFICATES
$2,558,000 (APPROXIMATE) SUBORDINATED CLASS B-1 CITICERTIFICATES
$1,355,000 (APPROXIMATE) SUBORDINATED CLASS B-2 CITICERTIFICATES
THE TRUST WILL ISSUE--
Three Classes of CitiCertificates: Class A, Class M and Class B. The Class M
CitiCertificates will be subordinated to the Class A CitiCertificates, and the
Class B CitiCertificates will be subordinated to the Class A and Class M
CitiCertificates.
These three Classes of CitiCertificates will be comprised of:
o The twelve subclasses and classes of Offered CitiCertificates listed on the
next page.
o Four additional subclasses of CitiCertificates, which are not being offered
by this Prospectus Supplement.
Interest on the Offered CitiCertificates will accrue at the rates set forth on
the next page. Payments of interest and principal will be made by the Trust
monthly on the 25th day of each month, commencing on April 26, 1999. One
subclass does not accrue interest.
THE ASSETS OF THE TRUST WILL INCLUDE--
o A pool of 856 fixed rate residential mortgage loans with a total balance of
approximately $301,000,779 on March 1, 1999. All of the mortgage loans have
a final maturity of at least 20 but no more than 30 years, but may be
prepaid, in whole or in part, without penalty by the borrowers under such
loans. The CitiCertificates will represent undivided beneficial ownership
interests in the property of the Trust.
YOU SHOULD REVIEW AND CONSIDER THE DISCUSSION OF RISK FACTORS BEGINNING ON PAGE
S-12.
-------------------
THIS PROSPECTUS SUPPLEMENT MAY BE USED TO OFFER AND SELL THE OFFERED
CITICERTIFICATES ONLY IF ACCOMPANIED BY THE PROSPECTUS.
-------------------
The CitiCertificates represent interests in the Trust only and are not
obligations of or backed by any other person. Neither the CitiCertificates nor
the Mortgage Loans are insured or guaranteed by any governmental agency or
instrumentality.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CITICERTIFICATES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The Underwriter for the Offered CitiCertificates is Credit Suisse First Boston
Corporation.
The purchase price for the Offered CitiCertificates will be set by the
Underwriter or negotiated between the purchaser and the Underwriter at the time
of sale, which will occur from time to time. The total proceeds to the Issuer
will be approximately $296,187,744 together with accrued interest from March 1,
1999 to but not including the Closing Date.
All but two subclasses of the Class A CitiCertificates will be issued in
book-entry form, and if you are a holder of book-entry CitiCertificates, you
will not receive a definitive physical certificate. All other CitiCertificates
will be issued in definitive physical form.
The Closing Date is expected to be on or about March 30, 1999.
CREDIT SUISSE FIRST BOSTON
March 25, 1999
<PAGE>
The multiple classes and subclasses of CitiCertificates have varying terms,
conditions and priorities. Most of the Offered CitiCertificates are entitled to
monthly payments of principal and interest, but some Offered CitiCertificates
are entitled only to principal payments. Some Offered CitiCertificates receive
principal payments beginning later than, or in different amounts than, other
Offered CitiCertificates.
Certain losses realized on the mortgage loans in the Trust will be allocated
first to the Subordinated Class B CitiCertificates before any such losses are
allocated to the Senior Subordinated Class M CitiCertificates or to the Senior
Class A CitiCertificates.
The initial amounts and interest rates for those CitiCertificates that are
offered hereby are set forth in the table below. Complete information describing
the classes and subclasses of Offered CitiCertificates and their respective
terms, conditions and priorities are set forth in this Prospectus Supplement and
the accompanying Prospectus.
<TABLE>
<CAPTION>
============================================================================================================
Initial Initial
Principal Certificate Principal Certificate
Amount (1) Rate Amount (1) Rate
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 .......... $114,553,828 6.50% Class A-7 .......... $ 2,000,000 5.00%
Class A-2 .......... $ 30,100,000 6.50% Class A-8 .......... $ 14,250,000 6.50%
Class A-3 .......... $ 75,000,000 6.50% Class A-9 .......... $ 542,684 (2)
Class A-4 .......... $ 15,514,172 6.50% Class M ............ $ 5,719,000 6.50%
Class A-5 .......... $ 25,000,000 6.50% Class B-1 .......... $ 2,558,000 6.50%
Class A-6 .......... $ 12,000,000 6.75% Class B-2 .......... $ 1,355,000 6.50%
============================================================================================================
</TABLE>
(1) Approximate.
(2) The Class A-9 CitiCertificates are principal-only certificates and will not
bear interest.
----------
The last monthly payment date on which distributions will be made on the
CitiCertificates is March 25, 2029, which coincides with the last date on which
payments on the mortgage loans will be received if no prepayments and no losses,
delinquencies or defaults are experienced on the mortgage loans. Based on the
historical performance of mortgage loans generally, this assumption is unlikely
to prove accurate.
Information on the terms of the CitiCertificates which are not offered by this
Prospectus Supplement is included in this Prospectus Supplement because that
information may be relevant to your understanding of this offering.
The issuance and sale of the Offered CitiCertificates will not occur unless the
Subordinated Class B-3, Class B-4 and Class B-5 CitiCertificates (which are not
offered by this Prospectus Supplement) are concurrently issued and sold. Credit
Suisse First Boston Corporation has committed itself to purchasing these
unoffered Class B CitiCertificates on the Closing Date, subject only to the
satisfaction of customary closing conditions.
S-2
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
Page
----
Summary of Terms ........................................................ S- 4
Risk Factors ............................................................ S-12
Limited Assets ......................................................... S-12
Uncertainty of Yields .................................................. S-12
Limited Amounts of Credit Enhancement .................................. S-12
Geographic Concentration ............................................... S-13
Subordination in Right of Payment ...................................... S-13
Allocation of Loan Losses .............................................. S-13
Limited Liquidity ...................................................... S-15
Restrictions on Transfer ............................................... S-15
Legal Investment ....................................................... S-15
Year 2000 Readiness .................................................... S-15
Description of the Mortgage Pool and
Mortgaged Properties ................................................... S-16
Description of the Offered CitiCertificates ............................. S-17
Source of Funds for Payments ........................................... S-18
Outstanding Principal Amounts .......................................... S-18
General ............................................................... S-18
Class A Subclasses .................................................... S-19
Class M CitiCertificates .............................................. S-19
Class B Subclasses .................................................... S-19
Interest Payments ...................................................... S-20
General ............................................................... S-20
Class A Subclasses .................................................... S-20
Class M CitiCertificates .............................................. S-20
Class B Subclasses .................................................... S-20
Allocation of Interest Shortfalls and Losses .......................... S-21
Effect of Payment Priorities on Interest Payments ..................... S-21
Principal Payments ..................................................... S-22
General ............................................................... S-22
Class A CitiCertificates Generally .................................... S-23
Class A-9 CitiCertificates ............................................ S-23
All Other Class A Subclasses .......................................... S-24
Allocation of Principal Payments ...................................... S-25
Class M CitiCertificates .............................................. S-26
Class B Subclasses .................................................... S-27
Allocation of Principal Losses ........................................ S-27
Recoveries ............................................................ S-31
Preservation of Subordination ......................................... S-31
Subordination .......................................................... S-32
Weighted Average Lives ................................................. S-33
Prepayment and Yield Considerations .................................... S-38
Sensitivity of the Class A-9 CitiCertificates .......................... S-39
Yield Considerations With Respect to the Offered Class B
CitiCertificates ...................................................... S-40
Optional Termination ................................................... S-41
Trustee and Agents ..................................................... S-42
Servicing Compensation ................................................. S-42
Book-Entry Registration ................................................ S-42
Definitive Certificates ................................................ S-43
Reports to Certificateholders .......................................... S-43
Voting Rights .......................................................... S-43
Certain ERISA Considerations ............................................ S-44
Legal Investment ........................................................ S-45
Certain Federal Income Tax Consequences ................................. S-45
Plan of Distribution .................................................... S-46
Legal Matters ........................................................... S-46
Incorporation of Certain Documents by Reference ......................... S-47
Index to Prospectus Supplement .......................................... S-48
Prospectus
Page
----
Reports to Certificateholders ........................................... 2
Additional Information .................................................. 2
Available Information ................................................... 2
Available Detailed Information .......................................... 2
Incorporation of Certain Documents By Reference ......................... 3
Description of Certificates ............................................. 4
General ................................................................ 4
Distributions to Certificateholders .................................... 5
Credit Support ......................................................... 8
Last Scheduled Distribution Date ....................................... 12
Residual Certificates .................................................. 12
The Servicer ........................................................... 13
The Pools ............................................................... 13
General ................................................................ 13
Mortgage Loans ......................................................... 14
Mortgage Certificates .................................................. 15
Certificate Account .................................................... 18
Minimum Prepayment Agreement ........................................... 19
Minimum Reinvestment Agreement ......................................... 19
Collection of Payments ................................................. 19
Substitution of Mortgage Loans ......................................... 20
Citicorp Mortgage Securities, Inc. ...................................... 21
The Originators ......................................................... 21
Loan Underwriting Policies .............................................. 22
Delinquency, Foreclosure and Loss Considerations
and Experience ........................................................ 26
Loss and Delinquency Considerations .................................... 26
Delinquency and Foreclosure Experience of the Affiliated
Originators' Serviced Portfolio ....................................... 26
Delinquency, Foreclosure and Loss Experience of
Affiliated Originators' Securitized Portfolio ........................ 27
Delinquency and Foreclosure Experience of Third Party
Originators' Portfolio ................................................ 28
Citicorp ................................................................ 29
Use of Proceeds ......................................................... 29
The Pooling Agreements .................................................. 29
Reports to Certificateholders .......................................... 29
Evidence as to Compliance .............................................. 30
Certain Matters Regarding the Issuer and Citicorp ...................... 30
Events of Default ...................................................... 31
Rights Upon Event of Default ........................................... 31
Amendment .............................................................. 32
List of Certificateholders ............................................. 32
Termination; Repurchase of Mortgage Loans and Mortgage
Certificates .......................................................... 32
Duties of the Trustee .................................................. 33
The Trustee ............................................................ 33
Certain ERISA Considerations ............................................ 34
Legal Investment ........................................................ 36
Certain Federal Income Tax Consequences ................................. 37
General ................................................................ 37
Status of CitiCertificates and Residual Certificates ................... 38
Qualification as a REMIC ............................................... 38
Taxation of CitiCertificates ........................................... 40
Taxation of Residual Certificates ...................................... 46
Taxes that May Be Imposed on the REMIC ................................. 52
Liquidation of the REMIC ............................................... 52
Administrative Matters ................................................. 52
Limitations on Deduction of Certain Expenses ........................... 53
Taxation of Certain Foreign Investors .................................. 53
Backup Withholding ..................................................... 54
Reporting Requirements ................................................. 55
Plans of Distribution ................................................... 55
Experts ................................................................. 56
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
This Summary presents selected information that is discussed in greater detail
elsewhere in this Prospectus Supplement or the Prospectus. This Summary does not
contain all of the information necessary for you to evaluate properly an
investment in any Class or Subclass of Offered CitiCertificates. Certain terms
that are capitalized are defined elsewhere in this Prospectus Supplement or the
Prospectus. An "Index to Principal Definitions in Prospectus Supplement" is set
forth at the end of this Prospectus Supplement, and a similar Index is set forth
at the end of the Prospectus.
OFFERED SECURITIES REMIC Pass-Through Certificates, Series 1999-1, consisting
of:
o One Class of Senior Class A CitiCertificates, which is subdivided into ten
Subclasses, of which nine Subclasses are being offered hereby,
o One Class of Senior Subordinated Class M CitiCertificates and
o One Class of Subordinated Class B CitiCertificates, which is subdivided
into five Subclasses, of which two Subclasses (Class B-1 and Class B-2) are
being offered hereby.
The securities listed above and offered hereby are collectively called the
"Offered CitiCertificates".
In addition to the Offered CitiCertificates, the Trust will issue one
interest-only Subclass of Senior Class A CitiCertificates (the "Class A-IO
CitiCertificates"), three Subclasses of Subordinated Class B-3, Class B-4 and
Class B-5 CitiCertificates and one class of residual certificates. None of these
CitiCertificates or residual certificates are offered hereby.
The Class A-9 CitiCertificates are principal-only CitiCertificates and do not
accrue interest. The Class B-1 and Class B-2 CitiCertificates are the "Offered
Class B CitiCertificates", and each is an "Offered Class B Subclass".
On the Closing Date, the total principal amount of CitiCertificates will equal
the total principal amount of mortgage loans in the Trust, as measured on the
Cut-Off Date.
The ratio of (a) the total outstanding principal amount of a Class or Subclass
of CitiCertificates and (b) the total outstanding principal amount of the
mortgage loans, is called the "Beneficial Percentage" of that Class or Subclass.
The Beneficial Percentage of a Class or Subclass reflects its proportionate
undivided beneficial interest in the assets of the Trust. On the Closing Date,
o The Class A Beneficial Percentage will be from 95% to 97%,
o The Class M Beneficial Percentage will be from 1.40% to 2.40%,
o The Class B Beneficial Percentage will be from 1.60% to 2.60%,
o The Class B-1 Beneficial Percentage will be from 0.65% to 1.05% and
o The Class B-2 Beneficial Percentage will be from 0.25% to 0.65%.
The Class A-IO CitiCertificates are interest-only certificates and, therefore,
their Beneficial Percentage is zero.
Each Class A CitiCertificate offered hereby and each Class M CitiCertificate
will qualify at issuance as a "mortgage related security" within the meaning of
the Secondary Mortgage Market Enhancement Act of 1984. The Class B-1 and Class
B-2 CitiCertificates will not so qualify.
THE MORTGAGE LOANS The following information is calculated on the 856 mortgage
loans as of the Cut-Off Date:
o $301,000,779 total principal balance, subject to a variance of plus or
minus 5%.
o Mortgage note interest rates ranging from 5.875% to 8.250% per annum.
o Weighted average mortgage interest rate of at least 6.973% per annum but no
more than 7.373% per annum.
o Weighted average remaining term to contractual maturity of at least 349
months but no more than 355 months.
Additional information on the mortgage loans is set forth in "DESCRIPTION OF THE
MORTGAGE POOL AND MORTGAGED PROPERTIES" in this Prospectus Supplement.
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
The mortgage loans will be divided into two groups. The first group, having a
total principal balance of approximately $12,155,027, will comprise all loans
having a net note rate of less than 6.50% per annum. This group is called the
"Discount Loan" group. The second group, having a total principal balance of
approximately $288,845,752, will comprise all loans having a net note rate equal
to or greater than 6.50% per annum. This group is called the "Premium Loan"
group. The "net note rate" or "NNR" for a particular mortgage loan is the per
annum rate at which interest accrues on the outstanding principal amount of the
mortgage loan, minus the servicing fee of 0.25% per annum.
RATIO STRIPPING This transaction uses a structuring technique known as "ratio
stripping". This technique converts a pool of mortgage loans with varying
interest rates into a pool with a single fixed interest rate, or target rate.
This is achieved by dividing the loans into one group of Premium Loans with NNRs
equal to or greater than the target rate and one group of Discount Loans with
NNRs less than the target rate. Then,
o For each Premium Loan, the interest accruing and paid in excess of that at
the target rate is stripped off from that loan and applied to make payments
on an interest-only class of securities.
o For each Discount Loan, a portion of the principal of such loan is stripped
off and applied to create a principal-only class of securities. This
stripping-off of principal is done in order to cause the effective yield on
the Discount Loan to equal the target rate. The lower the net note rate on
a loan, the greater the portion of principal stripped off. The portion of
principal stripped off from each Discount Loan is equal to: (target rate
minus NNR)/target rate. This ratio, expressed as a percentage, is called
the "PO Percentage" for that Discount Loan. The PO Percentage is zero for
all Premium Loans.
o For each mortgage loan, all or a portion of the principal of such loan is
applied to create the other Classes and Subclasses of CitiCertificates
entitled to receive principal payments. The portion of each loan so applied
is equal to 100% minus the PO Percentage for such loan. This percentage is
called the "Non-PO Percentage". The Non-PO Percentage is 100% for each
Premium Loan and ranges from 86.5% to 98.1% for the Discount Loans.
o In order to preserve the allocation of the principal of the mortgage loans
between the principal-only class created from the Discount Loans and all
other CitiCertificates, in the event a principal loss is realized on a
mortgage loan, the PO Percentage of the principal loss on that loan is
allocated solely to that principal-only class and the Non-PO Percentage of
such principal loss is allocated solely to the other CitiCertificates, as
described below under "Allocation of Losses" in this Summary.
The "target rate" for this transaction is 6.50% per annum. You should note that
the Certificate Rate for the majority of the interest-bearing Offered
CitiCertificates (as well as the Class B-3, Class B-4 and Class B-5
CitiCertificates not offered hereby) is equal to the target rate. The
principal-only Subclass created by stripping off the PO Percentage of principal
from the Discount Loans is the Class A-9 CitiCertificates. The interest-only
Subclass created by stripping off the interest on the Premium Loans in excess of
the target rate is the Class A-IO CitiCertificates.
DISTRIBUTION DATES The 25th day of each month, commencing in April 1999.
Distribution Dates are the monthly dates on which payments of interest and
principal are made on the Classes and Subclasses of CitiCertificates. If the
25th day of a month is not a business day, then the Distribution Date will be
the next business day.
SOURCE OF FUNDS FOR PAYMENTS Monies received on the mortgage loans will be the
source of essentially all funds available to make payments on the
CitiCertificates. This source of funds includes monthly payments of principal
and interest by borrowers and principal prepayments by borrowers, as well as
monies received upon foreclosure and sale of properties securing defaulted
mortgage loans and any proceeds of insurance policies. These funds also include
any advances made due to delinquent monthly payments, as described under
"Advances" below in this Summary.
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
PAYMENT PRIORITIES On each Distribution Date, monies received on the mortgage
loans will be aggregated and applied to pay the following amounts in the
following order of priority:
(1) accrued interest due on the Class A CitiCertificates (including any past
due interest amounts),
(2) principal due on Class A CitiCertificates,
(3) reimbursement to the Class A-9 CitiCertificates of any principal losses
allocated to them,
(4) accrued interest due on the Class M CitiCertificates (including any past
due interest amounts),
(5) principal due on the Class M CitiCertificates,
(6) accrued interest due on the Class B-1 CitiCertificates (including any past
due interest amounts),
(7) principal due on the Class B-1 CitiCertificates,
(8) accrued interest due on the Class B-2 CitiCertificates (including any past
due interest amounts),
(9) principal due on the Class B-2 CitiCertificates and
(10) accrued interest (including any past due interest amounts) and principal
due on the remaining Subclasses of Class B CitiCertificates, sequentially
to the Class B-3, Class B-4 and Class B-5 CitiCertificates.
Reimbursement to the Class A-9 CitiCertificates under clause (3) above will only
be made out of amounts that would otherwise have been payable as principal on
the Class B and Class M CitiCertificates on that Distribution Date.
PRINCIPAL AMOUNTS; NOTIONAL AMOUNTS The "Principal Amount" of a Class or
Subclass of CitiCertificates at any time is equal to its Initial Principal
Amount minus
o All principal previously paid to such Class or Subclass and
o All principal losses allocated to such Class or Subclass.
The Initial Principal Amounts of the Offered CitiCertificates are set forth on
page S-2.
"Notional Amount" applies only to a Subclass of interest-only CitiCertificates,
is an amount used solely to calculate accrual of interest, and does not entitle
the holders of such Subclass to any payments of principal. The Class A-IO
CitiCertificates are interest-only certificates having an Initial Notional
Amount equal to the total principal balance of the Premium Loans on the Cut-Off
Date.
INTEREST PAYMENTS Each Class or Subclass of interest-bearing CitiCertificates
will accrue interest on its respective Principal Amount (or Notional Amount) for
each Interest Accrual Period at its per annum Certificate Rate. The Certificate
Rates for the Offered CitiCertificates are set forth in the table on page S-2.
Each Distribution Date is an interest payment date. Interest payments will be
made in accordance with the priorities set forth above in this Summary under
"Payment Priorities".
The "Interest Accrual Period" for a particular Distribution Date is the first
through the last day of the calendar month preceding that Distribution Date.
Accrued interest is calculated on the basis of a 360-day year consisting of
twelve 30-day months.
If there are interest losses on the mortgage loans in the pool, or if a borrower
prepays a mortgage loan in whole or in part during a month without also paying a
full month's interest on the amount of the prepayment, then the amount of
accrued interest payable on the CitiCertificates may be reduced by the amount of
such losses or interest shortfall. See "Allocation of Losses" below in this
Summary.
You should note that the effective yield on each CitiCertificate is less than
the yield calculated by simply applying the Certificate Rate to its Principal
Amount. This is due to the fact that principal payments are made on the 25th day
of the month following the end of each Interest Accrual Period, and the amount
of the principal payment will not accrue interest during this 25-day period of
delay.
The Class A-9 CitiCertificates are principal-only certificates and do not accrue
interest.
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL PAYMENTS Principal payments will be made on the CitiCertificates on
each Distribution Date. Principal payments will be made in accordance with the
payment priorities set forth above in this Summary under "Payment Priorities".
On each Distribution Date the Class A-9 CitiCertificates will receive the PO
Percentage of the principal received on each Discount Loan. The amount of
principal paid to the other Subclasses of Class A CitiCertificates will depend
on the specific terms and conditions applicable to each Subclass, as described
under "DESCRIPTION OF THE OFFERED CITICERTIFICATES--PrincipaL PaymentS".
The amount of principal paid to the Class M CitiCertificates on a particular
Distribution Date will be equal to the lesser of:
(1) the Class M Optimal Principal Amount and
(2) the amount of cash remaining after all required payments have been made on
the Class A CitiCertificates and after payment of accrued interest on the
Class M CitiCertificates.
The Class M Optimal Principal Amount is equal to the sum of:
(a) the Class M Percentage of all scheduled monthly principal on the Premium
Loans,
(b) the Class M Percentage of all scheduled monthly principal on the Discount
Loans that is not allocated to the Class A-9 CitiCertificates and
(c) after the fifth anniversary of the first Distribution Date, a share of
principal prepayments and other unscheduled receipts on the mortgage loans,
but only if certain tests are satisfied.
The amount of principal paid to a particular Subclass of the Class B
CitiCertificates on a particular Distribution Date will be equal to the lesser
of:
(1) the Class B Subclass Optimal Principal Amount for such Subclass and
(2) the amount of cash remaining after all required payments have been made on
the Class A and Class M CitiCertificates and on each Subclass of the Class
B CitiCertificates having a lower numerical designation, and after payment
of accrued interest on that particular Class B Subclass.
The Class B Subclass Optimal Principal Amount for any particular Class B
Subclass is equal to the sum of:
(a) such Class B Subclass's Percentage of all scheduled monthly principal on
the Premium Loans,
(b) such Class B Subclass's Percentage of all scheduled monthly principal on
the Discount Loans that is not allocated to the Class A-9 CitiCertificates
and
(c) after the fifth anniversary of the first Distribution Date, a share of
principal prepayments and other unscheduled receipts on the mortgage loans,
but only if certain tests are satisfied.
Even though sufficient cash is available on a Distribution Date to pay all of
the amounts listed above under "Payment Priorities" in this Summary, the Class B
CitiCertificates will not be paid principal if at the time there is insufficient
credit enhancement outstanding for the benefit of the Class A and Class M
CitiCertificates. See "DESCRIPTION OF THE OFFERED CITICERTIFICATES--Principal
Payments--Preservation of Subordination" in this Prospectus Supplement.
CLOSING DATE March 30, 1999.
CUT-OFF DATE March 1, 1999.
RECORD DATE The Record Date for a particular Distribution Date is the close of
business on the last business day of the calendar month preceding that
Distribution Date.
TRUSTEE The Bank of New York, a New York banking corporation.
ISSUER AND SERVICER Citicorp Mortgage Securities, Inc. ("CMSI"), 909 Third
Avenue, New York, New York 10043; its telephone number is (212) 559-6727.
Servicing duties will be subcontracted to Citicorp Mortgage, Inc., an affiliate
of CMSI.
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
CREDIT ENHANCEMENT Credit enhancement is provided to the CitiCertificates
through subordination. The payment priorities listed above in this Summary
reflect this subordination. The Class B CitiCertificates are subordinated to the
Class A and Class M CitiCertificates, and the Class M CitiCertificates are
subordinated to the Class A CitiCertificates. Subordination provides a degree of
protection against shortfalls in available funds and losses because the payment
priorities provide that on each Distribution Date:
(1) the Class A CitiCertificates are entitled to receive all amounts of
interest and principal due on them before any payments are made on the
Class M or Class B CitiCertificates,
(2) after all required payments have been made on the Class A CitiCertificates,
the Class M CitiCertificates are entitled to receive all amounts of
interest and principal due on them before any payments are made on the
Class B CitiCertificates,
(3) after all required payments are made on the Class A and Class M
CitiCertificates, the Class B-1 CitiCertificates are entitled to receive
all amounts of interest and principal due on them before any payments are
made on any other Subclass of Class B CitiCertificates and
(4) after all required payments are made on the Class A, Class M and Class B-1
CitiCertificates, the Class B-2 CitiCertificates are entitled to receive
all amounts of interest and principal due on them before any payments are
made on the Class B-3, Class B-4 and Class B-5 CitiCertificates.
The degree of credit enhancement for a particular Class is equal to the
Beneficial Percentages of all Classes and Subclasses subordinated to that
particular Class. On the Closing Date, the CitiCertificates will be entitled to
the following approximate credit enhancement in the form of subordination:
o Class A CitiCertificates: 4.00%, or $12,040,094
o Class M CitiCertificates: 2.10%, or $6,321,094
o Class B-1 CitiCertificates: 1.25%, or $3,763,094
o Class B-2 CitiCertificates: 0.80%, or $2,408,094
In order to preserve the benefit to the Class A CitiCertificates of the credit
enhancement provided by the subordination of the Class M and Class B
CitiCertificates, for the first five years 100% of all amounts of prepayment
principal and other unscheduled receipts on the mortgage loans will be allocated
to the Class A CitiCertificates. This disproportionate allocation of prepayment
principal and other receipts will result in a faster paydown of the Class A
principal than would have occurred if all principal payments were made on a
proportionate basis, and will cause the Class A Beneficial Percentage to
decrease and the Class M and Class B Beneficial Percentages to increase,
effectively increasing the credit enhancement for the Class A CitiCertificates.
After the first five years, the percentage of prepayment principal and other
receipts allocated to the Class A CitiCertificates will incrementally decline,
decreasing to their proportionate share over the next five years. For further
information on the allocation of prepayment principal, see "DESCRIPTION OF THE
OFFERED CITICERTIFICATES--Principal Payments" in this Prospectus Supplement.
The Class M CitiCertificates and the Class B-1 and Class B-2 CitiCertificates
are entitled to the maintenance of a degree of credit enhancement throughout the
life of the transaction. In order to preserve the benefit to the Class M
CitiCertificates of the Class B subordination, on each Distribution Date a test
will be performed to measure the then-current Class B Beneficial Percentage,
which Beneficial Percentage represents the level of subordination existing for
the benefit of the Class M CitiCertificates. If the then-current Class B
Beneficial Percentage is less than that on the Closing Date, then the Class B
CitiCertificates will not be entitled to receive any principal payments, and
that cash will instead be paid to the Class M CitiCertificates. The Class B
CitiCertificates will, however, remain entitled to receive their current accrued
interest.
If the current Class B Beneficial Percentage is at least equal to that on the
Closing Date, then, in order to preserve the subordination for the Class B-1
CitiCertificates of the other Class B Subclasses, a further test will be
performed to measure the then-current total of the Beneficial Percentages for
the Class B-2 through Class B-5 CitiCertificates. If such total is less than
that on the Closing Date, then the Class B-2 through Class B-5 CitiCertificates
will not be entitled to receive any principal payments, and that cash will
instead be paid
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
proportionately to the Class M and Class B-1 CitiCertificates. The Class B-2
through Class B-5 CitiCertificates will, however, remain entitled to receive
their current accrued interest. Similarly, if the test for the Class B-1
subordination level is satisfied, a further test will be performed to measure
the then-current total of the Beneficial Percentages for the Class B-3 through
Class B-5 CitiCertificates, in order to preserve their subordination for the
benefit of the Class B-2 CitiCertificates.
ALLOCATION OF LOSSES The credit enhancement provided by subordination protects
the CitiCertificates against two causes of losses and shortfalls in receipts of
interest and principal on the mortgage loans:
1. delinquent monthly payments that are not advanced by the Servicer or the
Trustee (in its individual capacity) and
2. mortgage loans that have gone into default, and the proceeds of insurance,
foreclosure and sale and any other receipts are not sufficient to cover the
outstanding principal amount plus accrued interest on such loans.
Any occurrence of interest losses or shortfalls will result in an equal
shortfall in the payment received by the most subordinated Subclass or Class of
CitiCertificates then outstanding. Any occurrence of a principal loss or
shortfall on a mortgage loan will result in:
o the PO Percentage for that loan of the principal loss to be allocated
to the Class A-9 CitiCertificates and
o the Non-PO Percentage for that loan of the principal loss to be
allocated to the most subordinated Subclass then outstanding.
The general principle is that a particular Subclass (other than the Class A-9
CitiCertificates) will not experience any shortfalls in required payments so
long as there is a more subordinated Class or Subclass outstanding. When the
Principal Amounts of the Class M and Class B CitiCertificates are zero, all
credit enhancement is gone. The date on which this occurs is called the
"Subordination Depletion Date". Thereafter, losses and shortfalls will be shared
among the outstanding Class A CitiCertificates. Interest losses will be shared
proportionately among the Class A Subclasses based on the amounts of accrued
interest. The applicable PO Percentage of each principal loss will be allocated
to the Class A-9 CitiCertificates and the applicable Non-PO Percentage of each
principal loss will be shared proportionately among the other Class A Subclasses
based on their Principal Amounts. For example, a Subclass representing
one-quarter of the total Principal Amount of outstanding Class A
CitiCertificates (excluding the Class A-9 CitiCertificates) and one-quarter of
the total current accrued interest would be allocated one-quarter of the
interest losses and shortfalls and one-quarter of the Non-PO Percentage of each
principal loss and shortfall.
There are three exceptions to the general principle, stated above, that a
particular Subclass (other than the Class A-9 CitiCertificates) will not
experience any shortfalls so long as a more subordinated Class or Subclass is
outstanding:
(1) the existence of "Prepayment Interest Shortfalls", which occurs if a
borrower makes a whole or partial prepayment of principal during a
month and does not also pay a full month's accrued interest on the
amount of the prepayment. If a Prepayment Interest Shortfall exists on
a Distribution Date, the Servicer will apply part of its servicing fee
to reduce the amount of this shortfall. To the extent a net shortfall
remains, it will be allocated proportionately over all
interest-bearing CitiCertificates. This situation is discussed in
greater detail under "DESCRIPTION OF THE OFFERED
CITICERTIFICATES--Interest Payments--Allocation of Interest Shortfalls
and Losses" in this Prospectus Supplement;
(2) the reimbursement to the Class A-9 CitiCertificates of principal
losses will be made out of amounts of principal that otherwise would
have been paid to the Class B and Class M CitiCertificates. Therefore,
one or more Class B Subclasses and, depending on the amount of the
reimbursement, the Class M CitiCertificates may not receive their
anticipated payments of principal at a date on which more subordinated
Subclasses are outstanding. This situation is discussed in greater
detail under "DESCRIPTION OF THE OFFERED CITICERTIFICATES--Principal
Payments--Class A-9 CitiCertificates" in this Prospectus Supplement;
and
(3) the occurrence of "Excess Losses", which is discussed in the next
paragraph.
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
There can be losses and shortfalls on mortgage loans that are caused by the
occurrence of special hazard events ("Special Hazard Losses") or by acts of
bankruptcy on the part of the borrower ("Bankruptcy Losses") or that arise out
of fraud committed by the borrower in the obtaining of the mortgage loan ("Fraud
Losses"). Losses of these types are also covered by the subordination credit
enhancement, but only up to certain dollar limits specified by the rating
agencies. If any one of these three types of losses results in aggregate losses
exceeding the specified dollar limit for that type of loss, all losses of that
type in excess of that dollar limit (called "Excess Losses") are shared by all
outstanding CitiCertificates, proportionately on the basis of their accrued
interest, in the case of interest losses, and, in the case of principal losses,
the PO Percentage will be allocated to the Class A-9 CitiCertificates and the
Non-PO Percentage will be allocated among the other outstanding
CitiCertificates, proportionately based on their Principal Amounts. The
specified limits for Special Hazard, Bankruptcy and Fraud Losses, expressed as a
dollar amount and as a percentage of the initial mortgage loan principal
balance, are approximately:
o Special Hazard: $3,010,008, or 1.00%
o Fraud: $3,010,008, or 1.00%
o Bankruptcy: $ 100,000, or 0.03%
See "DESCRIPTION OF THE OFFERED CITICERTIFICATES--Principal Payments--Allocation
of Principal Losses" and "--Interest Payments--Allocation of Interest Shortfalls
and Losses".
There may also be shortfalls caused by certain extraordinary events
that are not customarily covered by insurance. These shortfalls are not covered
by the credit enhancement, and the resulting losses shall be shared by the
outstanding CitiCertificates in the same manner as Excess Losses, as described
in the preceding paragraph.
OPTIONAL TERMINATION CMSI has the right to repurchase from the Trust all of the
mortgage loans then remaining in the Trust, but only after the principal amount
of loans remaining is less than 5% of the initial principal amount of mortgage
loans on the Cut-Off Date. The purchase price received from CMSI by the Trustee
will be applied to pay the Principal Amount and accrued interest on the
outstanding CitiCertificates.
ADVANCES The Servicer intends to advance its own funds to cover delinquent
monthly payments on the mortgage loans, but only to the extent the Servicer
believes that it will ultimately be reimbursed for such advances out of
subsequent mortgage loan payments. The Servicer will contract with the Trustee
(in its individual capacity and not as Trustee) to make such advances if the
Servicer fails to do so, subject to the same requirement that the Trustee
believes it will ultimately be reimbursed.
DENOMINATIONS The authorized denominations of the Offered CitiCertificates are
$1000 face amount and any whole dollar amount above $1000.
BOOK-ENTRY Except for the Class A-9 and Class A-IO CitiCertificates, the Class A
CitiCertificates will be issued in book-entry form only. Book-entry
CitiCertificates will be issued in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"). The Class A-9, Class A-IO, Class M and Class B
CitiCertificates will be issued in definitive physical form only. If you are
considering an investment in book-entry Class A CitiCertificates, you should
review the discussion under "DESCRIPTION OF THE OFFERED CITICERTIFICATES--
Book-Entry Registration" and "--Reports to Certificateholders" in this
ProspectuS Supplement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES An election will be made to treat the
assets of the Trust as a "real estate mortgage investment conduit" (a "REMIC")
for federal income tax purposes. The Offered CitiCertificates will be treated as
"regular interests" in the REMIC. The Offered CitiCertificates generally will be
treated as newly originated debt instruments for federal income tax purposes.
You will be required to report interest income on the CitiCertificates in
accordance with the accrual method of accounting. Certain Classes and Subclasses
of Offered CitiCertificates will be treated as being issued with original issue
discount ("OID") or as being issued at a premium. You should carefully read the
discussions under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in this Prospectus
Supplement and the Prospectus.
CERTAIN ERISA CONSIDERATIONS If you are a fiduciary that is investing (or could
be deemed to be investing) the assets of any employee benefit plan, you should
carefully review the discussions under "CERTAIN ERISA
- --------------------------------------------------------------------------------
S-10
<PAGE>
- --------------------------------------------------------------------------------
CONSIDERATIONS" in this Prospectus Supplement and the Prospectus before
purchasing any of the CitiCertificates. The Class M, Class B-1 and Class B-2
CitiCertificates are subordinated certificates, and you cannot transfer these
CitiCertificates unless certain conditions to transfer are met, as described
under "CERTAIN ERISA CONSIDERATIONS" in this Prospectus Supplement.
RATINGS The Offered CitiCertificates will not be issued and sold unless Standard
& Poor's Ratings Group ("S&P") and/or Fitch IBCA, Inc. ("Fitch") have rated the
Offered CitiCertificates as follows:
o Class A-9 CitiCertificates: "AAAr" by S&P and "AAA" by Fitch
o All other Class A CitiCertificates: "AAA" by S&P and Fitch
o Class M CitiCertificates: "AA" by Fitch
o Class B-1 CitiCertificates: "A" by Fitch
o Class B-2 CitiCertificates: "BBB" by Fitch
The "r" symbol in certain S&P ratings identifies securities that S&P believes
may experience high volatility or high variability in expected returns due to
non-credit risks.
The ratings assigned by Fitch to mortgage pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions to which
such certificateholders are entitled. Fitch's ratings address the structural and
legal aspects associated with the certificates, including the nature of the
underlying mortgage loans. Fitch's ratings on mortgage pass-through certificates
do not represent any assessment of the likelihood or rate of principal
prepayments. The ratings do not address the possibility that certificateholders
might suffer a lower-than-anticipated yield.
You should evaluate the ratings of the Offered CitiCertificates independently
from similar ratings on other types of securities. You should not consider a
rating as a recommendation to buy, sell or hold securities, and you should be
aware that a rating may be revised or withdrawn at any time by a rating agency.
- --------------------------------------------------------------------------------
S-11
<PAGE>
RISK FACTORS
You should consider, among other things, the factors discussed below in
connection with any purchase of Offered CitiCertificates.
LIMITED ASSETS
The assets of the Trust are limited to the Mortgage Loans. If the Mortgage
Loans, and the amounts received as payments and recoveries on the Mortgage
Loans, are insufficient to make all payments of accrued interest on, and the
Initial Principal Amount of, the Offered CitiCertificates purchased by you,
there will be no other assets available to make up any deficiency.
The Servicer may, in its discretion, advance its own funds to cover
delinquent scheduled payments of principal of or interest on the Mortgage Loans.
The Servicer intends to make advances to the extent it determines that the funds
advanced will be reimbursed to it from future payments and collections on the
related 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) to cover delinquencies if
the Servicer fails to make any such advance. The Trustee (in such individual
capacity) will make such advances to the extent it determines that the funds
advanced will be reimbursed to it from future payments and collections on the
related Mortgage Loans. To the extent that the Servicer and the Trustee (in such
individual capacity) do not make such advances, the only source of cash for
payments on the CitiCertificates will be the cash actually received on the
Mortgage Loans.
UNCERTAINTY OF YIELDS
The yield to maturity of any Offered CitiCertificate purchased by you will
be sensitive, in degrees varying by Class and Subclass, to
o the rate of principal prepayments and other unscheduled receipts on
the Mortgage Loans,
o the allocation of such prepayments and receipts among the Classes and
Subclasses of CitiCertificates,
o the amount, timing and cause of losses and payment shortfalls on the
Mortgage Loans,
o the allocation of such losses and payment shortfalls among the Classes
and Subclasses of CitiCertificates and
o the purchase price paid by you for your CitiCertificates.
The rate of principal prepayments assumed in structuring this offering is
275% of the Prepayment Model, as described in "DESCRIPTION OF THE OFFERED
CITICERTIFICATES--Weighted Average Lives". It was also assumed that no losses or
payment shortfalls would occur on the Mortgage Loans. If you purchase Offered
CitiCertificates at a discount, a slower than anticipated rate of prepayments
will result in an actual yield lower than the anticipated yield. If you purchase
Offered CitiCertificates at a premium, a faster than anticipated rate of
prepayments will result in an actual yield lower than the anticipated yield. If
losses or payment shortfalls are allocated to your Offered CitiCertificates,
your actual yield will be adversely affected. You should therefore understand
the terms and conditions of any Offered CitiCertificates in which you are
considering an investment and the provisions governing the allocation of
principal payments and prepayments and the allocation of losses and shortfalls
before making any investment. See "DESCRIPTION OF THE OFFERED
CITICERTIFICATES--Weighted Average Lives" and "--Prepayment and Yield
Considerations". If you are considering an investment in the Class A-9
CitiCertificates, you should also review the discussion under "--Sensitivity of
the Class A-9 CitiCertificates". If you are considering an investment in Class
B-1 or Class B-2 CitiCertificates, you should also review the discussion under
"--Yield Considerations for the Offered Class B CitiCertificates".
LIMITED AMOUNTS OF CREDIT ENHANCEMENT
Credit enhancement for the Class A CitiCertificates is provided by the
subordination of the Class M and Class B CitiCertificates, credit enhancement
for the Class M CitiCertificates is provided by the subordination of the Class B
CitiCertificates and credit enhancement for the Offered Class B CitiCertificates
is provided by the
S-12
<PAGE>
subordination of the Unoffered Class B CitiCertificates. These amounts of credit
enhancement are limited and will decrease over the life of the transaction. The
decrease in credit enhancement will result from the reduction of the Principal
Amounts of the subordinated Classes and Subclasses through receipt of principal
payments and from the allocation of principal losses to such Classes and
Subclasses.
GEOGRAPHIC CONCENTRATION
The yield to maturity of your Offered CitiCertificates may be adversely
affected by the geographic concentration of the Mortgaged Properties securing
the Mortgage Loans. Certain regions of the United States will from time to time
experience relatively weaker economic conditions and housing markets. In recent
years, California, the New York Metropolitan Area and several other regions have
experienced significant declines in housing prices. Weaker economic conditions
and housing markets may result in a higher rate of delinquencies and defaults by
mortgagors and in less proceeds being realized upon liquidations of defaulted
mortgage loans. Any concentration of Mortgage Loans in such a region presents
risk considerations in addition to those generally present for similar
mortgage-backed securities. In addition, California, Florida and other regions
have experienced natural disasters such as earthquakes, fires, floods and
hurricanes. These disasters may adversely affect property values generally in
the region, and may result in physical damage to Mortgaged Properties located in
such regions. Any direct damage to a Mortgaged Property caused by such
disasters, and any deterioration in housing prices or in economic conditions in
a region, may reduce the ability of mortgagors to make scheduled monthly
payments on their Mortgage Loans. This in turn may increase the likelihood and
magnitude of delinquencies and losses on Mortgage Loans. Losses on Mortgage
Loans may adversely affect the yield to maturity on your Offered
CitiCertificates, especially if they are subordinated. In addition,
delinquencies and losses on Mortgage Loans may increase the likelihood of
foreclosures and prepayments, which in turn may have an adverse effect on the
yield to maturity of your Offered CitiCertificates. Each state in which are
located Mortgage Loans representing more than 10% of the Initial Mortgage Loan
Balance is listed below under "DESCRIPTION OF THE MORTGAGE POOL AND THE
MORTGAGED PROPERTIES". You should note that approximately 50% of the total
initial principal balance of the Mortgage Loans in this Trust are Mortgage Loans
secured by Mortgaged Properties located in California.
SUBORDINATION IN RIGHT OF PAYMENT
The Class M and Class B CitiCertificates are "Subordinated
CitiCertificates". The Subordinated CitiCertificates provide credit enhancement
for the benefit of the Class A CitiCertificates. In addition, the Class B
CitiCertificates provide credit enhancement for the Class M CitiCertificates,
and each Class B Subclass provides credit enhancement for each other Class B
Subclass with a lower numerical designation. Consequently, shortfalls in the
amounts of payments received on the Mortgage Loans will result in shortfalls in
the amount of payments made on the Subordinated CitiCertificates, in the
following order of priority:
1. The Class M CitiCertificates are subordinated in right of payments to
the Class A CitiCertificates. The Class M CitiCertificates will not receive any
payment of principal or interest on any Distribution Date until the Class A
CitiCertificates have received all payments due on them on that date.
2. The Offered Class B CitiCertificates are subordinated in right of
payments to the Class A and Class M CitiCertificates. The Class B-1
CitiCertificates will not receive any payment of principal or interest on any
Distribution Date until the Class A and Class M CitiCertificates have received
all payments due on them on that date.
3. The Class B-2 CitiCertificates are subordinated in right of payment to
Class A, Class M and Class B-1 CitiCertificates. The Class B-2 CitiCertificates
will not receive any payment of principal or interest on any Distribution Date
until the Class A, Class M and Class B-1 CitiCertificates have received all
payments due on them on that date.
See "DESCRIPTION OF THE OFFERED CITICERTIFICATES--Subordination" in this
Prospectus Supplement.
ALLOCATION OF LOAN LOSSES
The Subordinated CitiCertificates provide a degree of protection to the
Class A CitiCertificates against losses on the Mortgage Loans. In general,
losses that are realized on Mortgage Loans are first allocated to the
Subordinated CitiCertificates before any losses are allocated to the Class A
CitiCertificates (other than the Class
S-13
<PAGE>
A-9 CitiCertificates). Although the applicable PO Percentage of a realized loss
on a Mortgage Loan (including Special Hazard Losses, Fraud Losses and Bankruptcy
Losses) is initially allocated to the Class A-9 CitiCertificates, this realized
loss will ultimately be allocated to the Class B Subclasses and the Class M
CitiCertificates. This is because the holders of Class A-9 CitiCertificates have
the right to receive reimbursement of principal losses (other than Excess
Losses) allocated to them out of amounts of principal otherwise payable to the
Class B and Class M CitiCertificates.
The aggregate amount of (a) interest losses and (b) the Non-PO Percentage
of principal losses, that are Special Hazard Losses, Fraud Losses or Bankruptcy
Losses, are allocated to the Subordinated CitiCertificates only up to specified
dollar limits, which are different in amount for each type of loss. If aggregate
losses of one of these three loss types exceeds the specified dollar limit, the
"Excess Losses" are allocated over all outstanding CitiCertificates (other than
the Class A-9 CitiCertificates), not just solely to the Subordinated
CitiCertificates.
The ultimate payment to holders of the Class M CitiCertificates and the
Offered Class B CitiCertificates of their Principal Amounts is dependent upon
the timing and the level of losses realized on the Mortgage Loans and other
shortfalls in payments on the Mortgage Loans.
Liquidated Loan Losses: Interest losses and the Non-PO Percentage of
principal losses on the Mortgage Loans that are not Special Hazard Losses, Fraud
Losses or Bankruptcy Losses will be allocated
first to the Unoffered Class B CitiCertificates, up to their Principal
Amount and accrued interest,
second to the Class B-2 CitiCertificates, up to their Principal Amount and
accrued interest,
third to the Class B-1 CitiCertificates, up to their Principal Amount and
accrued interest, and
then to the Class M CitiCertificates, up to their Principal Amount and
accrued interest.
Excess Losses: So long as there are no Excess Losses, interest losses and
the Non-PO Percentage of principal losses that are Special Hazard Losses, Fraud
Losses or Bankruptcy Losses will reduce the Principal Amount of and accrued
interest on the Class M and Class B CitiCertificates in the order of priority
set forth above under "Liquidated Loan Losses". If there are Excess Losses on a
Distribution Date, then
(1) the applicable Non-PO Percentage of the principal portion of Excess
Losses will be allocated among the Class A Subclasses (other than the Class A-9
CitiCertificates) and the Class M and Class B CitiCertificates, proportionately
on the basis of their outstanding Principal Amounts and
(2) the applicable PO Percentage of the principal portion of Excess Losses
will be allocated to the Class A-9 CitiCertificates, and the Class A-9
CitiCertificates will not be entitled to reimbursement of such losses.
The interest portion of any Excess Special Hazard Losses, Excess Fraud
Losses and Excess Bankruptcy Losses will be allocated proportionately among the
interest-bearing CitiCertificates based on interest accrued on such
CitiCertificates
Excess Special Hazard Losses are Special Hazard Losses in excess of the
Special Hazard Loss Limit, which will initially be equal to approximately 1.00%
of the Initial Mortgage Loan Balance. Excess Fraud Losses are Fraud Losses in
excess of the Fraud Loss Limit, which will initially be equal to approximately
1.00% of the Initial Mortgage Loan Balance. Excess Bankruptcy Losses are
Bankruptcy Losses in excess of the Bankruptcy Loss Limit, which will initially
be equal to approximately 0.03% of the Initial Mortgage Loan Balance.
The exact amounts of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses to be allocated to the Class M and Class B CitiCertificates will be those
amounts required by the rating agency (or rating agencies) rating the Offered
CitiCertificates as a condition of the ratings set forth in "SUMMARY OF
TERMS--Certificate Ratings" in this Prospectus Supplement. The Special Hazard
Loss Limit, the Fraud Loss Limit and the Bankruptcy Loss Limit are each subject
to reduction after the Closing Date. A reduction in any of these Limits could
result in
o a smaller amount of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses being allocated solely to the Class M and Class B
CitiCertificates and, consequently,
o a greater amount of Excess Losses being allocated over all
CitiCertificates.
To the extent that losses and shortfalls are allocated as described above,
holders of the Class M and Offered Class B CitiCertificates may experience
shortfalls in interest payments and may not receive payments equal to
S-14
<PAGE>
the Initial Principal Amount of their CitiCertificates and may, depending on the
purchase price of such CitiCertificates, suffer a reduction in yield or
experience a loss on their investment in the Class M or Offered Class B
CitiCertificates. See "DESCRIPTION OF THE OFFERED CITICERTIFICATES--Interest
Payments--Allocation of Interest Shortfalls and Losses" and "--Principal
Payments--Allocation of Principal Losses" in this Prospectus Supplement.
LIMITED LIQUIDITY
The liquidity of the Offered CitiCertificates, and any Class or Subclass,
may be limited. You should consider that:
o a secondary market for a Class or Subclass of Offered CitiCertificates
may not develop or, if it does, it may not provide you with liquidity
of investment or it may not continue for the life of the Offered
CitiCertificates;
o although the Underwriter has indicated to the Issuer that it intends
to establish a secondary market for the Offered CitiCertificates, the
Underwriter is under no obligation to do so or to continue doing so
for any period of time; and
o the Issuer has no intention of listing any of the Offered
CitiCertificates on any securities exchange.
RESTRICTIONS ON TRANSFER
Under current law, the purchase and holding of the Class M CitiCertificates
and the Offered Class B CitiCertificates by or on behalf of a Plan may result in
"prohibited transactions" within the meaning of ERISA and Code Section 4975 or
Similar Law. These laws may restrict the number and types of investors that
could buy Class M or Offered Class B CitiCertificates. These laws could
therefore adversely affect the liquidity of these CitiCertificates.
A sale or other transfer of the Class M or Offered Class B CitiCertificates
will not be recognized and given effect by the Trustee unless the transferee
either
(1) executes a representation letter in form and substance
satisfactory to the Trustee stating either (a) that it is not, and is not
acting on behalf of, a Plan or using the assets of a Plan to make such
purchase or (b) subject to certain conditions, that the source of funds
used to purchase such CitiCertificates is an "insurance company general
account" or
(2) provides (A) an opinion of counsel, satisfactory to the Trustee
and the Issuer, that the purchase or holding of such CitiCertificates by or
on behalf of the Plan will not cause the assets of the Trust to be deemed
"plan assets" and subject to the prohibited transaction provisions of ERISA
and the Code or Similar Law and will not subject the Servicer, the Issuer
or the Trustee to any obligation in addition to those undertaken in the
Pooling Agreement and (B) such other opinions of counsel, officers'
certificates and agreements as the Trustee and the Issuer may require.
LEGAL INVESTMENT
Institutions whose investment activities are subject to legal investment
laws and regulations or to review by certain regulatory authorities may be
subject to restrictions on investment in the Class M CitiCertificates and the
Offered Class B CitiCertificates. The Issuer cannot represent, and is not
representing, that the Class M or the Offered Class B CitiCertificates are legal
investments for you under any federal or state law or any court order that may
apply to you. The Offered Class B CitiCertificates will not constitute "mortgage
related securities" within the meaning of SMMEA. The Class M CitiCertificates
will qualify at issuance as "mortgaged related securities." You are advised to
consult your counsel on whether the Class M and Offered Class B CitiCertificates
qualify as legal investments for you under any such laws and orders.
YEAR 2000 READINESS
The transition from the year 1999 to the year 2000 may disrupt the ability
of computerized systems to process information. The collection and posting of
payments on the Mortgage Loans, the servicing of the Mortgage Loans and the
distributions on CitiCertificates are highly dependent upon computer systems of
CMI,
S-15
<PAGE>
its subservicers, the Trustee and, in the case of book-entry CitiCertificates,
DTC. CMI has modified its computer systems and expects to be year 2000 ready.
CMI is also assessing the year 2000 readiness of key vendors and subservicers.
The Trustee has advised CMI that it has implemented measures to modify and
validate its critical computer systems for year 2000 readiness. DTC has informed
its participants that it is implementing a program so that DTC's systems
relating to timely payments of distributions, book-entry deliveries and
settlement of trades will continue to function appropriately. The failure of any
of the above parties (including their key vendors and subcontractors) adequately
to implement steps to ensure year 2000 readiness could result in incorrect or
inadequate servicing of mortgage loans and delayed or incorrect distributions of
payments to CitiCertificateholders.
DESCRIPTION OF THE MORTGAGE POOL
AND THE MORTGAGED PROPERTIES
The Pool to be evidenced by the CitiCertificates will include mortgage
loans (the "Mortgage Loans") evidenced by mortgage notes with an aggregate
Adjusted Balance on the Cut-Off Date of approximately $301,000,779 (the "Initial
Mortgage Loan Balance"). This amount is subject to a permitted upward or
downward variance of up to 5.0%. The Mortgage Loans were originated or acquired
by Citicorp Mortgage, Inc. ("CMI"), an affiliate of the Issuer, and include
Mortgage Loans originated or acquired by Citibank, Federal Savings Bank, or
originated by Citibank, N.A.
The "Adjusted Balance" of any Mortgage Loan on the first day of any month
is its scheduled principal balance at the close of business on such day (without
regard to whether 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 on such Mortgage
Loan 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 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 on the Closing Date. The Detailed Description will specify the
Initial Mortgage Loan Balance on the Cut-Off Date and will also set forth tables
containing the following information regarding the Mortgage Loans:
o years of origination,
o types of dwellings on the underlying properties,
o outstanding principal amounts,
o loan-to-value ratios at origination,
o mortgage rates and
o geographical distribution by state of the Mortgage Loans.
The Detailed Description will also specify the following data:
o the Special Hazard Loss Limit, Fraud Loss Limit and Bankruptcy Loss
Limit,
o the aggregate Initial Principal Amounts of the Class A
CitiCertificates, the Class M CitiCertificates and the Class B
CitiCertificates, and
o the Subordinated Percentage and the Class M, Class B-1, Class B-2,
Class B-3 and Class B-4 Subordination Percentages.
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 Closing Date.
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. The Mortgage
Loans actually included in the Pool may differ from the descriptions below, but
the resulting variances in such information will be immaterial.
The weighted average Note Rate of the Mortgage Loans as of the Cut-Off Date
will be at least 6.973% but no more than 7.373% per annum. Each Mortgage Loan
will have a Note Rate of at least 5.875% but no more than
S-16
<PAGE>
8.25% 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 longer
than 355 months. All Mortgage Loans have original maturities of at least 20 but
not more than 30 years. None of the Mortgage Loans will have been originated
prior to January 1, 1987 or after March 1, 1999. None of the Mortgage Loans will
have a scheduled maturity later than March 1, 2029.
The Mortgage Loans will have the following additional characteristics as of
the Cut-Off Date (expressed as a percentage of the total Adjusted Balance of the
Mortgage Loans having such characteristics as compared to the Initial Mortgage
Loan Balance):
o 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 will be refinanced Mortgage Loans originated using
alternative or streamlined underwriting policies. No more than 70% of
the Mortgage Loans will be refinanced Mortgage Loans originated using
alternative or streamlined underwriting policies. See "LOAN
UNDERWRITING POLICIES AND LOSS AND DELINQUENCY CONSIDERATIONS" in the
Prospectus.
o At least 5% of the Mortgage Loans will have an Adjusted Balance of
less than $250,000.
o At least 80% of the Mortgage Loans will have an Adjusted Balance of
less than $500,000.
o No more than 20% of the Mortgage Loans will have an Adjusted Balance
of at least $500,000 but less than $1,000,000.
o No more than 10% of the Mortgage Loans will have loan-to-value ratios
at origination in excess of 80%, no more than 5% of the Mortgage Loans
will have loan-to-value ratios at origination in excess of 90% and
none of the Mortgage Loans will have loan-to-value ratios at
origination in excess of 95%. The weighted average loan-to-value ratio
at origination of the Mortgage Loans will be no more than 73%. 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.
o At least 95% of the Mortgage Loans will be secured by one-family
dwellings.
o No more than 10% of the Mortgage Loans will be secured by
condominiums, townhouses, rowhouses and shares issued by cooperative
housing corporations.
o No more than 5% of the Mortgage Loans will be secured by Mortgaged
Properties located in any one ZIP code.
o No more than 55% of the Mortgage Loans will be secured by Mortgaged
Properties located in California. No more than 10% of the Mortgage
Loans will be secured by Mortgaged Properties located in any other
state.
o 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. No
more than 5% 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.
o All Mortgage Loans having NNRs of less than 6.50% per annum will be
Discount Loans and all Mortgage Loans having NNRs of 6.50% per annum
or greater will be Premium Loans. On the Cut-Off Date,
1. the total Adjusted Balance of the Discount Loans will be
approximately $12,155,027 and of the Premium Loans will be
approximately $288,845,752,
2. the weighted average Note Rate of the Discount Loans will be
approximately 6.460% per annum and of the Premium Loans will be
approximately 7.203% per annum, and
3. the weighted average remaining term to stated maturity of the
Discount Loans will be approximately 354 months and of the Premium
Loans will be approximately 352 months.
DESCRIPTION OF THE OFFERED CITICERTIFICATES
The CitiCertificates will be issued pursuant to a pooling and servicing
agreement (the "Pooling Agreement") to be dated as of March 1, 1999, between
CMSI and the Trustee, in its individual capacity and as
S-17
<PAGE>
trustee. The standard form of pooling agreement was filed as an exhibit to the
Registration Statement of which this Prospectus Supplement is a part. If you
would like to inspect a copy of the Pooling Agreement, please make a written
request to the Trustee. The Trustee will make available for inspection a copy of
the Pooling Agreement (without attachments). You should review the Prospectus
for important additional information regarding the terms and conditions of the
Pooling Agreement and the CitiCertificates.
Payments on the Offered CitiCertificates generally will be made by the
Trustee by wire transfer (if wiring instructions are received from the holder)
in the case of a holder of Offered CitiCertificates having an aggregate Initial
Principal Amount (or notional amount) of $1,000,000 or more, or by check or by
such other means as the holder and the Trustee shall agree. Cede & Co. ("Cede"),
as nominee of DTC, will be the holder of the Book-Entry CitiCertificates. Final
payment 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.
SOURCE OF FUNDS FOR PAYMENTS
On each Distribution Date, a sum of cash equal to the "Pool Distribution
Amount" will be available to make interest and principal payments on the
CitiCertificates, in the order of priority set forth under "SUMMARY OF
TERMS--Payment Priorities". The Pool Distribution Amount on a particular
Distribution Date will be equal to the total of all previously undistributed
amounts of principal (including any full or partial principal prepayments), all
net liquidation proceeds and interest on the Mortgage Loans received and posted
after the Cut-Off Date and before the related Determination Date (including
amounts advanced by the Servicer or the Trustee (in its individual capacity) on
delinquencies, amounts advanced from the Certificate Account and amounts paid by
the Servicer on Prepayment Interest Shortfalls) but will not include the
following amounts:
1. payments due on or before the Cut-Off Date,
2. full or partial principal prepayments posted during the month of
such Distribution Date and any related payments of interest on such
prepayment for such month,
3. early receipts of scheduled principal and interest, due after the
first day of the month of such Distribution Date,
4. the portion of interest received on each Mortgage Loan that
represents the Servicing Fee,
5. the portion of any liquidation proceeds representing the Servicing
Fee and
6. receipts of past due amounts that were previously advanced by the
Servicer or the Trustee (in its individual capacity) and that have not been
reimbursed to either of them, together with certain other amounts
reimbursable to the Servicer.
All cash received in respect of the Mortgage Loans, beginning with the April
1999 distribution, will be remitted directly to one or more accounts (the
"Certificate Account") to be established with the Trustee on the Closing Date.
See "DESCRIPTION OF THE CERTIFICATES--General" in the Prospectus.
OUTSTANDING PRINCIPAL AMOUNTS
General
The outstanding Principal Amount of any Class or Subclass of
CitiCertificates on any date will generally be equal to its Initial Principal
Amount, minus
1. all principal previously paid on that Class or Subclass and
2. all principal losses previously allocated to that Class or
Subclass.
The allocation of principal losses (including Excess Losses) is explained below
under "--Allocation of Principal Losses".
As described above in "SUMMARY OF TERMS--Ratio Stripping", for each
Discount Loan a percentage of its principal (the PO Percentage) is allocated to
the Class A-9 CitiCertificates and the remaining percentage of principal (the
Non-PO Percentage) is allocated to all other CitiCertificates. None of the
principal of the Premium
S-18
<PAGE>
Loans is allocated to the Class A-9 CitiCertificates. The sum of the PO
Percentage of all Discount Loans is called the "PO Pool Balance" and the sum of
the Non-PO Percentage of all Mortgage Loans is called the "Non-PO Pool Balance".
The sum of the Adjusted Balances of all Mortgage Loans on any Distribution Date
is called the "Pool Balance". At all times,
o the sum of the PO Pool Balance and the Non-PO Pool Balance will equal
the Pool Balance,
o the Pool Balance will equal the total Adjusted Balance of all Mortgage
Loans and
o the total Principal Amount of the CitiCertificates will equal the Pool
Balance.
Class A Subclasses
The "Class A Subclass Principal Amount" of a Class A Subclass (other than
the Class A-IO CitiCertificates, which have no Principal Amount, and the Class
A-9 CitiCertificates) on any Distribution Date before the Subordination
Depletion Date will be the Initial Principal Amount of such Class A Subclass
less
(i) all principal payments previously made on such Class A Subclass
and
(ii) such Class A Subclass's proportionate share of the applicable
Non-PO Percentage of the principal portion of Excess Losses previously
allocated to the Class A CitiCertificates (other than the Class A-9
CitiCertificates).
After the Subordination Depletion Date, the Class A Subclass Principal
Amount of a Class A Subclass (other than the Class A-9 CitiCertificates) may be
subject to further reduction in an amount equal to such Class A Subclass's
proportionate share of the difference, if any, between
(a) the Class A Principal Amount (after subtracting the Class A
Subclass Principal Amount of the Class A-9 CitiCertificates) on such
Distribution Date without regard to this paragraph and
(b) the Non-PO Pool Balance.
Any proportionate allocation described in this paragraph will be made among the
Class A Subclasses (other than the Class A-IO CitiCertificates, which have no
Principal Amount, and the Class A-9 CitiCertificates) on the basis of their then
outstanding Class A Subclass Principal Amounts on the preceding Distribution
Date.
The Class A Subclass Principal Amount of the Class A-9 CitiCertificates on
any Distribution Date will be equal to the difference between the Pool Balance
and the Non-PO Pool Balance on such date.
The "Class A Principal Amount" on any Distribution Date will be equal to
the sum of the Class A Subclass Principal Amounts on such date.
Class M CitiCertificates
The "Class M Principal Amount" on any Distribution Date will be equal to
the lesser of:
(a) the Initial Principal Amount of the Class M CitiCertificates less
(i) all amounts of principal previously paid on such Class and (ii) such
Class's proportionate share of the Non-PO Percentage of the principal
portion of Excess Losses previously allocated to the Class M
CitiCertificates and
(b) the Pool Balance minus the Class A Principal Amount, each as of
the immediately preceding Distribution Date (after taking into account
principal payments and the allocation of any Excess Losses on such date).
Class B Subclasses
The "Class B Subclass Principal Amount" of a Class B Subclass on any
Distribution Date will be equal to the lesser of:
(a) the Initial Principal Amount of such Class B Subclass less (i) all
principal payments previously made on such Class B Subclass and (ii) such
Class B Subclass's proportionate share of the Non-PO Percentage of the
principal portion of Excess Losses previously allocated to the Class B
CitiCertificates and
(b) the Pool Balance minus the sum of the Class A Principal Amount and
the Class M Principal Amount and, in the case of a particular Class B
Subclass, the aggregate Principal Amount of the Class B
S-19
<PAGE>
Subclasses having a lower numerical designation, each as of the immediately
preceding Distribution Date (after taking into account principal payments
and the allocation of any Excess Losses on such date).
The "Class B Principal Amount" on any Distribution Date will be the Pool
Balance less the sum of the Class A Principal Amount and the Class M Principal
Amount, and will equal the sum of the Class B Subclass Principal Amounts on such
date. The Class B Subclass Principal Amount of the Class B-1 CitiCertificates is
called the "Class B-1 Principal Amount", of the Class B-2 CitiCertificates is
called the "Class B-2 Principal Amount", and so on for the Class B-3, Class B-4
and Class B-5 CitiCertificates.
INTEREST PAYMENTS
General
Interest will accrue on each interest-bearing Class and Subclass of
CitiCertificates for each Interest Accrual Period at its Certificate Rate on its
Principal Amount (or Notional Amount, in the case of the interest-only Class
A-IO CitiCertificates). Such accrued interest will be reduced by such Class's or
Subclass's proportionate share of any Non-Supported Interest Shortfalls and the
interest portion of any Excess Losses. This reduction is explained below under
"--Allocation of Interest Shortfalls and Losses". The amount of interest paid
may also be affected by the operation of the payment priorities, as discussed
below under "--Effect of Payment Priorities on Interest Payments". Interest will
be paid on each Distribution Date to each interest-bearing Class and Subclass of
CitiCertificates, subject to the availability of sufficient cash.
The Class A-9 CitiCertificates are principal-only CitiCertificates and
do not accrue interest.
Class A Subclasses
The amount of interest that will be payable on a particular Class A
Subclass for each Interest Accrual Period is called the "Class A Subclass
Interest Amount" for that Subclass. The Class A Subclass Interest Amount for
each interest-bearing Class A Subclass will equal the interest accrued at its
Certificate Rate for each Interest Accrual Period on the Class A Subclass
Principal Amount of such Class A Subclass (or in the case of the Class A-IO
CitiCertificates, on the Class A-IO Notional Amount), reduced by
(i) any Non-Supported Interest Shortfall allocated to such Class A
Subclass and
(ii) the interest portion of any Excess Losses allocated to such Class
A Subclass.
The sum of the Class A Subclass Interest Amounts for a particular Distribution
Date is the "Class A Interest Amount."
The Certificate Rate for the Class A-IO CitiCertificates for each
Interest Accrual Period will be equal to the weighted average NNR of the
Premium Loans minus 6.50% per annum. The "Class A-IO Notional Amount" on any
Distribution Date will be equal to the aggregate Adjusted Balance of the
Premium Loans.
Class M CitiCertificates
The amount of interest payable on the Class M CitiCertificates for each
Interest Accrual Period is called the "Class M Interest Amount." The Class M
Interest Amount will equal the interest accrued for an Interest Accrual Period
at a rate of 6.50% per annum on the Class M Principal Amount, reduced by
(i) any Non-Supported Interest Shortfall allocated to the Class M
CitiCertificates and
(ii) the interest portion of Excess Losses allocated to the Class M
CitiCertificates.
Class B Subclasses
The amount of interest payable on a particular Class B Subclass for each
Interest Accrual Period is called the "Class B Subclass Interest Amount" for
such Subclass. The Class B Subclass Interest Amount for each Class B Subclass
will equal the interest accrued for an Interest Accrual Period at the rate of
6.50% per annum on the Class B Subclass Principal Amount of such Class B
Subclass, reduced by
(i) any Non-Supported Interest Shortfall allocated to such Class B
Subclass and
S-20
<PAGE>
(ii) the interest portion of Excess Losses allocated to such Class B
Subclass.
The sum of the Class B Subclass Interest Amounts on any Distribution Date is the
"Class B Interest Amount".
Allocation of Interest Shortfalls and Losses
Interest shortfalls resulting from collections of interest on full or
partial principal prepayments of Mortgage Loans received during a month that are
less than one full month's interest at the applicable Note Rate ("Prepayment
Interest Shortfalls") will be reduced to the extent of the Compensating Cap on
the related Distribution Date. The "Compensating Cap" is an amount equal to the
lesser of:
(1) the amount of the Servicing Fee actually received by the Servicer
for the related Distribution Date and
(2) the product of (x) one-twelfth of the Pool Balance on the prior
Distribution Date and (y) 0.125%.
The total Prepayment Interest Shortfalls on a Distribution Date in excess of the
Compensating Cap (the "Non-Supported Interest Shortfall") will be allocated
proportionately among the Classes of CitiCertificates based on interest accrued
and accordingly will reduce the amount of interest payable to holders of
interest-bearing CitiCertificates. Any reduction in interest allocated to the
Class A and Class B CitiCertificates will be allocated among the
interest-bearing Class A Subclasses and the Class B Subclasses, proportionately
on the basis of their respective amounts of accrued interest for such
Distribution Date.
Allocations of the interest portion of Realized Losses (other than Excess
Losses), and any interest shortfalls resulting from delinquencies for which
neither the Servicer nor the Trustee advances, will result from the priority of
payment of the Pool Distribution Amount first to the Class A CitiCertificates,
second to the Class M CitiCertificates, third to the Class B-1 CitiCertificates,
fourth to the Class B-2 CitiCertificates and finally to the Unoffered Class B
CitiCertificates. This is described below under "--Effect of Payment Priorities
on Interest Payments".
The interest portion of any Excess Losses on a Mortgage Loan will be
allocated proportionately among the Class A, Class M and Class B
CitiCertificates based on the amount of interest accrued, and among the
interest-bearing Class A Subclasses and the Class B Subclasses, proportionately
on the basis of their respective amounts of interest accrued for such
Distribution Date.
Effect of Payment Priorities on Interest Payments
On each Distribution Date, available cash will be applied to make interest
and principal payments in accordance with the payment priorities set forth under
"SUMMARY OF TERMS--Payment Priorities". The amount of available cash will be
equal to the Pool Distribution Amount. Allocations of the interest portion of
Realized Losses (other than Excess Losses) first to the Class B CitiCertificates
in reverse numerical order, then to the Class M CitiCertificates and then to the
Class A CitiCertificates, will result from the priority of distribution of
available cash first to the Class A CitiCertificates, then to the Class M
CitiCertificates and then to the Class B CitiCertificates. After the
Subordination Depletion Date, the interest portion of Realized Losses will be
deducted from interest accrued on the Class A CitiCertificates.
On each Distribution Date, prior to the Subordination Depletion Date, on
which available cash equals or exceeds the Class A Interest Amount, interest
payments on each Class A Subclass will equal its Class A Subclass Interest
Amount.
In the unlikely event that, on any Distribution Date prior to the
Subordination Depletion Date, available cash is less than the Class A Interest
Amount, the amount of interest currently paid on the Class A CitiCertificates
will equal the Pool Distribution Amount and will be allocated among the Class A
Subclasses proportionately in accordance with the Class A Subclass Interest
Amounts. In this event, the difference between the Class A Subclass Interest
Amount and the amount of current interest actually paid on such Subclass (called
the "Class A Subclass Interest Shortfall" for such Subclass), will be carried
forward and will be added to the amount to be distributed to the related Class A
Subclass on subsequent Distribution Dates to the extent that sufficient cash is
available and such Class A Subclass is then outstanding. The total of all Class
A Subclass Interest Shortfalls is called the "Class A Interest Shortfall". No
interest will accrue on any unpaid Class A Subclass Interest Shortfalls.
S-21
<PAGE>
On each Distribution Date on which available cash exceeds the Class A
Interest Amount, the excess will then be allocated first to pay any previously
unpaid Class A Subclass Interest Shortfalls of outstanding Class A Subclasses.
Such amounts will be allocated among the then outstanding Class A Subclasses
proportionately in accordance with the unpaid Class A Subclass Interest
Shortfalls immediately prior to such Distribution Date.
On each Distribution Date on which available cash equals or exceeds the sum
of (i) the Class M Interest Amount and (ii) all amounts payable on the Class A
CitiCertificates, interest paid on the Class M CitiCertificates will equal the
Class M Interest Amount.
If, on any Distribution Date, available cash is less than the sum of (i)
the Class M Interest Amount and (ii) all amounts senior in priority of payment
to such amount, the amount of interest currently paid on the Class M
CitiCertificates will equal the Pool Distribution Amount, net of all amounts
payable with a higher order of priority. In this event, the difference between
the Class M Interest Amount and the amount of current interest actually paid on
the Class M CitiCertificates (the "Class M Interest Shortfall") will be carried
forward and will be added to the amount to be payable to Class M
CitiCertificates on subsequent Distribution Dates to the extent that sufficient
cash is available and the Class M CitiCertificates are then outstanding. No
interest will accrue on any Class M Interest Shortfall.
On each Distribution Date on which available cash equals or exceeds the sum
of (i) the Class B Subclass Interest Amount for an Offered Class B Subclass and
(ii) all amounts senior in priority of payment to such amount, interest paid on
such Offered Class B Subclass will equal its Class B Subclass Interest Amount.
If, on any Distribution Date, available cash is less than the sum of (i)
the Class B Subclass Interest Amount for a Class B Subclass and (ii) all amounts
senior in priority of payment to such amount, the amount of interest currently
paid on such Class B Subclass will equal the Pool Distribution Amount, net of
all amounts with a higher order of priority. In this event, the difference
between the Class B Subclass Interest Amount for a Class B Subclass and the
amount of current interest actually paid (the "Class B Subclass Interest
Shortfall" for such Subclass) will be carried forward and will be added to the
amount to be distributed to such Class B Subclass on subsequent Distribution
Dates to the extent that sufficient cash is available and such Class B Subclass
is then outstanding. No interest will accrue on any Class B Subclass Interest
Shortfall.
If, on any Distribution Date, available cash is less than all amounts
payable on the Class A, Class M and Class B-1 CitiCertificates, then the Class
B-2 CitiCertificates and the Unoffered Class B CitiCertificates will not be
entitled to receive any interest or principal. If, on any Distribution Date,
available cash is less than all amounts payable on the Class A, Class M, Class
B-1 and Class B-2 CitiCertificates, then the Unoffered Class B CitiCertificates
will not be entitled to receive any interest or principal. If, on any
Distribution Date, available cash is less than all amounts payable on the Class
A CitiCertificates, then the Class M and Class B CitiCertificates will not be
entitled to receive any interest or principal.
PRINCIPAL PAYMENTS
General
Principal received on the Mortgage Loans is comprised of Scheduled
Principal and Unscheduled Principal. The total amount of principal received will
be included in the Pool Distribution Amount and will be applied, along with
other available cash, to make payments on the CitiCertificates in accordance
with the priorities in "SUMMARY OF TERMS--Payment Priorities".
The amount of Scheduled Principal for a particular Mortgage Loan on a
Distribution Date will equal:
1. the scheduled payment of principal due on such Mortgage Loan
(including a defaulted Mortgage Loan, other than a Liquidated Loan, for
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
2. if the Bankruptcy Coverage Termination Date has occurred, the
principal portion of any Debt Service Reduction.
The amount of Unscheduled Principal for a particular Mortgage Loan on a
Distribution Date will equal:
1. the Adjusted Balance of such Mortgage Loan if, during the month
preceding the month of such Distribution Date, it was repurchased by the
Issuer, as described in "APPENDIX A: THE MORTGAGE LOANS AND
CITIMORTGAGECERTIFICATES--Assignment of Loans" in the Prospectus,
S-22
<PAGE>
2. the net Liquidation Proceeds on such Mortgage Loan if it became a
Liquidated Loan during such preceding month, less the principal portion of
any unreimbursed advances previously made by the Servicer or the Trustee on
such Liquidated Loan and the portion of the net Liquidation Proceeds
allocable to interest,
3. the Adjusted Balance of such Mortgage Loan if it was prepaid in
full during the month preceding the month of such Distribution Date and
4. all partial principal prepayments received by the Servicer in the
month preceding the month in which such Distribution Date occurs.
The amount of Scheduled Principal and Unscheduled Principal will be
determined on a loan-by-loan basis and the applicable PO Percentage and Non-PO
Percentage for each loan of such amounts will be applied to make the payments
described below.
Class A CitiCertificates Generally
Principal payments on the Class A CitiCertificates (other than the
interest-only Class A-IO 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" for any Distribution Date will be
equal to the amount of principal paid pursuant to priority (2) under "SUMMARY OF
TERMS--Payment Priorities" in an amount up to the sum of the Class A Non-PO
Principal Amount and the Class A PO Principal Amount.
Principal paid on any Class A Subclass will be allocated proportionately
among all CitiCertificates of such Class A Subclass.
The Principal Amounts of the Class A CitiCertificates will be reduced on
any Distribution Date by each Class A Subclass's share of the principal portion
of Excess Losses and, after the Subordination Depletion Date, by its share of
the principal portion of Realized Losses. See "--Allocation of Principal Losses"
below.
On each Distribution Date on and after the Subordination Depletion Date,
cash available for principal payments on the Class A CitiCertificates will be
allocated to the Class A-9 CitiCertificates, on the one hand, and all other
Class A Subclasses as a group, on the other hand, proportionately on the basis
of the Class A PO Principal Amount and the Class A Non-PO Principal Amount,
respectively, notwithstanding the priorities discussed below under "--Allocation
of Principal Payments". Under these circumstances, the principal amount
allocated to each Class A Subclass will be paid proportionately among such Class
A Subclasses on the basis of their Class A Subclass Principal Amounts.
Class A-9 CitiCertificates
Holders of the Class A-9 CitiCertificates will be entitled to receive on
each Distribution Date, to the extent of the Pool Distribution Amount remaining
after payment of the Class A Interest Amount and any unreimbursed Class A
Interest Shortfall, a principal payment equal to the Class A PO Principal
Amount. The "Class A PO Principal Amount" for each Distribution Date will be an
amount equal to the sum of, for all Discount Loans:
(i) the applicable PO Percentage of Scheduled Principal and
(ii) the applicable PO Percentage of Unscheduled Principal.
In addition, holders of the Class A-9 CitiCertificates will be entitled to
reimbursement, to the extent of Available PO Loss Funds, of the "Unpaid PO
Loss Amounts," which shall equal the difference between (a) the sum of the PO
Loss Amounts for that and prior Distribution Dates and (b) amounts distributed
in reimbursement of Unpaid PO Loss Amounts on all prior Distribution Dates.
On each Distribution Date prior to the Subordination Depletion Date,
the "PO Loss Amount" will equal the sum of:
(i) the difference, if any, between the Class A PO Principal Amount on
such Distribution Date and the actual amount of the principal payment on
the Class A-9 CitiCertificates on such Distribution Date and
(ii) the applicable PO Percentage of the principal portion of each
Realized Loss (other than Excess Losses) over all Discount Loans.
S-23
<PAGE>
"Available PO Loss Funds" will equal that portion, if any, of the Pool
Distribution Amount remaining after subtraction of the Class A Interest Amount,
any unreimbursed Class A Interest Shortfall, the Class A Principal Distribution
Amount, the Class M Interest Amount and the Class B Interest Amount. The
application of Available PO Loss Funds to pay Unpaid PO Loss Amounts will first
reduce the amount otherwise payable as principal on the Class B Subclasses in
reverse numerical order, and then the amount otherwise payable as principal on
the Class M CitiCertificates. On and after the Subordination Depletion Date,
Available PO Loss Funds will be zero and, therefore, there will be no cash
available for reimbursement of future PO Loss Amounts or unreimbursed Unpaid PO
Loss Amounts.
All Other Class A Subclasses
Holders of the Class A CitiCertificates (other than the Class A-9
CitiCertificates) will be entitled to receive on each Distribution Date, to the
extent of cash remaining after payment of the Class A Interest Amount and any
unreimbursed Class A Interest Shortfalls, a principal payment equal to the Class
A Non-PO Principal Amount. The "Class A Non-PO Principal Amount" with respect to
each Distribution Date will be an amount equal to the sum of, for all Mortgage
Loans:
(i) the Class A Percentage of the applicable Non-PO Percentage of
Scheduled Principal and
(ii) the Class A Prepayment Percentage of the applicable Non-PO
Percentage of Unscheduled Principal.
The "Class A Optimal Principal Amount" for each Distribution Date will be
equal to the sum of the Class A PO Principal Amount and the Class A Non-PO
Principal Amount for such date.
The "Class A Percentage" for any Distribution Date occurring before the
Subordination Depletion Date is the percentage, which in no event will exceed
100%, obtained by dividing the Class A Principal Amount (after subtracting the
Principal Amount of the Class A-9 CitiCertificates) by the Non-PO Pool Balance,
both as of the immediately preceding Distribution Date (after taking into
account principal payments and the allocation of any losses on such date). The
Class A Percentage for the first Distribution Date is expected to be between
95.00% and 97.00%. The Class A Percentage will decrease as a result of the
allocation of Unscheduled 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 Subordinated
CitiCertificates.
The "Class A Prepayment Percentage" for any Distribution Date occurring
during the five years beginning on the first Distribution Date will equal 100%.
Thereafter, the Class A Prepayment Percentage will be subject to gradual
reduction as described in the following paragraph. This disproportionate
allocation of Unscheduled Principal will have the effect of accelerating the
amortization of the Class A CitiCertificates (other than the Class A-9
CitiCertificates) while, in the absence of Realized Losses, increasing the
respective interest in the Trust evidenced by the Class M and Class B
CitiCertificates. Increasing the respective interest of the Class M and Class B
CitiCertificates relative to that of the Class A CitiCertificates is intended to
preserve the availability of the subordination provided by the Class M and Class
B CitiCertificates.
The Class A Prepayment Percentage for any Distribution Date occurring
during the periods set forth below will be as follows:
PERIOD (DATES INCLUSIVE) CLASS A PREPAYMENT PERCENTAGE
------------------------ -----------------------------
April 2004-March 2005 Class A Percentage plus 70% of the
Subordinated Percentage
April 2005-March 2006 Class A Percentage plus 60% of the
Subordinated Percentage
April 2006-March 2007 Class A Percentage plus 40% of the
Subordinated Percentage
April 2007-March 2008 Class A Percentage plus 20% of the
Subordinated Percentage
April 2008 and thereafter Class A Percentage
The "Subordinated Percentage" for any Distribution Date will be the
difference between 100% and the Class A Percentage for such date. The
Subordinated Percentage on the Closing Date is expected to be between 3.00%
and 5.00%.
S-24
<PAGE>
However, 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 equal 100%.
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
M Principal Amount and the Class B Principal 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 on the Mortgage Loans are less than:
(a) with respect to each Distribution Date in April 2004 through
March 2005, inclusive, 30% of the aggregate Initial Principal Amount
of the Class M and Class B CitiCertificates (the "Original
Subordinated Principal Amount"),
(b) with respect to each Distribution Date in April 2005 through
March 2006, inclusive, 35% of the Original Subordinated Principal
Amount,
(c) with respect to each Distribution Date in April 2006 through
March 2007, inclusive, 40% of the Original Subordinated Principal
Amount,
(d) with respect to each Distribution Date in April 2007 through
March 2008, inclusive, 45% of the Original Subordinated Principal
Amount, and
(e) with respect to each Distribution Date in April 2008 and
thereafter, 50% of the Original Subordinated Principal Amount.
On and after the Distribution Date on which the Principal Amounts of the
Class M and Class B CitiCertificates have been reduced to zero, the Class A
Non-PO Principal Amount will be distributed proportionately to each Class A
Subclass (other than the Class A-9 CitiCertificates) on the basis of its
Principal Amount. The amount allocated to each such Class A Subclass will be
distributed proportionately among holders of CitiCertificates of such Class A
Subclass.
Allocation of Principal PaymentS
On each Distribution Date before the Subordination Depletion Date, the
Class A Principal Distribution Amount will be paid as principal on the Class A
Subclasses on each Distribution Date sequentially as follows:
I. The Class A PO Principal Amount will be allocated to the Class A-9
CitiCertificates until their Principal Amount is reduced to zero;
II. The Class A Non-PO Principal Amount will be allocated sequentially as
follows:
A. to the Class A-2 CitiCertificates, an amount equal to the Class A-2
Priority Amount for such Distribution Date,
B. concurrently,
(1) approximately 81.0311321704% sequentially as follows:
(i) concurrently,
(x) approximately 56.2078883033% to the Class A-1
CitiCertificates until their Principal Amount has been
reduced to zero,
(y) approximately 43.7921116967% sequentially as
follows:
(a) to the Class A-3 CitiCertificates until their
Principal Amount has been reduced zero, then
(b) to the Class A-8 CitiCertificates until their
Principal Amount has been reduced zero, and
(ii) to the Class A-6 and Class A-7 CitiCertificates,
proportionately based on their respective Principal Amounts,
until the Principal Amounts of such Class A Subclasses have been
reduced to zero.
S-25
<PAGE>
(2) approximately 18.9688678296% sequentially as follows:
(i) to the Class A-4 CitiCertificates until their Principal Amount
has been reduced to zero, then
(ii) to the Class A-5 CitiCertificates until their Principal Amount
has been reduced to zero, then
(iii) to the Class A-6 and Class A-7 CitiCertificates, proportionately
based on their respective Principal Amounts, until the Principal
Amounts of such Class A Subclasses have been reduced to zero.
C. to the Class A-2 CitiCertificates until their Principal Amount has been
reduced to zero.
The "Class A-2 Priority Amount" for any Distribution Date means the lesser
of:
(i) the Principal Amount of the Class A-2 CitiCertificates and
(ii) the product of (a) the Class A-2 Percentage, (b) the Class A-2 Shift
Percentage and (c) the sum for all Mortgage Loans of the Class A
Percentage of the applicable Non-PO Percentage of Scheduled Principal
plus the Class A Prepayment Percentage of the applicable Non-PO
Percentage of Unscheduled Principal.
The "Class A-2 Percentage" means the percentage equivalent of:
(i) the Principal Amount of the Class A-2 CitiCertificates, divided by
(ii) the Class A Principal Amount minus the Principal Amount of the Class
A-9 CitiCertificates.
The "Class A-2 Shift Percentage" for any Distribution Date will be the
percentage indicated below:
CLASS A-2
DISTRIBUTION DATE OCCURRING IN SHIFT PERCENTAGE
------------------------------ ----------------
April 1999 through March 2004 ....................... 0%
April 2004 through March 2005 ....................... 30%
April 2005 through March 2006 ....................... 40%
April 2006 through March 2007 ....................... 60%
April 2007 through March 2008 ....................... 80%
April 2008 and thereafter ........................... 100%
Class M CitiCertificates
The Class M CitiCertificates will be entitled to receive, on each
Distribution Date, an amount of principal up to the Class M Optimal Principal
Amount for each date, subject to the priorities set forth under "SUMMARY OF
TERMS--Payment Priorities." The "Class M Optimal Principal Amount" for each
Distribution Date will be an amount equal to the sum of, for all Mortgage Loans:
(i) the Class M Percentage of the applicable Non-PO Percentage of
Scheduled Principal and
(ii) the Class M Prepayment Percentage of the applicable Non-PO Percentage
of Unscheduled Principal.
The "Class M Percentage" shall be equal to the percentage calculated by
multiplying (i) the Subordinated Percentage by (ii) a fraction, the numerator of
which is the Class M Principal Amount and the denominator of which is the sum of
the Class M Principal Amount and the Class B Subclass Principal Amount of each
Class B Subclass eligible to receive principal payments, each as of the
immediately preceding Distribution Date (after taking into account principal
payments and the allocation of losses on such date).
The "Class M Prepayment Percentage" shall be equal to the percentage
calculated by multiplying (i) the Subordinated Prepayment Percentage by (ii) a
fraction, the numerator of which is the Class M Principal Amount and the
denominator of which is the sum of the Class M Principal Amount and the Class B
Subclass Principal Amount of each Class B Subclass eligible to receive principal
payments, each as of the immediately preceding Distribution Date (after taking
into account principal payments and the allocation of losses on such date).
The "Subordinated Prepayment Percentage" for any Distribution Date will be
the difference between 100% and the Class A Prepayment Percentage for each date.
Whether a particular Class B Subclass is eligible to receive principal
payments on a Distribution Date depends on the maintenance of subordination
levels for the benefit of the Class M CitiCertificates and for the Class B
Subclasses with a higher payment priority. See "--Preservation of Subordination"
below.
S-26
<PAGE>
Class B Subclasses
The Class B CitiCertificates will be entitled, on each Distribution Date,
to any remaining portion of the Pool Distribution Amount, after payment of the
Class A Interest Amount, any unreimbursed Class A Interest Shortfall, the Class
A Principal Distribution Amount, the Class M Interest Amount, any unreimbursed
Class M Interest Shortfall, the Class M Optimal Principal Amount and (to the
extent of Available PO Loss Funds) any Unpaid PO Loss Amounts for such date.
Amounts so paid to Class B CitiCertificateholders will not be available to cover
delinquencies or Realized Losses on subsequent Distribution Dates.
Holders of a particular Class B Subclass will be entitled to receive, on
each Distribution Date, an amount up to the Class B Subclass Optimal Principal
Amount for such Subclass for such date. The total of the Class B Subclass
Optimal Principal Amounts is the "Class B Optimal Principal Amount."
The "Class B Subclass Optimal Principal Amount" with respect to each
Distribution Date for a particular Class B Subclass will be an amount equal to
the sum of, for all Mortgage Loans:
(i) the Class B Subclass Percentage for such Class B Subclass of the
applicable Non-PO Percentage of Scheduled Principal and
(ii) the Class B Subclass Prepayment Percentage for such Class B Subclass
of the applicable Non-PO Percentage of Unscheduled Principal.
The "Class B Subclass Percentage" for each Class B Subclass shall be equal
to, on any Distribution Date, the percentage calculated by multiplying (i) the
Class B Percentage by (ii) a fraction, the numerator of which is the Principal
Amount of such Class B Subclass and the denominator of which is the sum of the
Principal Amounts of all Class B Subclasses that are eligible to receive
principal payments on such Distribution Date, each as of the immediately
preceding Distribution Date (after taking into account principal payments and
the allocation of any losses on such date); provided that in the event a
particular Class B Subclass is not eligible to receive principal payments on
such Distribution Date, its Class B Subclass Percentage will be 0% for such
Distribution Date. See "--Preservation of Subordination" below for a discussion
of the eligibility of Class B Subclasses to receive principal payments.
The "Class B Percentage" for any Distribution Date will be the difference
between the Subordinated Percentage and the Class M Percentage.
The "Class B Subclass Prepayment Percentage" for each Class B Subclass
shall be equal to, on any Distribution Date, the percentage calculated by
multiplying (i) the Class B Prepayment Percentage by (ii) a fraction, the
numerator of which is the Principal Amount of such Class B Subclass and the
denominator of which is the sum of the Principal Amounts of all Class B
Subclasses that are eligible to receive principal payments on such Distribution
Date, each as of the immediately preceding Distribution Date (after taking into
account principal payments and the allocation of any losses on such date);
provided that in the event a Class B Subclass is not eligible to receive
principal payments on such Distribution Date, its Class B Subclass Prepayment
Percentage will be 0% for such Distribution Date.
The "Class B Prepayment Percentage" for any Distribution Date will be the
difference between the Subordinated Prepayment Percentage and the Class M
Prepayment Percentage.
Allocation of Principal Losses
General
A "Liquidated Loan" is a Mortgage Loan for which either
1. the Servicer has determined that all recoverable liquidation and
insurance proceeds have been received or
2. the Issuer has accepted payment by a Mortgagor in consideration for the
release of the Mortgage in an amount equal to or 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:
S-27
<PAGE>
(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 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 any property
acquired in connection with the liquidation.
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:
(a) the extraordinary events referred to in the last paragraph under this
heading and
(b) 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.
Special Hazard Losses will be allocated first to the Class B Subclasses in
reverse numerical order, and then to the Class M 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 Limit (or, if earlier, the Subordination Depletion Date). On the
Closing Date, the "Special Hazard Loss Limit" will be equal to approximately
1.00% of the Initial Mortgage Loan Balance. Thereafter, the Special Hazard Loss
Limit will equal the initial Special Hazard Loss Limit 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 Loss Limit, 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 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 Limit are "Excess Special Hazard Losses."
A "Fraud Loss" is a Liquidated Loan Loss incurred on a Liquidated Loan as
to which there was fraud in the origination of such Mortgage Loan.
Fraud Losses will be allocated first to the Class B Subclasses in reverse
numerical order, and then to the Class M 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 Limit (or, if earlier,
the Subordination Depletion Date). On the Closing Date, the "Fraud Loss Limit"
will be equal to approximately 1.00% of the Initial Mortgage Loan Balance.
Thereafter, the Fraud Loss Limit will equal (X) prior to the second anniversary
of the Cut-Off Date an amount equal to the initial Fraud Loss Limit minus the
aggregate amount of Fraud Losses since the Cut-Off Date up to the related
Determination Date, and (Y) from the second through the fifth anniversary of the
Cut-Off Date, an amount equal to (1) the lesser of (a) the Fraud Loss Limit as
of the most recent anniversary of the Cut-Off Date and (b) 0.50% of the Pool
Balance as of the most recent anniversary of the Cut-Off Date minus (2) the
aggregate amount 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
Limit will be zero and thereafter any Fraud Losses will be shared
proportionately among the CitiCertificates. Fraud Losses in excess of the Fraud
Loss Amount are "Excess Fraud Losses."
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
S-28
<PAGE>
reduction in the amount of monthly payments that result 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 called "Realized Losses."
Bankruptcy Losses will be allocated first to the Class B Subclasses in
reverse numerical order, and then to the Class M 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 Limit (or, if earlier, the Subordination Depletion Date). On the
Closing Date, the "Bankruptcy Loss Limit" will be equal to approximately 0.03%
of the Initial Mortgage Loan Balance. As of any Distribution Date prior to the
first anniversary of the Cut-Off Date, the Bankruptcy Loss Limit will equal the
initial Bankruptcy Loss Limit 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 Limit will equal the excess, if any, of (1) the lesser of (a)
the Bankruptcy Loss Limit as of the business day next preceding the most recent
anniversary of the Cut-Off Date and (b) $100,000 minus (2) the aggregate amount
of Bankruptcy Losses since such anniversary. The Bankruptcy Loss Limit and the
related coverage levels described above may be reduced or modified upon written
confirmation from S&P and Fitch that such reduction or modification will not
adversely affect the then-current ratings assigned to the CitiCertificates by
S&P and Fitch. 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 Limit are "Excess Bankruptcy Losses."
The exact amounts of Special Hazard Losses, Fraud Losses and Bankruptcy
Losses to be allocated first to the Unoffered Class B CitiCertificates, second
to the Class B-2 CitiCertificates, third to the Class B-1 CitiCertificates and
then to the Class M 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 TERMS--Certificate Ratings."
Allocations
For any Distribution Date, any "Non-PO Loss Amount" shall be equal to the
applicable Non-PO Percentage of each Realized Loss (other than an Excess Special
Hazard Loss, Excess Fraud Loss or Excess Bankruptcy Loss) on a Mortgage Loan.
Non-PO Loss Amounts will not be allocated to holders of the Class A
CitiCertificates until the Subordination Depletion Date. PO Loss Amounts will be
allocated to the Class A-9 CitiCertificates until its Principal Amount has been
reduced to zero. However, until the Subordination Depletion Date, PO Loss
Amounts will ultimately be borne first by the Class B Subclasses in reverse
numerical order and then by the Class M CitiCertificates, since such losses are
reimbursable from the amount of principal otherwise payable on the Class B and
Class M CitiCertificates.
The subordination of the Class B-3, Class B-4 and Class B-5
CitiCertificates (the "Unoffered Class B CitiCertificates") in favor of the
Class A, Class M and Offered Class B CitiCertificates, that of the Class B-2
CitiCertificates in favor of the Class A, Class M and Class B-1
CitiCertificates, that of the Class B-1 CitiCertificates in favor of the Class A
and Class M CitiCertificates, and that of the Class M CitiCertificates in favor
of the Class A CitiCertificates, is effected by the allocation of Non-PO Loss
Amounts first to the Unoffered Class B CitiCertificates, second to the Class B-2
CitiCertificates, third to the Class B-1 CitiCertificates and then to the Class
M CitiCertificates, until, in each case, the Class B-5 Principal Amount, Class
B-4 Principal Amount, Class B-3 Principal Amount, Class B-2 Principal Amount,
Class B-1 Principal Amount and Class M Principal Amount have been reduced to
zero. Non-PO Loss Amounts will be allocated to the Class M CitiCertificates only
after the Principal Amount of the Class B CitiCertificates has been reduced to
zero. Non-PO Loss Amounts will be allocated to the Class B-1 CitiCertificates
only after the Principal Amounts of the Class B-2 and Unoffered Class B
CitiCertificates have been reduced to zero, and Non-PO Loss Amounts will be
allocated to the Class B-2 CitiCertificates only after the Principal Amount of
the Unoffered Class B CitiCertificates has been reduced to zero. The effect of
such allocation of Non-PO Loss Amounts (other than Excess Losses) to the
Unoffered Class B CitiCertificates and then to the Offered Class B
CitiCertificates will be to reduce future payments to such Class B
CitiCertificates, and in particular to the Unoffered Class B CitiCertificates,
and to increase the relative portion of payments allocable to the Class A and
Class M CitiCertificates and the Offered Class B CitiCertificates. After the
Subordination Depletion Date, the Class A CitiCertificates will bear all
Realized Losses.
S-29
<PAGE>
The allocation of the principal portion of Realized Losses (other than a
Debt Service Reduction and Excess Losses) will be effected, as a result of the
priority of payments described above, by the adjustment of the Principal Amount
of the most subordinate of the Class B Subclasses then outstanding (that is, the
Principal Amount of the Class B Subclasses in reverse numerical order), and then
the Class M CitiCertificates, in such amounts as are necessary to cause the sum
of the Class A Principal Amount, the Class M Principal Amount and the Class B
Principal Amount to equal the Pool Balance.
The principal portion of any Realized Losses occurring on or after the
Subordination Depletion Date will be allocated as follows: the applicable PO
Percentage of any Realized Loss will be allocated to the Class A-9
CitiCertificates and the Non-PO Percentage of any Realized Loss will be
allocated among the other outstanding Class A Subclasses.
Allocations of the principal portion of Debt Service Reductions prior to
the Bankruptcy Termination Date will result from the priority of payment of the
Pool Distribution Amount first to the Class A CitiCertificates, second to the
Class M CitiCertificates, third to the Class B-1 CitiCertificates, fourth to the
Class B-2 CitiCertificates and finally to the Unoffered Class B
CitiCertificates.
The principal portion of any Excess Losses will be allocated as follows:
(a) the applicable PO Percentage of such Realized Losses shall be
allocated to the Class A-9 CitiCertificates and
(b) the applicable Non-PO Percentage of such Realized Losses shall be
allocated on a pro rata basis among the other Class A Subclasses and the
Class M and Class B CitiCertificates based on the Principal Amount of each
such Class or Subclass.
Any losses allocated to a particular Class A Subclass will be allocated
among the outstanding CitiCertificates within such Class A Subclass
proportionately in accordance with their respective Principal Amount. Any losses
so allocated to Class M CitiCertificates will be allocated among the outstanding
Class M CitiCertificates in accordance with their respective Principal Amount.
Any losses so allocated to the Class B CitiCertificates will be allocated among
the outstanding Class B Subclasses proportionately in accordance with their then
outstanding Class B Subclass Principal Amounts, and among the outstanding
CitiCertificates within each Class B Subclass proportionately in accordance with
their respective Principal Amount.
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 M and Class B CitiCertificates. In general, if the Pool
Distribution Amount is not sufficient to cover the amount of the Class A Non-PO
Principal Amount on a particular Distribution Date, the percentage of principal
payments on the Mortgage Loans to which holders of the Class A CitiCertificates
(other than the Class A-9 CitiCertificates) will be entitled (i.e., the Class A
Percentage) on and after the next Distribution Date will be proportionately
increased, thereby reducing, as a relative matter, the respective interest of
the Class M and 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.
Notwithstanding the foregoing, a Bankruptcy Loss will not be allocated to
the CitiCertificates as described above 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 either (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 each case without giving effect to any Debt Service Reduction.
Since the aggregate Initial Principal Amount of the Class M and Class B
CitiCertificates will be substantially less than the Initial Principal Amount of
the Class A CitiCertificates, the risk of Special Hazard Losses, Fraud Losses
and Bankruptcy Losses will be separately borne by the Class M and Class B
CitiCertificates to a lesser extent (i.e., only up to the Special Hazard Loss
Limit, Fraud Loss Limit and Bankruptcy Loss Limit, respectively) than the risk
of other Realized Losses, which they will bear to the full
S-30
<PAGE>
extent of their respective Initial Principal Amounts. See "APPENDIX A: THE
MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES" in the Prospectus.
The benefits of the subordination described above will not cover
delinquencies and losses resulting from certain extraordinary events, including
(i) hostile or warlike action in time of peace or war; (ii) the use of any
weapon of war employing atomic fission or radioactive force whether in time of
peace or war; and (iii) insurrection, rebellion, revolution, civil war or any
usurped power or action taken by any governmental authority in preventing such
occurrences (but not including looting or rioting occurring not in time of war).
Losses ("Extraordinary Losses") and delinquencies resulting from such
extraordinary events will be allocated among the Class A Subclasses, Class M
CitiCertificates and Class B Subclasses in the same manner as Excess Losses.
Recoveries
In the event that there is any recovery of an amount in respect of
principal which had previously been allocated as a Realized Loss, the amount of
such recovery will be allocated among the then outstanding CitiCertificates:
first, to the Class A CitiCertificates, to the extent, in the manner and up
to the amount of any unreimbursed Realized Losses allocated to the Class A
CitiCertificates,
then, to the Class M CitiCertificates and
then, to the Class B CitiCertificates.
As among the Class B Subclasses, the amount of any recovery remaining after
allocation to the Class A and Class M CitiCertificates will be allocated first
to the Class B-1 CitiCertificates, second to the Class B-2 CitiCertificates, in
each case up to the amount of any unreimbursed Realized Losses allocated to such
Class B Subclass, and then, in like manner, to the remaining Class B Subclasses.
Preservation of Subordination
The amount of credit enhancement in the form of subordination that is
available on any date for the benefit of a particular Class or Subclass of
CitiCertificates is called its "Subordination Level", and will be equal to the
Beneficial Percentages of all Classes and Subclasses with a lower priority of
payment, in accordance with the priorities set forth under "SUMMARY OF
TERMS--Payment Priorities." The Class M Subordination Level will therefore be
equal to the Class B Beneficial Percentage, the Class B-1 Subordination Level
will be equal to the sum of the Beneficial Percentages for the Class B-2, Class
B-3, Class B-4 and Class B-5 CitiCertificates, the Class B-2 Subordination Level
will be equal to the sum of the Beneficial Percentages for the Class B-3, Class
B-4 and Class B-5 CitiCertificates, and so on for the Class B-3 and Class B-4
CitiCertificates.
In the event that on any Distribution Date, the current Class M
Subordination Level is less than the original Class M Subordination Level, then
the Class B CitiCertificates will not be eligible to receive any principal
payment on such Distribution Date and all of such principal will instead be paid
to the Class M CitiCertificates. The original Class M Subordination Level is
expected to be between 1.60% and 2.60%.
In the event that on any Distribution Date, the current Class M
Subordination Level equals or exceeds its original percentage but the current
Class B-1 Subordination Level is less than the original Class B-1 Subordination
Level, then the Class B-2, Class B-3, Class B-4 and Class B-5 CitiCertificates
will not be eligible to receive any principal payment on such Distribution Date
and all of such principal will instead be paid proportionately to the Class M
and Class B-1 CitiCertificates. The original Class B-1 Subordination Level is
expected to be between 0.75% and 1.75%.
In the event that on any Distribution Date, the current Class M and Class
B-1 Subordination Levels equal or exceed their original percentages but the
current Class B-2 Subordination Level is less than the original Class B-2
Subordination Level, then the Class B-3, Class B-4 and Class B-5
CitiCertificates will not be eligible to receive any principal payment on such
Distribution Date, and all of such principal will instead be paid
proportionately to
S-31
<PAGE>
the Class M, Class B-1 and Class B-2 CitiCertificates. The
original Class B-2 Subordination Level is expected to be between 0.60% and
1.00%.
In the event that on any Distribution Date, the current Class M, Class B-1
and Class B-2 Subordination Levels equal or exceed their original percentages
but the current Class B-3 Subordination Level is less than the original Class
B-3 Subordination Level, then the Class B-4 and Class B-5 CitiCertificates will
not be eligible to receive any principal payment on such Distribution Date, and
all of such principal will instead be paid proportionately to the Class M, Class
B-1, Class B-2 and Class B-3 CitiCertificates. The original Class B-3
Subordination Level is expected to be between 0.25% and 0.65%.
In the event that on any Distribution Date, the current Class M, Class B-1,
Class B-2 and Class B-3 Subordination Levels equal or exceed their original
percentages but the current Class B-4 Subordination Level is less than the
original Class B-4 Subordination Level, then the Class B-5 CitiCertificates will
not be eligible to receive any principal payment on such Distribution Date, and
all of such principal will instead be paid proportionately to the Class M, Class
B-1, Class B-2, Class B-3 and Class B-4 CitiCertificates. The original Class B-4
Subordination Level is expected to be between 0.10% and 0.40%.
SUBORDINATION
The rights of holders of the Class M CitiCertificates to receive payments
is subordinated to such rights of holders of Class A CitiCertificates to the
extent described below, the rights of holders of the Class B CitiCertificates to
receive payments is subordinated to such rights of holders of Class A and Class
M CitiCertificates to the extent described below and the rights of the holders
of the Class B Subclasses with numerically higher designations to receive
payments is subordinated to such rights of holders of Class B Subclasses with
numerically lower designations 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 M and Class
B CitiCertificates), the Class M CitiCertificates (to the extent of the
subordination of the Class B CitiCertificates) and the Class B Subclasses with
numerically lower numbers (to the extent of the subordination of the Class B
Subclasses with numerically higher designations) of the full amount of their
payments of interest and principal and to afford protection against Realized
Losses. If Realized Losses exceed the credit support provided through
subordination to the Class A or Class M CitiCertificates or numerically lower
Class B Subclasses, as the case may be, or if Excess Losses occur, all or a
portion of such losses will be borne by such Class A, Class M or Class B
CitiCertificates, as the case may be, as are then outstanding.
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 payment being made on a Distribution Date
in respect of the Class M and Class B CitiCertificates, the amounts of principal
and interest due the Class A CitiCertificateholders on each Distribution Date
out of the Pool Distribution Amount and, if necessary, by the right of such
holders to receive future payments that would otherwise have been payable to
holders of Class M and Class B CitiCertificates.
The Class M CitiCertificates will be entitled, on each Distribution Date,
to any remaining portion of the Pool Distribution Amount, after payment of the
Class A Interest Amount, any unreimbursed Class A Interest Shortfall, the Class
A Optimal Principal Amount and (to the extent of Available PO Loss Funds) any
Unpaid PO Loss Amounts. Amounts so distributed to Class M CitiCertificateholders
will not be available to cover delinquencies or Realized Losses for subsequent
Distribution Dates.
The Class B CitiCertificates will be entitled, on each Distribution Date,
to any remaining portion of the Pool Distribution Amount, after payment of the
Class A Interest Amount, any unreimbursed Class A Interest Shortfall, the Class
A Optimal Principal Amount, the Class M Interest Amount, any unreimbursed Class
M Interest Shortfall, the Class M Optimal Principal Amount and (to the extent of
Available PO Loss Funds) any Unpaid PO Loss Amounts. Amounts so distributed to
Class B CitiCertificateholders will not be available to cover delinquencies or
Realized Losses for subsequent Distribution Dates.
The protection afforded to holders of the Class B Subclasses with
numerically lower designations by means of the subordination feature will be
accomplished by the preferential right of such holders to receive, prior to any
S-32
<PAGE>
payment being made on a Distribution Date on the Class B Subclasses with
numerically higher designations, the amounts of principal and interest due the
holders of Class B Subclasses with numerically lower designations on each
Distribution Date out of the Pool Distribution Amount (after all required
payments to Class A and Class M CitiCertificates and any Class B Subclasses with
a numerically lower designation have been made) and, if necessary, by the right
of such holders to receive future payments that would otherwise have been
payable to holders of the Class B Subclasses with numerically higher
designations.
The Class B Subclasses with numerically higher designations will be
entitled, on each Distribution Date, to any remaining portion of the Pool
Distribution Amount, after payment of the Class A Interest Amount, any
unreimbursed Class A Interest Shortfall, the Class A Optimal Principal Amount,
the Class M Interest Amount, any unreimbursed Class M Interest Shortfall, the
Class M Optimal Principal Amount, any Unpaid PO Loss Amounts (but only to extent
of Available PO Loss Funds) and any principal or interest which a Class B
Subclass with a lower numerical designation is due on such date. Amounts so paid
to such Class B CitiCertificateholders will not be available to cover
delinquencies or Realized Losses for subsequent Distribution Dates.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the average amount of time from the date of
issuance of an Offered CitiCertificate until each dollar of principal of such
CitiCertificate is repaid to the investor. The weighted average lives of the
Offered CitiCertificates will be influenced by the rate at which principal on
the Mortgage Loans is paid. Principal payments on mortgage loans may be in the
form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes prepayments and liquidations due to default or other
dispositions of mortgage loans). Prepayments on mortgage loans are commonly
measured by a prepayment standard or model. The model used in this Prospectus
Supplement (the "Prepayment Model") is based on an assumed rate of prepayment
each month relative to the then unpaid principal balance of a pool of new
mortgage loans. 100% of the Prepayment Model assumes prepayment rates of 0.2%
per annum of the then unpaid principal balance of such mortgage loans in the
first month of the life of the mortgage loans and an additional 0.2% per annum
in each month thereafter (for example, 0.4% per annum in the second month, 0.6%
per annum in the third month) until the 30th month. Beginning in the 30th month
and in each month thereafter during the life of the mortgage loans, 100% of the
Prepayment Model assumes a constant prepayment rate of 6.0% per annum.
As used in the following tables, "0% of the Prepayment Model" assumes no
prepayments on the Mortgage Loans; "275% of the Prepayment Model" assumes such
Mortgage Loans will prepay at rates equal to 275% of the Prepayment Model's
assumed prepayment rates and so forth.
There is no assurance, however, that prepayment of the Mortgage Loans will
conform to any level of the Prepayment Model. The rate of principal payments on
pools of mortgage loans is influenced by a variety of economic, geographic,
social and other factors, including the level of mortgage interest rates and the
rate at which homeowners sell their homes, refinance their mortgage loans or
default on their mortgage loans. In general, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans, the Mortgage Loans
are more likely to be subject to higher prepayment rates than if prevailing
rates remain at or above the interest rates on the Mortgage Loans. Conversely,
if interest rates rise above the interest rates on such Mortgage Loans, the rate
of prepayment would be expected to decrease. Other factors affecting prepayment
of mortgage loans include changes in mortgagors' housing needs, job transfers,
unemployment and mortgagors' net equity in the mortgaged properties. In
addition, as homeowners move or default on their mortgage loans, the houses are
generally sold and the mortgage loans prepaid, although some of the mortgage
loans may be assumed by a new buyer. Because the amount of principal payments on
each Class A Subclass, the Class M CitiCertificates and each Offered Class B
Subclass will depend on the rate of repayment (including prepayments) of the
Mortgage Loans, the date by which the Principal Amount of any Class A Subclass,
the Class M CitiCertificates or any Offered Class B Subclass is reduced to zero
is likely to occur earlier than the Last Scheduled Distribution Date of March
25, 2029.
THE WEIGHTED AVERAGE LIVES OF THE OFFERED CITICERTIFICATES, AS WELL AS THE
YIELDS TO MATURITY OF THE OFFERED CITICERTIFICATES TO THE EXTENT THAT SUCH
CITICERTIFICATES ARE PURCHASED AT A DISCOUNT OR PREMIUM, WILL BE PARTICULARLY
SENSITIVE TO THE RATE OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE
MORTGAGE LOANS.
S-33
<PAGE>
As described above under "--Principal Payments," on each Distribution Date
holders of the Class A CitiCertificates (other than the Class A-9
CitiCertificates) will be entitled to receive the Class A Percentage of the
applicable Non-PO Percentage of all Scheduled Principal, and the Class A
Prepayment Percentage of the applicable Non-PO Percentage of Unscheduled
Principal, on each Mortgage Loan. This will have the effect of accelerating the
amortization of the Class A CitiCertificates while, in the absence of principal
losses on the Mortgage Loans, increasing the respective interest in the Trust
evidenced by the Class M and Class B CitiCertificates.
The following tables have been prepared on the basis of the expected
characteristics of the Mortgage Loans as set forth under "DESCRIPTION OF THE
MORTGAGE POOL AND THE MORTGAGED PROPERTIES." The percentages and weighted
average lives in the following tables were determined assuming that (i)
scheduled interest and principal payments on the Mortgage Loans will be received
in a timely manner and prepayments are made at the indicated percentages of the
Prepayment Model set forth in the tables; (ii) each Discount Loan and Premium
Loan will have an original term to maturity of 358 months, a weighted average
remaining term to stated maturity of 354 months and 352 months, respectively, a
rate of interest passed through to holders of the CitiCertificates of
approximately 6.2097951325% and 6.9532474415%, respectively, and, in each case,
a Servicing Fee of 0.25% per annum; (iii) CMSI does not exercise its right of
optional termination; (iv) the Initial Principal Amounts of the Class B-3, Class
B-4 and Class B-5 CitiCertificates are approximately $1,053,000, $602,000, and
$753,095, respectively; (v) the Initial Mortgage Loan Balance of Discount Loans
and Premium Loans is approximately $12,155,027 and $288,845,752, respectively,
and for each Class A Subclass, the Class M CitiCertificates and each Offered
Class B Subclass, the Initial Principal Amount and the Certificate Rate are as
set forth on page S-2; (vi) the CitiCertificates are issued on March 30, 1999;
and (vii) payments to holders of the CitiCertificates will be made on the 25th
day of each month commencing April 1999 (the foregoing assumptions are called
the "Structuring Assumptions").
There are likely to be discrepancies between the characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the following tables. Any such discrepancy may have an effect upon the
percentages of the Initial Principal Amount outstanding (and the weighted
average lives) of the Class A Subclasses, the Class M CitiCertificates and the
Offered Class B Subclasses set forth in the tables. In addition, to the extent
that the actual Mortgage Loans have characteristics that differ from those
assumed in preparing the tables set forth below, the Principal Amount of each
Class A Subclass, the Class M CitiCertificates and each Offered Class B Subclass
may be reduced to zero earlier or later than indicated by such tables.
It is not likely that (i) all of the Mortgage Loans will have the remaining
terms to stated maturity assumed, (ii) the Mortgage Loans will prepay at the
indicated percentages of the Prepayment Model set forth in the tables, or (iii)
all of the Discount Loans or all of the Premium Loans will have the respective
mortgage interest rates assumed by the Structuring Assumptions. In addition, the
diverse remaining terms to maturity of the Mortgage Loans (which include
recently originated Mortgage Loans) could produce slower principal distributions
than indicated in the tables at the various percentages of the Prepayment Model
specified even if the weighted average remaining terms to stated maturity of the
Mortgage Loans are those assumed.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average life of each Class A Subclass, the Class M
CitiCertificates and each Offered Class B Subclass and sets forth the percentage
of the Initial Principal Amount of each Class A Subclass, the Class M
CitiCertificates and each Offered Class B Subclass that would be outstanding
after each of the dates shown at the indicated percentages of the Prepayment
Model.
S-34
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING FOR EACH CLASS OR
SUBCLASS OF OFFERED CITICERTIFICATES AT
THE RESPECTIVE PERCENTAGES OF THE PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
CLASS A-1 CITICERTIFICATES CLASS A-2 CITICERTIFICATES
-------------------------- --------------------------
DISTRIBUTION DATE 0% 150% 275% 400% 500% 0% 150% 275% 400% 500%
----------------- --- ---- ---- ---- ---- -- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ................ 100 100 100 100 100 100 100 100 100 100
March 25, 2000 ......... 99 94 91 87 84 100 100 100 100 100
March 25, 2001 ......... 98 85 75 65 58 100 100 100 100 100
March 25, 2002 ......... 96 74 58 44 34 100 100 100 100 100
March 25, 2003 ......... 95 65 45 28 18 100 100 100 100 100
March 25, 2004 ......... 93 56 34 17 6 100 100 100 100 100
March 25, 2005 ......... 91 49 25 9 * 100 97 94 91 88
March 25, 2006 ......... 90 43 19 4 0 99 92 86 80 72
March 25, 2007 ......... 88 37 14 1 0 98 86 76 66 47
March 25, 2008 ......... 86 33 10 0 0 96 78 65 52 31
March 25, 2009 ......... 84 29 8 0 0 94 70 53 38 21
March 25, 2010 ......... 82 25 6 0 0 92 62 43 28 14
March 25, 2011 ......... 80 22 4 0 0 89 55 35 21 10
March 25, 2012 ......... 77 19 3 0 0 86 48 28 15 7
March 25, 2013 ......... 74 16 2 0 0 84 43 23 11 5
March 25, 2014 ......... 72 14 1 0 0 80 37 18 8 3
March 25, 2015 ......... 68 12 * 0 0 77 33 15 6 2
March 25, 2016 ......... 65 10 0 0 0 74 28 12 4 1
March 25, 2017 ......... 62 8 0 0 0 70 24 9 3 1
March 25, 2018 58 7 0 0 0 66 21 7 2 1
March 25, 2019 ......... 54 5 0 0 0 61 18 6 2 *
March 25, 2020 ......... 49 4 0 0 0 56 15 4 1 *
March 25, 2021 ......... 45 3 0 0 0 51 12 3 1 *
March 25, 2022 ......... 39 2 0 0 0 46 10 2 1 *
March 25, 2023 ......... 34 1 0 0 0 40 8 2 * *
March 25, 2024 ......... 28 * 0 0 0 33 6 1 * *
March 25, 2025 22 0 0 0 0 27 4 1 * *
March 25, 2026 ......... 15 0 0 0 0 19 3 1 * *
March 25, 2027 ......... 8 0 0 0 0 11 2 * * *
March 25, 2028 ......... * 0 0 0 0 3 * * * *
March 25, 2029 ......... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)(1) ....... 19.0 7.7 4.5 3.1 2.5 21.0 14.0 11.4 9.8 8.5
<CAPTION>
CLASS A-3 CITICERTIFICATES
--------------------------
DISTRIBUTION DATE 0% 150% 275% 400% 500%
----------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial ................ 100 100 100 100 100
March 25, 2000 ......... 99 93 89 85 81
March 25, 2001 ......... 97 82 70 59 50
March 25, 2002 ......... 95 70 51 34 22
March 25, 2003 ......... 94 58 34 15 2
March 25, 2004 ......... 92 48 21 1 0
March 25, 2005 ......... 90 39 11 0 0
March 25, 2006 ......... 88 32 3 0 0
March 25, 2007 ......... 86 25 0 0 0
March 25, 2008 ......... 83 20 0 0 0
March 25, 2009 ......... 81 15 0 0 0
March 25, 2010 ......... 78 11 0 0 0
March 25, 2011 ......... 76 7 0 0 0
March 25, 2012 ......... 73 4 0 0 0
March 25, 2013 ......... 70 1 0 0 0
March 25, 2014 ......... 66 0 0 0 0
March 25, 2015 ......... 62 0 0 0 0
March 25, 2016 ......... 59 0 0 0 0
March 25, 2017 ......... 54 0 0 0 0
March 25, 2018 ......... 50 0 0 0 0
March 25, 2019 ......... 45 0 0 0 0
March 25, 2020 ......... 40 0 0 0 0
March 25, 2021 ......... 34 0 0 0 0
March 25, 2022 ......... 28 0 0 0 0
March 25, 2023 ......... 21 0 0 0 0
March 25, 2024 ......... 15 0 0 0 0
March 25, 2025 ......... 7 0 0 0 0
March 25, 2026 ......... 0 0 0 0 0
March 25, 2027 ......... 0 0 0 0 0
March 25, 2028 ......... 0 0 0 0 0
March 25, 2029 ......... 0 0 0 0 0
Weighted Average
Life (Years)(1) ....... 17.3 5.6 3.3 2.5 2.1
</TABLE>
(1) The weighted average life of each Class or Subclass of Offered
CitiCertificates is determined by (i) multiplying the amount of each
distribution in reduction of Principal Amount by the number of years from
the date of issuance of the Offered CitiCertificates to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the Initial Principal Amount of the Class or Subclass of the Offered
CitiCertificates.
* Indicates an amount above zero and less than 0.5% of Initial Principal
Amount is outstanding.
S-35
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING FOR EACH CLASS OR
SUBCLASS OF OFFERED CITICERTIFICATES AT THE
RESPECTIVE PERCENTAGES OF THE PREPAYMENT MODEL SET FORTH BELOW:
CLASS A-4 CITICERTIFICATES CLASS A-5 CITICERTIFICATES
-------------------------------------- --------------------------------------
DISTRIBUTION DATE 0% 150% 275% 400% 500% 0% 150% 275% 400% 500%
- ----------------- --- ---- ---- ---- ---- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ............... 100 100 100 100 100 100 100 100 100 100
March 25, 2000 ........ 96 83 71 60 51 100 100 100 100 100
March 25, 2001 ........ 92 54 23 0 0 100 100 100 96 82
March 25, 2002 ........ 88 21 0 0 0 100 100 83 56 36
March 25, 2003 ........ 84 0 0 0 0 100 95 57 25 5
March 25, 2004 ........ 79 0 0 0 0 100 79 35 3 0
March 25, 2005 ........ 74 0 0 0 0 100 65 19 0 0
March 25, 2006 ........ 68 0 0 0 0 100 53 7 0 0
March 25, 2007 ........ 63 0 0 0 0 100 42 0 0 0
March 25, 2008 ........ 57 0 0 0 0 100 33 0 0 0
March 25, 2009 ........ 51 0 0 0 0 100 26 0 0 0
March 25, 2010 ........ 44 0 0 0 0 100 19 0 0 0
March 25, 2011 ........ 37 0 0 0 0 100 13 0 0 0
March 25, 2012 ........ 29 0 0 0 0 100 8 0 0 0
March 25, 2013 ........ 21 0 0 0 0 100 3 0 0 0
March 25, 2014 ........ 12 0 0 0 0 100 0 0 0 0
March 25, 2015 ........ 3 0 0 0 0 100 0 0 0 0
March 25, 2016 ........ 0 0 0 0 0 96 0 0 0 0
March 25, 2017 ........ 0 0 0 0 0 89 0 0 0 0
March 25, 2018 ........ 0 0 0 0 0 81 0 0 0 0
March 25, 2019 ........ 0 0 0 0 0 74 0 0 0 0
March 25, 2020 ........ 0 0 0 0 0 65 0 0 0 0
March 25, 2021 ........ 0 0 0 0 0 56 0 0 0 0
March 25, 2022 ........ 0 0 0 0 0 47 0 0 0 0
March 25, 2023 ........ 0 0 0 0 0 36 0 0 0 0
March 25, 2024 ........ 0 0 0 0 0 25 0 0 0 0
March 25, 2025 ........ 0 0 0 0 0 13 0 0 0 0
March 25, 2026 ........ 0 0 0 0 0 * 0 0 0 0
March 25, 2027 ........ 0 0 0 0 0 0 0 0 0 0
March 25, 2028 ........ 0 0 0 0 0 0 0 0 0 0
March 25, 2029 ........ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)(1) ...... 9.5 2.1 1.4 1.1 1.0 22.4 7.9 4.5 3.3 2.8
<CAPTION>
CLASS A-6 AND CLASS A-7 CITICERTIFICATES
--------------------------------------
DISTRIBUTION DATE 0% 150% 275% 400% 500%
- ----------------- --- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial ............... 100 100 100 100 100
March 25, 2000 ........ 100 100 100 100 100
March 25, 2001 ........ 100 100 100 100 100
March 25, 2002 ........ 100 100 100 100 100
March 25, 2003 ........ 100 100 100 100 100
March 25, 2004 ........ 100 100 100 100 70
March 25, 2005 ........ 100 100 100 79 50
March 25, 2006 ........ 100 100 100 62 0
March 25, 2007 ........ 100 100 96 53 0
March 25, 2008 ........ 100 100 84 46 0
March 25, 2009 ........ 100 100 76 34 0
March 25, 2010 ........ 100 100 69 25 0
March 25, 2011 ........ 100 100 64 19 0
March 25, 2012 ........ 100 100 59 14 0
March 25, 2013 ........ 100 100 55 10 0
March 25, 2014 ........ 100 97 52 7 0
March 25, 2015 ........ 100 89 50 5 0
March 25, 2016 ........ 100 83 43 4 0
March 25, 2017 ........ 100 77 34 3 0
March 25, 2018 ........ 100 71 27 2 0
March 25, 2019 ........ 100 66 21 1 0
March 25, 2020 ........ 100 62 16 1 0
March 25, 2021 ........ 100 58 12 1 0
March 25, 2022 ........ 100 55 9 * 0
March 25, 2023 ........ 100 51 7 * 0
March 25, 2024 ........ 100 49 5 * 0
March 25, 2025 ........ 100 35 3 * 0
March 25, 2026 ........ 100 23 2 * 0
March 25, 2027 ........ 75 13 1 * 0
March 25, 2028 ........ 49 3 * * 0
March 25, 2029 ........ 0 0 0 0 0
Weighted Average
Life (Years)(1) ...... 28.6 22.8 15.4 9.2 5.7
</TABLE>
- ----------
(1) The weighted average life of each Class or Subclass of Offered
CitiCertificates is determined by (i) multiplying the amount of each
distribution in reduction of Principal Amount by the number of years from
the date of issuance of the Offered CitiCertificates to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the Initial Principal Amount of the Class or Subclass of the Offered
CitiCertificates.
* Indicates an amount above zero and less than 0.5% of Initial Principal
Amount is outstanding.
S-36
<PAGE>
PERCENT OF INITIAL PRINCIPAL AMOUNT OUTSTANDING FOR EACH CLASS OR
SUBCLASS OF OFFERED CITICERTIFICATES AT THE
RESPECTIVE PERCENTAGES OF THE PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
CLASS A-8 CITICERTIFICATES CLASS A-9 CITICERTIFICATES
-------------------------- --------------------------
DISTRIBUTION DATE 0% 150% 275% 400% 500% 0% 150% 275% 400% 500%
----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial ............... 100 100 100 100 100 100 100 100 100 100
March 25, 2000 ........ 100 100 100 100 100 99 96 93 90 88
March 25, 2001 ........ 100 100 100 100 100 98 88 81 73 68
March 25, 2002 ........ 100 100 100 100 100 96 79 66 55 47
March 25, 2003 ........ 100 100 100 100 100 95 71 55 41 32
March,25, 2004 ........ 100 100 100 100 39 93 64 45 31 22
March,25, 2005 ........ 100 100 100 57 2 92 57 37 23 15
March 25, 2006 ........ 100 100 100 25 0 90 51 30 17 10
March 25, 2007 ........ 100 100 87 8 0 88 45 25 13 7
March 25, 2008 ........ 100 100 66 0 0 86 40 20 9 5
March 25, 2009 ........ 100 100 51 0 0 84 36 16 7 3
March 25, 2010 ........ 100 100 38 0 0 82 32 13 5 2
March 25, 2011 ........ 100 100 28 0 0 79 28 11 4 2
March 25, 2012 ........ 100 100 19 0 0 77 25 9 3 1
March 25, 2013 ........ 100 100 12 0 0 74 22 7 2 1
March 25, 2014 ........ 100 88 7 0 0 71 19 6 2 *
March 25, 2015 ........ 100 75 2 0 0 68 16 5 1 *
March 25, 2016 ........ 100 63 0 0 0 65 14 4 1 *
March 25, 2017 ........ 100 52 0 0 0 62 12 3 1 *
March 25, 2018 ........ 100 42 0 0 0 58 11 2 * *
March 25, 2019 ........ 100 33 0 0 0 54 9 2 * *
March 25, 2020 ........ 100 25 0 0 0 50 7 1 * *
March 25, 2021 ........ 100 18 0 0 0 45 6 1 * *
March 25, 2022 ........ 100 11 0 0 0 40 5 1 * *
March 25,2023 ........ 100 5 0 0 0 35 4 1 * *
March 25, 2024 ........ 100 * 0 0 0 30 3 * * *
March 25, 2025 ........ 100 0 0 0 0 24 2 * * *
March 25, 2026 ........ 95 0 0 0 0 17 1 * * *
March 25, 2027 ........ 49 0 0 0 0 11 1 * * *
March 25, 2028 ........ * 0 0 0 0 4 * * * *
March 25, 2029 ........ 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (Years)(1) ...... 28.0 18.6 10.6 6.4 4.9 19.2 9.0 5.9 4.3 3.6
<CAPTION>
CLASS M, CLASS B-1 AND CLASS B-2 CITICERTIFICATES
-------------------------------------------------
DISTRIBUTION DATE 0% 150% 275% 400% 500%
----------------- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial ............... 100 100 100 100 100
March 25, 2000 ........ 99 99 99 99 99
March 25, 2001 ........ 98 98 98 98 98
March 25, 2002 ........ 97 97 97 97 97
March 25, 2003 ........ 95 95 95 95 95
March,25, 2004 ........ 94 94 94 94 94
March,25, 2005 ........ 93 90 88 85 83
March 25, 2006 ........ 91 85 80 75 71
March 25, 2007 ........ 89 79 71 63 56
March 25, 2008 ........ 87 72 60 49 41
March 25, 2009 ........ 85 64 49 37 28
March 25, 2010 ........ 83 57 40 27 19
March 25, 2011 ........ 81 50 32 20 13
March 25, 2012 ........ 79 44 26 15 9
March 25, 2013 ........ 76 39 21 11 6
March 25, 2014 ........ 73 34 17 8 4
March 25, 2015 ........ 70 30 14 6 3
March 25, 2016 ........ 67 26 11 4 2
March 25, 2017 ........ 63 22 9 3 1
March 25, 2018 ........ 60 19 7 2 1
March 25, 2019 ........ 56 16 5 2 1
March 25, 2020 ........ 51 14 4 1 *
March 25, 2021 ........ 47 11 3 1 *
March 25, 2022 ........ 42 9 2 1 *
March 25,2023 ........ 36 7 2 * *
March 25, 2024 ........ 30 6 1 * *
March 25, 2025 ........ 24 4 1 * *
March 25, 2026 ........ 18 3 * * *
March 25, 2027 ........ 10 1 * * *
March 25, 2028 ........ 3 * * * *
March 25, 2029 ........ 0 0 0 0 0
Weighted Average
Life (Years)(1) ...... 19.5 13.2 10.8 9.4 8.7
</TABLE>
- ------------
(1) The weighted average life of each Class or Subclass of Offered
CitiCertificates is determined by (i) multiplying the amount of each
distribution in reduction of Principal Amount by the number of years from
the date of issuance of the Offered CitiCertificates to the related
Distribution Date, (ii) adding the results and (iii) dividing the sum by
the Initial Principal Amount of the Class or Subclass of the Offered
CitiCertificates.
* Indicates an amount above zero and less than 0.5% of Initial Principal
Amount is outstanding.
S-37
<PAGE>
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, Class M and Class B CitiCertificates and the timing and extent
of any losses allocable to the Class A, Class M and Class B CitiCertificates. It
is impossible to predict whether the Mortgage Loans will prepay at any
particular rate.
The yield to maturity on the Offered Class B CitiCertificates will be more
sensitive than the yield to maturity on the Class A and Class M CitiCertificates
to losses due to defaults on the Mortgage Loans (and the timing thereof), to the
extent not covered by the Unoffered Class B CitiCertificates, because the entire
amount of such losses will be allocable to the Offered Class B CitiCertificates
in reverse numerical order prior to the Class A and Class M CitiCertificates
(except in the case of any Excess Losses). To the extent not covered by
advances, delinquencies on Mortgage Loans may also have a relatively greater
effect on the yield to investors in the Offered Class B CitiCertificates.
Amounts otherwise payable to holders of the Offered Class B CitiCertificates
will be made available to protect holders of the Class A and Class M
CitiCertificates against interruptions in payments due to certain mortgagor
delinquencies. Such delinquencies, to the extent not covered by the Unoffered
Class B CitiCertificates, even if subsequently cured, may affect the timing of
the receipt of distributions by holders of the Offered Class B CitiCertificates,
because the entire amount of those delinquencies would be borne by the Offered
Class B Subclasses in reverse numerical order prior to the Class A and Class M
CitiCertificates.
If the purchaser of an Offered CitiCertificate offered at a discount from
its parity price (as described below) calculates the anticipated yield to
maturity of such Offered CitiCertificate based on an assumed rate of payment of
principal that is faster 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. If the purchaser of an Offered
CitiCertificate which was instead 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.
As described under "--Principal Payments" above, all or a disproportionate
percentage of principal prepayments on the Mortgage Loans (including
liquidations and repurchases of Mortgage Loans) will be distributed, to the
extent of the Non-PO Percentage, to the holders of the Class A CitiCertificates
(other than the Class A-9 CitiCertificates) then entitled to principal payments
during the nine years beginning on the first Distribution Date, and, to the
extent that such principal prepayments are made on a Discount Loan, to the Class
A-9 CitiCertificates in proportion to the interest of the Class A-9
CitiCertificates in such Discount Loan represented by the PO Percentage. The
holders of the Class A-2 CitiCertificates will not be entitled to receive any
principal payments prior to the Distribution Date in April 2004, and prior to
the Distribution Date in April 2008 will receive a disproportionately small
portion of principal payments on the Mortgage Loans, unless the Principal
Amounts of all other Class A Subclasses (other than the Class A-9
CitiCertificates) have been reduced to zero or the Principal Amounts of the
Subordinated CitiCertificates have been reduced to zero. As a result, the
weighted average life will be longer, and could be significantly longer, than
would be the case if the Class A-2 CitiCertificates received their proportionate
share of the Class A Percentage and Class A Prepayment Percentage of the Non-PO
Percentage of all principal payments received on the Mortgage Loans.
The Issuer intends to file certain additional yield tables and other
computational material with respect to one or more Class A Subclasses, the Class
M CitiCertificates and the Offered Class B Subclasses with the Commission in a
Report on Form 8-K. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" below.
S-38
<PAGE>
Such tables and materials were prepared by the Underwriter at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such investors. Such tables and assumptions may be
based on assumptions that differ from the Structuring Assumptions. Accordingly,
such tables and other materials may not be relevant to or appropriate for
investors other than those specifically requesting them.
Because the rate of principal payments (including prepayments) on the
Mortgage Loans may significantly affect the weighted average life and other
characteristics on any Class A Subclass, the Class M CitiCertificates or any
Offered Class B Subclass, you are urged to consult your investment advisor and
to consider your own estimates as to the anticipated rate of future prepayments
on the Mortgage Loans and the suitability of the Class A CitiCertificates, the
Class M CitiCertificates and Offered Class B CitiCertificates to your investment
objectives.
SENSITIVITY OF THE CLASS A-9 CITICERTIFICATES
THE YIELD TO INVESTORS IN THE CLASS A-9 CITICERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS)
ON THE DISCOUNT LOANS, WHICH RATE MAY FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME.
BECAUSE PAYMENTS IN REDUCTION OF THE PRINCIPAL AMOUNT OF THE CLASS A-9
CITICERTIFICATES WILL BE DIRECTLY RELATED TO THE RATE OF PRINCIPAL PAYMENTS ON
THE DISCOUNT LOANS, PRINCIPAL PAYMENTS ON THE CLASS A-9 CITICERTIFICATES WILL BE
DIFFERENT, AND MOST LIKELY WILL BE SLOWER, THAN THE POOL TAKEN AS A WHOLE.
The following table indicates sensitivity to various rates of prepayment on
the Mortgage Loans of the pre-tax yields to maturity on a corporate bond
equivalent basis of the Class A-9 CitiCertificates. Such calculations are based
on distributions made in accordance with "--Principal Payments" above, on the
Structuring Assumptions described above under "--Weighted Average Lives" and on
the further assumption that the Class A-9 CitiCertificates will be issued on
March 30, 1999 at an aggregate purchase price equal to approximately 63.00% of
their Initial Principal Amount.
PRE-TAX YIELDS TO MATURITY
PERCENTAGES OF PREPAYMENT MODEL
---------------------------------------------------
CLASS 0% 150% 275% 400% 500%
----- ----- ------- ------- ------ ------
Class A-9 .............. 2.53% 6.04% 9.45% 12.78% 15.34%
The pre-tax yields set forth in the preceding table were calculated by (i)
determining the monthly discount rates which, when applied to the assumed stream
of cash flows to be paid on the Class A-9 CitiCertificates, would cause the
discounted present value of such assumed stream of cash flows to equal an
assumed purchase price for each Class A-9 CitiCertificate equal to 63.00% of
their Initial Principal Amount and (ii) converting such monthly rates to
corporate bond equivalent rates. Such calculation does not take into account the
interest rates at which you may be able to reinvest funds received by you as
payments on the Class A-9 CitiCertificates and consequently does not purport to
reflect your return on any investment in Class A-9 CitiCertificates when such
reinvestment rates are considered.
Notwithstanding the assumed prepayment rate reflected in the preceding
table, it is highly unlikely that the Discount Loans will prepay at a constant
rate until maturity or that all of the Discount Loans will prepay at the same
time. A lower than anticipated rate of principal prepayments on the Discount
Loans will have an adverse effect on the yield to maturity of the Class A-9
CitiCertificates. Because the Discount Loans have NNRs that are lower than the
NNRs of the Premium Loans, the Discount Loans are generally likely to prepay at
a lower rate under most circumstances. There are likely to be discrepancies
between the characteristics of the actual Mortgage Loans and the characteristics
of the Mortgage Loans assumed in preparing the table. As a result of these
factors, the pre-tax yields on the Class A-9 CitiCertificates are likely to
differ from those shown in such table, even if all of the Mortgage Loans prepay
at the indicated percentages of the Prepayment Model. You are urged to make your
investment decision based on your determination as to anticipated rates of
prepayment under a variety of scenarios.
S-39
<PAGE>
YIELD CONSIDERATIONS WITH RESPECT TO THE OFFERED CLASS B CITICERTIFICATES
If the Principal Amount of the Unoffered Class B CitiCertificates has been
reduced to zero, the yield to maturity on the Offered Class B CitiCertificates
will become extremely sensitive to losses on the Mortgage Loans and the timing
thereof, because the entire amount of such losses (other than Excess Fraud
Losses, Excess Special Hazard Losses and Excess Bankruptcy Losses, as described
herein) will be allocated first to the Class B-2 CitiCertificates until their
Principal Amount has been reduced to zero, and then to the Class B-1
CitiCertificates.
Defaults on the Mortgage Loans may be measured relative to a default
standard or model. The model used in the following tables, the standard default
assumption ("SDA"), represents an assumed rate of default each month relative to
the then outstanding principal balance of a pool of new mortgage loans. A
default assumption of 100% SDA assumes constant default rates of 0.02% per annum
of the then outstanding principal balance of such mortgage loans in the first
month of the life of the mortgage loans and an additional 0.02% per annum in
each month thereafter until the 30th month. Beginning in the 30th month and in
each month thereafter through the 60th month of the life of the mortgage loans,
100% SDA assumes a constant default rate of 0.60% per annum each month.
Beginning in the 61st month and in each month thereafter through the 120th month
of the life of the mortgage loans, 100% SDA assumes that the constant default
rate declines each month by 0.0095% per annum, and that the constant default
rate remains at 0.03% per annum in each month after the 120th month. As used in
the table below, "50% SDA" assumes default rates equal to the product of 0.50
and the 100% SDA assumed default rate, "75% SDA" assumes default rates equal to
the product of 0.75 and the 100% SDA assumed default rate, "100% SDA" assumes
default rates equal to the product of 1.00 and the 100% SDA assumed default rate
and so forth. SDA does not purport to be a historical description of default
experience or a prediction of the anticipated rate of default of any pool of
mortgage loans, including the Mortgage Loans.
The following yield tables have been prepared using the Structuring
Assumptions, except that, in lieu of clause (i) of the Structuring Assumptions,
it was assumed that (i) scheduled interest and principal payments on the
Mortgage Loans are received timely, other than with respect to Mortgage Loans on
which it is assumed the defaults occur monthly in accordance with the indicated
percentages of SDA. In addition, it was assumed that (i) realized losses on
liquidations of a specified percentage of the outstanding principal balance of
such liquidated Mortgage Loans, as indicated in the table (referred to as the
"Loss Severity Percentage"), will occur at the time of liquidation which shall
be twelve months after the date of default; (ii) there are no Excess Losses;
(iii) reductions of the Class A Prepayment Percentage are taken only when
permitted as described above under "--Principal Payments" in this Prospectus
Supplement, and that there are no delinquent loans other than Liquidated Loans;
and (iv) there are no Non-Supported Interest Shortfalls.
The rate of principal payments on the Offered Class B CitiCertificates will
be directly related to the actual amortization schedule of the Mortgage Loans;
accordingly, the payments of interest and principal received on the Offered
Class B CitiCertificates may result in pre-tax yields which differ from those
reflected below. The Mortgage Loans will not have the characteristics assumed,
and it is unlikely that they will prepay at any of the rates specified. The
assumed percentages of liquidations and loss severities on the Mortgage Loans
shown in the table below are for illustrative purposes only and the Issuer makes
no representations with respect to the reasonableness of such assumptions or
that the actual liquidation and loss severity experience of the Mortgage Loans
will in any way correspond to any of the assumptions made herein. Consequently,
there can be no assurance that your pre-tax yield on the Offered Class B
CitiCertificates will correspond to any of the pre-tax yields shown below.
The pre-tax yields set forth in the following tables were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Offered Class B CitiCertificates, would
cause the discounted present value of such assumed streams of cash flows as of
March 30, 1999 to equal the respective assumed purchase prices indicated plus
accrued interest at the Certificate Rate from (and including) the Cut-Off Date
to (but excluding) March 30, 1999, and converting such monthly rates to
corporate bond equivalent rates. Such calculation does not take into account
variations that may occur in the interest rates at which you may be able to
reinvest funds received by you as principal payments on the Offered Class B
CitiCertificates and consequently does not purport to reflect your return on any
investment in Offered Class B CitiCertificates when such reinvestment rates are
considered. The assumed purchase price is equal to the percentage stated in each
table.
S-40
<PAGE>
PRE-TAX YIELD TO MATURITY OF THE CLASS B-1 CITICERTIFICATES
(AT AN ASSUMED PURCHASE PRICE OF 97.875%
OF THEIR INITIAL PRINCIPAL AMOUNT PLUS ACCRUED INTEREST)
<TABLE>
<CAPTION>
PREPAYMENT SPEED
---------------------------------------------------------------------------------------
20% LOSS SEVERITY 40% LOSS SEVERITY
-------------------------------------------- ---------------------------------------
SDA PERCENTAGE 150% 275% 400% 150% 275% 400%
- -------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
50% 6.803% 6.828% 6.848% 6.806% 6.828% 6.848%
75% 6.804% 6.829% 6.848% 6.809% 6.831% 6.848%
100% 6.806% 6.829% 6.848% 6.801% 6.830% 6.850%
125% 6.808% 6.829% 6.849% 5.773% 6.834% 6.849%
PRE-TAX YIELD TO MATURITY OF THE CLASS B-2 CITICERTIFICATES
(AT AN ASSUMED PURCHASE PRICE OF 94.750%
OF THEIR INITIAL PRINCIPAL AMOUNT PLUS ACCRUED INTEREST)
<CAPTION>
PREPAYMENT SPEED
---------------------------------------------------------------------------------------
20% LOSS SEVERITY 40% LOSS SEVERITY
------------------------------------------- ---------------------------------------
SDA PERCENTAGE 150% 275% 400% 150% 275% 400%
- -------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
50% 7.215% 7.288% 7.343% 7.222% 7.288% 7.344%
75% 7.217% 7.288% 7.344% 6.637% 7.295% 7.344%
100% 7.223% 7.289% 7.344% 1.186% 5.707% 7.349%
125% 7.196% 7.289% 7.346% (22.366)% 0.219% 5.418%
The following table sets forth the amount of Realized Losses that would be
incurred with respect to the CitiCertificates in the aggregate under each of the
scenarios in the preceding tables, expressed as a percentage of the Initial
Mortgage Loan Balance:
<CAPTION>
AGGREGATE REALIZED LOSSES
PREPAYMENT SPEED
---------------------------------------------------------------------------------------
20% LOSS SEVERITY 40% LOSS SEVERITY
------------------------------------------- ---------------------------------------
SDA PERCENTAGE 150% 275% 400% 150% 275% 400%
- -------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
50% 0.277% 0.217% 0.174% 0.554% 0.435% 0.348%
75% 0.414% 0.325% 0.261% 0.827% 0.650% 0.521%
100% 0.550% 0.432% 0.347% 1.099% 0.864% 0.693%
125% 0.684% 0.538% 0.432% 1.369% 1.076% 0.864%
</TABLE>
OPTIONAL TERMINATION
Holders of all outstanding CitiCertificates may receive a distribution
reducing the Principal 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 Balance is
less than 5% of the Initial Mortgage Loan Balance, provided CMSI has received an
opinion of counsel or other evidence 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. CMSI reserves the right to transfer
its right to repurchase the Mortgage Loans as described above to any third
party. See "THE POOLING AGREEMENTS--Termination; Repurchase of Mortgage Loans
and Mortgage Certificates" in the Prospectus. Any such final distribution of
Principal Amount with respect to the CitiCertificates will be paid to
Certificateholders in order of their priority of distribution as described under
"SUMMARY OF TERMS--Payment Priorities." 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.
S-41
<PAGE>
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
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 Pool 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.
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
Each of the Offered Class A CitiCertificates (other than the Class A-9
CitiCertificates) will initially be issued in book-entry form only (the
"Book-Entry CitiCertificates") 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
are used herein. No person acquiring an interest in the Book-Entry
CitiCertificates (a "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 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, and all references herein to payments and
notices of redemption to Certificateholders or holders shall refer to payments
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.
S-42
<PAGE>
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
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.
None of the Issuer, the Servicer or 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 A-9 CitiCertificates, the Class A-IO CitiCertificates, the Class
M CitiCertificates, the Offered Class B CitiCertificates, the Unoffered 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 each outstanding Subclass of
Book-Entry CitiCertificates advise the Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or a successor) 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.
VOTING RIGHTS
At all times, 98% of the voting rights of holders of the CitiCertificates
under the Pooling Agreement will be allocated among the Class A CitiCertificates
(other than the Class A-IO CitiCertificates), the Class M
S-43
<PAGE>
CitiCertificates and the Class B CitiCertificates based upon such Class's
Beneficial Percentage. The holders of the Class A-IO CitiCertificates will be
allocated 2% of such voting rights. Voting rights will be allocated among the
Subclasses of the same Class (other than the Class A-IO CitiCertificates) in
proportion to their percentage interest in such Class based on their Principal
Amounts.
CERTAIN 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 Section 4975 of
the Internal Revenue Code of 1986, as amended (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.
The Department of Labor has granted to the Underwriter an administrative
exemption, Prohibited Transaction Exemption PTE 89-90 (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 Senior 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 Senior CitiCertificates are the
following: (1) the acquisition of such Offered Senior 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
such Offered Senior CitiCertificates acquired by the ERISA Plan are not
subordinated to the rights and interests evidenced by other certificates of the
Trust; (3) such Offered Senior 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 Investors Service, Inc.; (4) the sum of all payments made
to the Underwriter in connection with the distribution of such Offered Senior
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
Senior CitiCertificates be an "accredited investor" as defined in Rule 501(a)(1)
of Regulation D of the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act").
The Exemption does not apply to the acquisition and holding of Offered
Senior 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 each Class A Subclass of the Class A CitiCertificates does not
exceed 25% of that Class A Subclass 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
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.
Neither the Exemption nor PTE 83-1 (discussed under "CERTAIN ERISA
CONSIDERATIONS" in the Prospectus) applies to the acquisition or holding of the
Class M CitiCertificates or the Offered Class B
S-44
<PAGE>
CitiCertificates, which are subordinated to the Class A CitiCertificates.
Accordingly, no transfer of an Offered Class B CitiCertificate or Class M
CitiCertificate to a Plan will be registered unless the transferee (i) executes
a representation letter in form and substance satisfactory to the Trustee
stating that (a) it is not, and is not acting on behalf of a Plan or using the
assets of any such Plan to effect such purchase or (b) if it is an insurance
company, the source of funds used to purchase the Class M CitiCertificates or
Offered Class B CitiCertificates, as the case may be, is an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTE 95-60"), 60 Fed. Reg. 35925 (July 12,
1995) and there is no Plan with respect to which the amount of such general
account's reserves and liabilities for the contract(s) held by or on behalf of
such Plan and all other Plans maintained by the same employer (or affiliate
thereof as defined in Section V(a)(1) of PTE 95-60) or by the same employee
organization, exceed 10% of the total of all reserves and liabilities of such
general account (as such amounts are determined under Section I(a) of PTE 95-60)
at the date of acquisition or (ii) delivers (A) an opinion of counsel in form
and substance satisfactory to the Trustee and the Issuer that the purchase or
holding of the Class M CitiCertificates or Offered Class B CitiCertificates by
or on behalf of such Plan will not result in the assets of the Trust being
deemed to be "plan assets" and subject to the prohibited transaction provisions
of ERISA and the Code or Similar Law and will not subject the Servicer (or its
designee), the Issuer or the Trustee to any obligation in addition to those
undertaken in the Pooling Agreement and (B) such other opinions of counsel,
officers' certificates and agreements as the Trustee and the Issuer may require
in connection with such transfer.
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 "CERTAIN ERISA CONSIDERATIONS" in the Prospectus.
LEGAL INVESTMENT
The Offered Class A and Class M CitiCertificates will constitute "mortgage
related securities" for purposes of the Secondary Mortgage Market Enhancement
Act of 1984, as amended ("SMMEA"), so long as they are rated in 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.
THE OFFERED CLASS B CITICERTIFICATES WILL NOT CONSTITUTE "MORTGAGE RELATED
SECURITIES" FOR PURPOSES OF SMMEA.
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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a REMIC for purposes of
Sections 860A through 860G of the Code. Each Class and Subclass of Offered
CitiCertificates will be designated as a regular interest in the REMIC. The
Offered CitiCertificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial Owners (or holders, in
the case of the Class A-9 CitiCertificates, the Class M CitiCertificates and the
Offered Class B CitiCertificates) of the Offered CitiCertificates will be
required to report interest income on such Offered CitiCertificates in
accordance with the accrual method of accounting. The Class A-9 CitiCertificates
will be issued with original issue discount in an amount equal to the excess of
their Initial Principal Amount over their issue price. It is anticipated that
the Class A-7, Class B-1 and Class B-2 CitiCertificates will be issued with
original issue discount in an amount equal to the excess of their Initial
Principal Amounts over their respective issue prices (including accrued
interest). It is further anticipated that the Class A-4 and Class A-5
CitiCertificates will be issued at a premium and that the Class A-1, Class A-2,
Class A-3, Class A-6, Class A-8 and Class M CitiCertificates will be issued with
de minimis original issue discount for federal income tax purposes.
The Prepayment Assumption on the Mortgage Loans, as described in the
Prospectus, that is to be used, among other things, in determining the rate of
accrual of original issue discount is 275% of the Prepayment
S-45
<PAGE>
Model's assumed prepayment rates. See "DESCRIPTION OF THE OFFERED
CITICERTIFICATES--Weighted Average Lives" in this Prospectus Supplement. 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 "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, as "qualified mortgages" for another REMIC, and as "permitted
assets" for a financial asset securitization investment trust. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES" 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
Offered CitiCertificates are being purchased from the Issuer by the Underwriter
upon issuance. The Underwriter is committed to purchase all of the Offered
CitiCertificates if any CitiCertificates are purchased. Distribution of the
Offered CitiCertificates is being made by the Underwriter from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the Issuer will be approximately 99.29783% of the
aggregate Initial Principal Amount of the Class A CitiCertificates,
approximately 97.65625% of the aggregate Initial Principal Amount of the Class M
CitiCertificates and approximately 93.81769% of the aggregate Initial Principal
Amount of the Offered Class B CitiCertificates, plus accrued interest at the
rate of 6.50% and before deducting expenses payable by the Issuer, provided that
if the aggregate Initial Principal Amount of the Class A CitiCertificates is
less than $288,960,684, the aggregate proceeds to the Issuer (stated as a
percentage of the aggregate Initial Principal Amount of the Class A
CitiCertificates) will be adjusted upwards by not more than 0.002% and if the
aggregate Initial Principal Amount of the Class A CitiCertificates is greater
than $288,960,684, the aggregate proceeds to the Issuer (stated as a percentage
of the aggregate Initial Principal Amount of the Class A CitiCertificates) will
be adjusted downwards by not more than 0.002%. In connection with the purchase
and sale of the Offered CitiCertificates, the Underwriter may be deemed to have
received compensation from the Issuer in the form of underwriting discounts.
Subject to the terms and conditions of the purchase agreement among
Citicorp, the Issuer and Credit Suisse First Boston Corporation (the "Purchase
Agreement"), the Unoffered Class B CitiCertificates (not offered hereby) are
being purchased by Credit Suisse First Boston Corporation upon issuance. Credit
Suisse First Boston Corporation is committed to purchase all of the Unoffered
Class B CitiCertificates if any Offered CitiCertificates are purchased. The
Unoffered Class B CitiCertificates will be offered through Credit Suisse First
Boston Corporation in one or more negotiated transactions, as a private
placement to a limited number of institutional investors. The closing of the
sale of the Unoffered Class B CitiCertificates under the Purchase Agreement is a
condition to the closing of the sale of the Offered 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.
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.
LEGAL MATTERS
Certain legal matters will be passed upon for the Issuer and Citicorp by
Marla A. Berman, as an Associate General Counsel--Corporate Law of Citigroup
Inc., 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 Ms. Berman and Ms. Daniels owns or has the right to
acquire a number of shares of common stock of Citigroup Inc. equal to less than
0.01% of the outstanding common stock of Citigroup Inc. Certain ERISA matters
will be passed upon for the Issuer by Cadwalader, Wickersham & Taft, New York,
New York.
S-46
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document filed with the Commission by the Issuer is
incorporated as of its filing date in this Prospectus Supplement and Prospectus
by reference:
Current Report on Form 8-K dated March 24, 1999, filed pursuant to Section
13 of the Exchange Act.
All reports subsequently 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-47
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS IN PROSPECTUS SUPPLEMENT
PAGE
----
Adjusted Balance ................................................... S-16
Adjustment Amount .................................................. S-28
Available PO Loss Funds ............................................ S-24
Bankruptcy Coverage Termination Date ............................... S-29
Bankruptcy Loss .................................................... S-28
Bankruptcy Loss Limit .............................................. S-29
Beneficial Owner ................................................... S-42
Beneficial Percentage .............................................. S-4
Book-Entry CitiCertificates ........................................ S-42
Cede ............................................................... S-18
Certificate Account ................................................ S-18
Certificateholder .................................................. S-42
CitiCertificates ................................................... S-1
Class A CitiCertificates ........................................... S-4
Class A Interest Amount ............................................ S-20
Class A Interest Shortfall ......................................... S-21
Class A Non-PO Principal Amount .................................... S-24
Class A Optimal Principal Amount ................................... S-24
Class A Percentage ................................................. S-24
Class A PO Principal Amount ........................................ S-23
Class A Prepayment Percentage ...................................... S-24
Class A Principal Amount ........................................... S-19
Class A Principal Distribution Amount .............................. S-23
Class A Subclass Interest Amount ................................... S-20
Class A Subclass Interest Shortfall ................................ S-21
Class A Subclass Principal Amount .................................. S-19
Class A-IO CitiCertificates ........................................ S-4
Class A-IO Notional Amount ......................................... S-20
Class A-2 Percentage ............................................... S-26
Class A-2 Priority Amount .......................................... S-26
Class A-2 Shift Percentage ......................................... S-26
Class B CitiCertificates ........................................... S-4
Class B Interest Amount ............................................ S-21
Class B Optimal Principal Amount ................................... S-27
Class B Percentage ................................................. S-27
Class B Prepayment Percentage ...................................... S-27
Class B Principal Amount ........................................... S-20
Class B Subclass ................................................... S-4
Class B Subclass Interest Amount ................................... S-20
Class B Subclass Interest Shortfall ................................ S-22
Class B Subclass Optimal Principal Amount .......................... S-27
Class B Subclass Percentage ........................................ S-27
Class B Subclass Prepayment Percentage ............................. S-27
Class B Subclass Principal Amount .................................. S-19
Class B-1 Principal Amount ......................................... S-20
Class B-2 Principal Amount ......................................... S-20
Class M CitiCertificates ........................................... S-4
Class M Interest Amount ............................................ S-20
Class M Interest Shortfall ......................................... S-22
S-48
<PAGE>
PAGE
----
Class M Optimal Principal Amount ................................... S-26
Class M Percentage ................................................. S-26
Class M Prepayment Percentage ...................................... S-26
Class M Principal Amount ........................................... S-19
Closing Date ....................................................... S-7
CMI ................................................................ S-16
CMSI ............................................................... S-7
Code ............................................................... S-44
Compensating Cap ................................................... S-21
Cut-Off Date ....................................................... S-7
Debt Service Reduction ............................................. S-28
Deficient Valuation ................................................ S-28
Definitive Certificates ............................................ S-43
Detailed Description ............................................... S-16
Discount Loans ..................................................... S-5
Distribution Date .................................................. S-5
DTC ................................................................ S-10
ERISA .............................................................. S-44
ERISA Plan ......................................................... S-44
Excess Bankruptcy Losses ........................................... S-29
Excess Fraud Losses ................................................ S-28
Excess Losses ...................................................... S-9
Excess Special Hazard Losses ....................................... S-28
Exemption .......................................................... S-44
Extraordinary Losses ............................................... S-31
Fitch .............................................................. S-11
Fraud Coverage Termination Date .................................... S-28
Fraud Loss ......................................................... S-28
Fraud Loss Limit ................................................... S-28
Indirect Participants .............................................. S-42
Initial Mortgage Loan Balance ...................................... S-16
Initial Principal Amount ........................................... S-2
Interest Accrual Period ............................................ S-6
Issuer ............................................................. S-7
Last Scheduled Distribution Date ................................... S-33
Liquidated Loan .................................................... S-27
Liquidated Loan Loss ............................................... S-27
Liquidation Proceeds ............................................... S-28
Loss Severity Percentage ........................................... S-40
Mortgage Loans ..................................................... S-16
NNR ................................................................ S-5
Non-PO Loss Amount ................................................. S-29
Non-PO Percentage .................................................. S-5
Non-PO Pool Balance ................................................ S-19
Non-Supported Interest Shortfall ................................... S-21
Notional Amount .................................................... S-6
Offered CitiCertificates ........................................... S-4
Offered Class B CitiCertificates ................................... S-4
Offered Class B Subclass ........................................... S-4
Original Subordinated Principal Amount ............................. S-25
S-49
<PAGE>
PAGE
----
Participants ....................................................... S-42
Plan ............................................................... S-44
Pool ............................................................... S-16
Pool Balance ....................................................... S-19
Pool Distribution Amount ........................................... S-18
Pooling Agreement .................................................. S-17
PO Loss Amount ..................................................... S-23
PO Percentage ...................................................... S-5
PO Pool Balance .................................................... S-19
Premium Loans ...................................................... S-5
Prepayment Interest Shortfalls ..................................... S-9
Prepayment Model ................................................... S-33
Principal Amount ................................................... S-6
PTE 95-60 .......................................................... S-45
Purchase Agreement ................................................. S-46
Realized Losses .................................................... S-29
Record Date ........................................................ S-7
REMIC .............................................................. S-10
Rules .............................................................. S-42
Scheduled Principal ................................................ S-22
SDA ................................................................ S-40
Securities Act ..................................................... S-44
Servicer ........................................................... S-7
Servicing Fee ...................................................... S-42
Similar Law ........................................................ S-44
SMMEA .............................................................. S-45
Special Hazard Loss ................................................ S-28
Special Hazard Loss Limit .......................................... S-28
Special Hazard Termination Date .................................... S-28
Special Hazards .................................................... S-28
S&P ................................................................ S-11
Structuring Assumptions ............................................ S-34
Subordinated CitiCertificates ...................................... S-13
Subordinated Percentage ............................................ S-24
Subordinated Prepayment Percentage ................................. S-26
Subordination Depletion Date ....................................... S-9
Subordination Level ................................................ S-31
Trust .............................................................. S-1
Trustee ............................................................ S-7
Underwriter ........................................................ S-1
Underwriting Agreement ............................................. S-46
Unoffered Class B CitiCertificates ................................. S-29
Unpaid PO Loss Amount .............................................. S-23
Unscheduled Principal .............................................. S-22
S-50
<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 Principal Amount, the Certificate 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 Principal 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 another
affiliate of the Issuer specified in the applicable Prospectus Supplement
(collectively with CMI, Citibank and CFSB, the "Affiliated Originators") or (c)
from unaffiliated seller-servicers (the "Third Party Originators" and
collectively with the Affiliated 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 MARCH 25, 1999.
<PAGE>
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"). Such reports 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 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.
ADDITIONAL DETAILED INFORMATION
The Issuer currently offers by subscription detailed mortgage loan
information in machine readable format updated on a monthly basis (the "Detailed
Information") with respect to each outstanding Series of Certificates. The
Detailed Information reflects payments made on the individual mortgage loans,
including prepayments in full and in part made of such mortgage loans, as well
as the liquidation of any such mortgage loans, and identifies various
characteristics of the mortgage loans. For further information regarding the
Detailed Information and subscriptions thereto, please contact Citicorp
Mortgage, Inc., 15851 Clayton Road West, Ballwin, Missouri 63011, telephone
number (314) 256-6446.
2
<PAGE>
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 on 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 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
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.
3
<PAGE>
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 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 Principal
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
4
<PAGE>
as are agreed upon by the paying agent and a Certificateholder; provided,
however, that distributions in reduction of Principal 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 Principal 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 Principal Amount and the remaining Principal 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 Principal Amount thereof
and (iii) the Principal 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 Certificate Rate will be made on the 25th day of each month, or if such
day is not a business day, the immediately following business day (each, a
"Distribution Date"), or on such other date as may be specified in the related
Prospectus Supplement, to the persons in whose names the Certificates are
registered at the close of business on the last business day of the preceding
month, or such other date as may be specified in the related Prospectus
Supplement (the "Record Date"). Alternatively, if the related Prospectus
Supplement so provides, distributions will be made at quarterly, semi-annual or
other intervals, but at least annually. The amount of each distribution will be
determined on the 18th day of the month of the related Distribution Date or, if
such 18th day is not a business day, the immediately preceding business day
(each, a "Determination Date") or such other date as may be specified in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions to Certificateholders of a Class or Subclass will be made pro rata
among Certificateholders of such Class or Subclass. The manner in which any
available credit support will be allocated among the Classes or Subclasses of
Certificates in a Series will be specified in the related Prospectus Supplement.
Distributions in reduction of Principal 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"), the net proceeds of the liquidation of defaulted Mortgage Loans,
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);
5
<PAGE>
(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 "Certificate 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 Principal Amount
of each such Class or Subclass of Certificates at the Certificate Rate
(calculated on the basis of a 360-day year of twelve 30-day months) and for the
periods (each an "Interest Accrual Period") specified in the Prospectus
Supplement. Accrual CitiCertificates will accrue interest as described above but
such accrued interest will not be distributed until the occurrence of the events
specified in the related Prospectus Supplement. Prior to such time, the interest
accrued but not distributed on the Accrual CitiCertificates will be added to the
Principal Amount thereof on each Distribution Date.
Distributions in Reduction of Principal 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 "Principal Amount" which, at any time will equal the
maximum amount in respect of principal which the holder of such Certificate will
be entitled to receive out of the future cash flow on the Mortgage Loans or the
Mortgage Certificates, and out of other assets, if any, included in the Trust.
The Prospectus Supplement will specify the method by which the amount of
distributions in reduction of Principal 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 Principal 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 Principal Amount of each Certificate of
a Class or Subclass to zero. The initial aggregate Principal 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
Principal 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
6
<PAGE>
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 Certificate Rates of the related Series of Certificates.
With respect to any Series as to which the initial Principal Amount of the
Certificates is calculated on the basis of the Pool Values of the Mortgage Loans
or the Mortgage Certificates, the Prospectus Supplement for each such Series
will describe the method or methods (and related assumptions) used to determine
the Pool Value of the Mortgage Certificates and Mortgage Loans or the Pool Value
Groups securing such Series. In any event, the aggregate of the Pool Values of
all the Mortgage Certificates and Mortgage Loans and all the Pool Value Groups
included in the Pool for a Series of Certificates will always be at least equal
to the aggregate Stated Amount of the Certificates of such Series. The
Certificate Distribution Amount with respect to a Series as to which the initial
Principal 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 Principal 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 Principal Amount of a Certificate may increase in the
case of Accrual CitiCertificates by interest accrued but not then distributable
on such Accrual CitiCertificates, and, to the extent that a Pool consists of
adjustable rate mortgages which provide for limitations on the amount by which
monthly payments by a Mortgagor may be increased and changes in the interest
rate on the Mortgage Loan are made more frequently than changes in the payment,
if an increase in the interest rate on the Mortgage Loan is not covered by the
amount of the related scheduled monthly payment.
The aggregate amount which will be distributed in reduction of Principal
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 Principal Amount thereof, and (iii)
any amounts in reduction of Principal 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 Principal Amount (a "Loss Allocation Event"), then
the amount then available for distribution in reduction of Principal Amount on
such Distribution Date and each subsequent
7
<PAGE>
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 Principal Amount of all Classes of
CitiCertificates then outstanding. Unless otherwise specified in the related
Prospectus Supplement, any shortfalls of interest will be allocated on a pro
rata basis based on the amount of interest then distributable (or allocable, in
the case of each Class of Accrual CitiCertificates) to each Class. On or after
the Distribution Date on which a Loss Allocation Event occurs, the Principal
Amount of all Classes then outstanding will be reduced on a pro rata basis, or
as otherwise specified in the related Prospectus Supplement, by the amount of
any losses actually incurred with respect to the Mortgage Loans.
Funds available for distribution from the Certificate Account on a
Distribution Date will include distributions on Mortgage Certificates in the
Pool received in the related Due Period and payments received with respect to
Mortgage Loans in the Pool in the related Due Period, as described herein. See
APPENDIX A: "THE MORTGAGE LOANS AND CitiMortgageCertificates--Payments on
Mortgage Loans in Pools." Amounts remaining in the Certificate Account which are
available for distribution, as so described, after payment of all amounts due to
holders of CitiCertificates, and after payment of certain expenses therefrom,
will be distributed to holders of Residual Certificates on a pro rata basis.
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 Principal 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 Principal Amount of the CitiCertificates and
interest thereon. If losses occur which exceed the amount covered by credit
support or are of a type which are not covered by the credit support, holders of
the CitiCertificates will bear their allocable share of such deficiencies as
described in the related Prospectus Supplement.
Subordination
If so specified in the related Prospectus Supplement, credit support for one
or more Classes or Subclasses of Senior Certificates in a Senior/Subordinated
Series may include one or more Classes or Subclasses of Subordinated
Certificates, such that distributions in respect of Scheduled Principal,
Principal Prepayments, interest or any combination thereof that otherwise would
have been payable to one or more Classes or Subclasses of Subordinated
Certificates will instead be payable to holders of one or more Classes or
Subclasses of Senior Certificates under the circumstances and to the extent
specified in the related Prospectus Supplement. Such subordination provisions
will have the effect of accelerating the amortization of the Senior Certificates
and increasing the respective percentage ownership interest evidenced by the
Subordinated Certificates in the related Trust, as well as preserving the
availability of the subordination provided by the Subordinated Certificates.
8
<PAGE>
If so specified in the related Prospectus Supplement, delays in receipt of
Scheduled Principal and losses on defaulted Mortgage Loans or mortgage loans
underlying the Mortgage Certificates will be borne first by the various Classes
or Subclasses of Subordinated Certificates under the circumstances and subject
to the limitations specified in the related Prospectus Supplement, which will
have the effect of increasing the respective percentage ownership interest of
the Senior Certificates in the Trust. The aggregate distributions in respect of
delinquent Scheduled Principal and the aggregate losses in respect of defaulted
Mortgage Loans or mortgage loans underlying Mortgage Certificates which must be
borne by each Class or Subclass of Subordinated Certificates at any one time or
over the lives of the Certificates by virtue of the subordination and the amount
of the distributions otherwise distributable to the Subordinated
Certificateholders that will be distributable to the Senior Certificateholders
on any Distribution Date may be limited as specified in the Prospectus
Supplement (the "Subordination Amount"). If the aggregate distributions in
respect of delinquent Scheduled Principal and/or the aggregate losses in respect
of defaulted Mortgage Loans or mortgage loans underlying Mortgage Certificates
were to exceed the total amounts payable and available for distribution to the
Subordinated Certificateholders or, if applicable, were to exceed the specified
maximum Subordination Amount, holders of the Senior Certificates could
experience losses.
The protection afforded to the Senior Certificateholders by the preferential
right of the Senior Certificateholders to receive current distributions from the
Pool may be enhanced to the extent specified in the related Prospectus
Supplement by the establishment and maintenance of one or more reserve accounts
(each a "Subordination Reserve Fund") funded by the retention of all or any
portion of distributions otherwise distributable to the holders of the
Subordinated Certificates on any Distribution Date, by all or a portion of the
Spread and/or by an initial deposit of the Issuer. Unless otherwise specified in
the related Prospectus Supplement, the Subordination Reserve Fund will be
included in the Trust. If specified in the Prospectus Supplement relating to a
Series of Certificates, the Subordination Reserve Fund may be funded in any
other manner acceptable to the rating agencies rating the Series of Certificates
and consistent with an election to treat the Trust (or one or more segregated
pools of assets therein) for such Series as one or more REMICs (as the case may
be).
Eligible Investments for monies deposited in the Subordination Reserve Fund
will be specified in the applicable Pooling Agreement and, unless otherwise
provided in the related Prospectus Supplement, will mature no later than the
next Distribution Date.
Holders of Subordinated Certificates of a Series will not be required to
refund any amounts which have been properly distributed to them, regardless of
whether there are sufficient funds to distribute to Senior Certificateholders
the amounts to which they are later entitled.
Limited Guaranty
If so specified in the Prospectus Supplement relating to a Series of
Certificates, credit support may be provided by a Guaranty of Citicorp or
another guarantor specified in such Prospectus Supplement. The coverage, amount
and frequency of any reduction in coverage provided by a Guaranty issued with
respect to a Series of Certificates will be set forth in the Prospectus
Supplement relating to such Series.
Letter of Credit
If so specified in the Prospectus Supplement relating to a Series of
Certificates, credit support may be provided by the issuance of a letter of
credit by the bank or financial institution specified in the applicable
Prospectus Supplement. The coverage, amount and frequency of any reduction in
coverage provided by a letter of credit issued with respect to a Series of
Certificates will be set forth in the Prospectus Supplement relating to such
Series.
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.
9
<PAGE>
Special Hazard Insurance Policies
If so specified in the related Prospectus Supplement, for each Series of
Certificates as to which a pool insurance policy is provided, the Issuer will
also obtain a special hazard insurance policy for the related Pool in the amount
set forth in such Prospectus Supplement. The special hazard insurance policy
will, subject to the limitations described in the applicable Prospectus
Supplement, protect against loss by reason of damage to Mortgaged Properties
caused by certain hazards not insured against under the standard form of hazard
insurance policy for the respective states in which the Mortgaged Properties are
located. The amount and principal terms of any such coverage will be set forth
in the Prospectus Supplement.
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, losses resulting
from a bankruptcy proceeding relating to a mortgage affecting the Mortgage Loans
in a Pool with respect to a Series of Certificates will be covered under a
mortgagor bankruptcy bond (or any other instrument that will not result in a
downgrading of the rating of the Certificates of a Series by the rating agency
or rating agencies that rated such Series). Any mortgagor bankruptcy bond or
such other instrument will provide for coverage in an amount meeting the
criteria of the rating agency or rating agencies rating the Certificates of the
related Series. The amount and principal terms of any such coverage will be set
forth in the related Prospectus Supplement.
Draws Under Credit Support Other Than Subordination
The obligation of the issuer of credit support to make payments under such
credit support for the benefit of holders of Certificates shall be limited at
any time to the amount available (the "Amount Available") at such time. The
initial Amount Available shall be equal to the percentage specified in the
Prospectus Supplement of the aggregate Adjusted Balance of the related Mortgage
Loans as of the applicable Cut-Off Date (the "Credit Support Percentage"). The
Amount Available to be paid under any credit support may be subject to reduction
commencing at the times and in the amounts described in the applicable
Prospectus Supplement and Pooling Agreement. In addition, the Amount Available
to be paid under any credit support for losses or delinquencies arising from
certain causes may be limited to the extent set forth in the related Prospectus
Supplement. To the extent set forth in the applicable Prospectus Supplement and
in the event that more than one series of CitiMortgageCertificates underlies a
Series of Certificates, credit support may cover two or more of the series of
such CitiMortgageCertificates. This may be accomplished by the credit support on
the individual series of CitiMortgageCertificates being consolidated or by
credit support which relates to more than one of the series of
CitiMortgageCertificates and provides coverage for all such series of
CitiMortgageCertificates up to the Credit Support Percentage specified in the
Prospectus Supplement of the aggregate Adjusted Balance of the Mortgage Loans
underlying such CitiMortgageCertificates.
The Issuer or the Servicer will be required to determine as of each
Determination Date whether a payment under any credit support will be necessary
on the next Distribution Date. The Issuer or the Servicer will advise the
Trustee of such determination and make a demand for payment under the credit
support to the issuer of credit support in accordance with the provisions of the
credit support and the applicable Pooling Agreement, as described in the related
Prospectus Supplement. The proceeds of such payments under the credit support
will be deposited into the Certificate Account. Unless otherwise specified in
the related Prospectus Supplement, payments received under the credit support
will be applied first to reimburse Voluntary Advances.
Payments made by an issuer of credit support pursuant to its obligations
under the credit support to cover delinquencies will be allocated on a
loan-by-loan basis to specific Mortgage Loans, and the payments will be
reimbursed, as the specific Mortgagors make their delinquent payments, by
monthly withdrawals from the Certificate Account as such delinquent installments
are received. Remaining obligations under the credit support will be increased
as such payments are reimbursed. In addition, payments made under the credit
support to cover amounts in respect of interest distributed (but not received)
with respect to Principal Prepayments will be reimbursed to the issuer of credit
support from Servicing Compensation otherwise payable to the Issuer or the
Servicer. The credit support will be increased to the extent of such
reimbursement.
If any Mortgage Loans become Liquidating Loans, the issuer of credit support
may, if so specified in the related Prospectus Supplement, be obligated to
purchase from the Trustee such Liquidating Loans up to the amount of the
remaining obligation under the credit support. The Servicer may make an advance
of a payment (a "Purchase Amount Advance") in respect of a Liquidating Loan on
behalf of the issuer of credit support in order to avoid demands or
10
<PAGE>
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.
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
11
<PAGE>
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 Principal Amount of such Class is expected to
be reduced to zero. Since the rate of distributions in reduction of Principal
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 Principal Amount of such
Certificate has been reduced to zero. The weighted average life of the
Certificates of a Series will be influenced by, among other things, the rate at
which principal on the mortgage loans (which include, for purposes of this
subsection, Mortgage Loans included directly in the Pool and mortgage loans
underlying Mortgage Certificates) underlying or included in the Pool for such
Certificates is paid, which may be in the form of scheduled amortization or
prepayments (including prepayments and liquidations due to default, casualty,
receipt of insurance proceeds, condemnation and the like).
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. Each Prospectus Supplement for CitiCertificates of any Series
consisting of more than one Class of CitiCertificates will describe the payment
standard or model used for the related Series and will contain tables setting
forth the projected weighted average life of each Class of CitiCertificates of
such Series and, to the extent distributions are not made pro rata among all
Classes of CitiCertificates of such Series, the percentage of the Initial
Principal 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
12
<PAGE>
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 from Third Party
Originators, and will perform such functions as are described in the Pooling
Agreement. The Issuer may subcontract or otherwise delegate any of its duties
under the Pooling Agreement to any qualified 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 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, which shall be Norwest Bank Minnesota, National
Association, or another qualified master servicer (each a "Third Party Master
Servicer"). Each of CMI and any Third Party Master Servicer may further
subcontract or delegate to a subservicer their obligations as servicer for the
Affiliated Mortgage Loans and Third Party Mortgage Loans, respectively. Such
subcontracting or delegation does not relieve the Issuer of its responsibility
with respect to such duties. The Trustee may remove the Servicer for failure to
perform any of its duties under the Pooling Agreement if such failure continues
unremedied for 60 days after written notice from the Trustee. The Issuer may not
resign from its obligations and duties as Servicer under the Pooling Agreement
except upon the determination, evidenced by an opinion of counsel, that its
performance of such duties is no longer permissible under applicable law, or
with the consent of the Trustee and of the holders of 66-2/3% of outstanding
Certificates. The Servicer (together with any entity to which it has
subcontracted or delegated any of its duties) 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 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
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.
13
<PAGE>
The following summaries of characteristics of the Mortgage Loans and the
CitiMortgageCertificates are subject to and qualified by reference to APPENDIX
A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES."
MORTGAGE LOANS
The Mortgage Loans included directly in a Pool or underlying
CitiMortgageCertificates in a Pool will be mortgage loans secured by first liens
on one- to four-family residential properties, and may be fixed rate or
adjustable rate loans, or participations or other beneficial interests in such
loans, which may provide for full amortization of principal, deferral of a
portion of interest, balloon payments of principal or have such other
characteristics as set forth in the related Prospectus Supplement. Properties
securing Mortgage Loans may include leasehold interests in residential
properties, the title to which is held by third party lessors. The Mortgage
Loans may also contain cooperative apartment loans evidenced by promissory notes
secured by security interests in shares issued by private, non-profit,
cooperative housing corporations and in the related proprietary leases or
occupancy agreements granting exclusive rights to occupy specified dwelling
units in such cooperatives' buildings. Each Mortgage Loan will be selected and
purchased by the Issuer for inclusion in the related Pool, or will be selected
by the Originator in connection with the issuance of a CitiMortgageCertificate,
from among those originated or acquired by an Originator in the ordinary course
of business activities of the Originator or acquired from an affiliate of an
Originator or from a Third Party Originator. Mortgage Loans in a Pool may be
covered by a guaranty or certain other credit support, as described in the
related Prospectus Supplement.
The Mortgage Loans will have original individual principal balances of no
more than $2,500,000 and, except as otherwise set forth in the related
Prospectus Supplement, original maturities of from 10 to 30 years. Fixed rate
Mortgage Loans will be of a type specified in APPENDIX A.
Adjustable rate Mortgage Loans will bear interest at a rate which will be
adjusted from time to time to equal (to the nearest eighth of a percent) a
certain number of basis points over an index interest rate, as specified in
APPENDIX A or the related Prospectus Supplement. Adjustments may be subject to
limits on the magnitude of any one adjustment and on the magnitude of aggregate
upward adjustments during the life of the Mortgage Loan. Adjustable rate
Mortgage Loans may provide for deferral of a certain portion of interest and
increases to the principal balances in order to limit the amount by which the
scheduled monthly payments will increase following an increase in the rate of
interest. The amount of the difference between 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
14
<PAGE>
Prospectus Supplement) in an account established and maintained with a
depository by the Issuer or the Originator (or in the case of Third Party
Mortgage Loans, with the related subservicer), and amounts will be withdrawn
monthly from such account promptly following receipt of the Mortgagor's monthly
payment and deposited in the related Certificate Account. See "DESCRIPTION OF
CERTIFICATES--Distributions to Certificateholders." Buydown funds with respect
to any Series may be held in the same deposit account as buydown funds for all
buydown mortgage loans serviced by the Issuer, the Originator or any
subservicer. In the case of buydown funds contributed on an annual basis by the
Mortgagor's employer, such buydown loans will generally have a buydown period of
three years but may have a buydown period of up to five years. The employer may
or may not be required to guarantee the payment of buydown funds even if the
Mortgagor were no longer employed by such employer.
Unless otherwise specified in the related Prospectus Supplement, the
original principal amount of each Mortgage Loan will be not more than 90% of the
Original Value of the property securing such Mortgage Loan. Each Affiliated
Mortgage Loan having an original principal amount exceeding 90% of the Original
Value of the Mortgaged Property will be covered by primary mortgage insurance
against losses from default on such Mortgage Loan in an amount ranging from 12%
to 30% of the principal amount of the Mortgage Loan outstanding from time to
time. Such insurance will be in effect at least until the principal amount of
the Mortgage Loan is reduced to 80% of its Original Value. 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."
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
15
<PAGE>
Loans underlying such CitiMortgageCertificate and will act as the servicer or
master servicer (in such capacity, the "Servicer" or "servicer") of such
Mortgage Loans (or will subcontract with an affiliate to act as subservicer).
The Mortgage Loans may be covered by certain credit support described in the
Prospectus Supplement.
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. 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
16
<PAGE>
provisions of such certificate and any Pooling Agreement pursuant to which any
such certificate is issued will be set forth in the related Prospectus
Supplement.
Issuer Certificates
This summary of Issuer Certificates is subject to and qualified by
reference to APPENDIX A: "THE MORTGAGE LOANS AND CITIMORTGAGECERTIFICATES."
The Pool with respect to any Series of Issuer Certificates may consist in
whole or in part of Issuer Certificates initially issued to the public by the
Issuer or an affiliate of the Issuer, and which represent all or a portion of
the regular interests in a pool of mortgage loans originated or acquired by one
or more of the Affiliated Originators or acquired by the Issuer ("Whole or
Partial Pool Issuer Certificates"). Whole or Partial Pool Issuer Certificates
included in a Pool may represent all or a portion of one or more classes or
subclasses of one or more series of previously issued Issuer Certificates.
Each Whole or Partial Pool Issuer Certificate will have been issued pursuant
to a pooling and servicing agreement between the related issuer, which is
expected to be the Issuer, one or more Originators and/or affiliates of the
Issuer, and the trustee for such series of CitiCertificates (the "Underlying
Trustee"). Unless otherwise specified in the Prospectus Supplement, the terms of
such pooling agreement will generally conform to those provided in the Pooling
Agreement with respect to such Series of Certificates. See "THE POOLING
AGREEMENTS."
Certain of the mortgage loans underlying a series of Whole or Partial Pool
Issuer Certificates may be covered by (i) individual policies of primary
mortgage insurance insuring against all or a portion of any foreclosure losses
on the particular mortgage loans covered thereby, (ii) subordination or guaranty
arrangements and/or (iii) such other policies of insurance and other forms of
credit support (including, without limitation, obligations to advance delinquent
payments) as may be specified in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, no Whole or Partial
Pool Issuer Certificate will be so insured or guaranteed.
Unless otherwise provided in the related Prospectus Supplement, it is
expected that all collections received by servicers with respect to the mortgage
loans underlying each series of Whole or Partial Pool Issuer Certificates (net
of servicing fees to be retained by such servicers and such other amounts as may
be specified in the related pooling and servicing agreement), including monthly
distributions of the principal and interest components of such collections
(adjusted to the stated rate or pass-through rate (as the case may be) borne by
such Whole or Partial Pool Issuer Certificate) will be distributed directly to
the related Underlying Trustee.
The Prospectus Supplement will specify, to the extent relevant and to the
extent such information is reasonably available to the Issuer and the Issuer
reasonably believes such information to be reliable, (i) the aggregate
approximate principal amount and type of each class or subclass of Whole or
Partial Pool Issuer Certificates to be included in the Pool; (ii) certain
characteristics of the mortgage loans which comprise the underlying assets for
each Whole or Partial Pool Issuer Certificate, on a pool by pool basis,
including (a) the aggregate Adjusted Balance of such mortgage loans and the
years of origination thereof, (b) if Converted Mortgage Loans with an aggregate
Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of all mortgage
loans in any pool underlying a Whole or Partial Pool Issuer Certificate were
delivered, the aggregate Adjusted Balance of any such Converted Mortgage Loans,
(c) the original loan-to-value ratios of the mortgage loans of each such pool,
(d) the types of Mortgaged Properties securing the mortgage loans, (e) the
geographic distribution of the Mortgaged Properties, prepared on a
state-by-state basis for states where mortgage loans having an aggregate
Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of mortgage
loans in the related Pool are located, (f) if Buydown Mortgage Loans with an
aggregate Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of
all mortgage loans in the related Pool were delivered, the aggregate Adjusted
Balance of Buydown Mortgage Loans in the related Pool, (g) if loans on
residential leasehold properties ("Leasehold Loans") with an aggregate Adjusted
Balance exceeding 10% of the aggregate Adjusted Balance of all mortgage loans in
the related Pool were delivered, the aggregate Adjusted Balance of Leasehold
Loans in the related Pool and (h) if 15-year, fixed rate tiered-payment mortgage
loans originated by CFSB's California branches and providing for a prepayment
penalty during the first 12 months following origination with an aggregate
Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of all mortgage
loans in the related Pool were delivered, the aggregate Adjusted Balance of such
mortgage loans in the related Pool; (iii) the maximum original term-to-stated
maturity of each series of Whole or Partial Pool CitiCertificates; (iv) the
weighted average term-to-stated maturity of each series of Whole or Partial Pool
Issuer Certificates; (v) the pass-through rate
17
<PAGE>
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.
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 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
18
<PAGE>
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 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
19
<PAGE>
Mortgage Loans included in a Pool will be assigned to the Trustee and the
related Mortgage Notes, endorsed to the Trustee or in blank, will be delivered
to the Trustee or its custodian. The obligation of such Trustee to make
distributions on the Certificates is limited to the amount of payments (net of
servicing compensation) on the Mortgage Certificates and Mortgage Loans that
were actually received by it unless the Issuer enters into a Minimum Prepayment
Agreement. The Trustee may not assign, transfer, pledge or dispose of any assets
in the Certificate Account for such Series, except to a successor Trustee with
respect to such Series, the holders of the Residual Certificates or the holders
of CitiCertificates for such Series as set forth in the Pooling Agreement and
except as permitted under the Pooling Agreement in connection with foreclosures
and other realizations on defaulted Mortgage Loans. 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.
20
<PAGE>
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
CFSB is a federal savings bank with its executive offices in San Francisco,
California. It was formed in 1982 in connection with the acquisition of Fidelity
Savings & Loan Association. As of the end of December 31, 1990, Citibank,
Federal Savings Bank (formerly Citicorp Savings of Illinois, A Federal Savings
and Loan Association) and Citibank, Federal Savings Bank (formerly Citicorp
Savings of Washington, D.C., A Federal Savings and Loan Association), both
wholly owned indirect subsidiaries of Citicorp, were merged into CFSB. As of
March 31, 1993, Citibank, Federal Savings Bank (formerly Citicorp Savings of
Florida, A Federal Savings and Loan Association), a wholly owned indirect
subsidiary of Citicorp, was merged into CFSB. As of May 1, 1993 CFSB acquired
the branches of Citibank (Maryland), N.A. and as of January 3, 1994, CFSB
acquired the branches of Citibank (Florida), N.A.
The deposits of CFSB are insured by the FDIC to the extent provided by law.
Since 1982, CFSB has been either a direct or an indirect wholly owned subsidiary
of Citicorp. CFSB has been an active one- to four-family residential mortgage
lender since 1983.
Citibank Service Corporation, an affiliate of CFSB, acts as trustee with
respect to substantially all deeds of trust relating to mortgaged property
located in California securing mortgage loans originated or acquired by CFSB.
Under California law, the functions of a trustee under a deed of trust are to
foreclose upon the mortgaged property upon notification by the beneficiary of a
delinquency and to execute full and partial reconveyances of such mortgaged
property upon direction of the beneficiary.
The principal executive offices of CFSB are located at 1 Sansome Street, San
Francisco, California 94104. Its telephone number is (415) 627-6000.
CITIBANK, N.A.
Citibank is a commercial bank offering a wide range of banking services to
its customers in the New York City metropolitan area and around the world.
Citibank's deposits are insured by the FDIC to the extent provided by law.
Since 1968, Citibank has been a wholly owned subsidiary of Citicorp. Citibank
has been an active one- to four-family residential real estate mortgage
21
<PAGE>
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.
THIRD PARTY ORIGINATORS
If Third Party Loans having an aggregate Adjusted Balance exceeding 10% of
the aggregate Adjusted Balance of the Mortgage Loans in a Pool are included in a
Pool, the related Prospectus Supplement will identify the Third Party
Originators of such Third Party Loans.
Unless otherwise specified in the related Prospectus Supplement, each Third
Party Originator will be required to satisfy the qualifications set forth in
this paragraph. Each Third Party Originator must be an institution experienced
in originating mortgage loans of the type contained in the related Pool in
accordance with accepted practices and prudent guidelines. Each Third Party
Originator must be a savings and loan association, savings bank, commercial
bank, credit union, insurance company or a mortgagee approved by the Secretary
of Housing and Urban Development.
LOAN UNDERWRITING POLICIES
LOAN UNDERWRITING POLICIES OF THE AFFILIATED ORIGINATORS
Except as specifically noted below and except as may be specified in the
applicable Prospectus Supplement, residential real estate mortgage loans
originated or acquired from affiliated or unaffiliated third parties by the
Affiliated Originators are subject to the same underwriting process. For certain
residential mortgage loans the Affiliated Originators have contracted with or
delegated the underwriting process to certain unaffiliated third parties. The
underwriting process, which is described below, assesses the prospective
borrower's ability to repay and the adequacy of the property as collateral for
the loan requested. The loan underwriting policies of each Affiliated Originator
require such Originator's loan underwriters to be satisfied that the value of
the property being financed currently supports, and will likely support in the
future, the outstanding loan balance with sufficient excess value to protect
against minor adverse shifts in real estate values. In general, it is the policy
of each Affiliated Originator not to make conventional one- to four-family real
estate loans with more than 95% loan-to-value ratios. Unless otherwise specified
in the related Prospectus Supplement, a Pool will not contain any Real Estate
Loans with more than a 95% loan-to-value ratio.
Each Affiliated Originator's real estate lending process for one- to
four-family residential mortgage loans follows a standard procedure, established
to comply with applicable federal and state laws and regulations. Initially, a
prospective borrower is required to fill out an application designed to provide
pertinent information about the prospective borrower, the property to be
financed and the type of loan desired. As part of the description of the
prospective borrower's financial condition, each Affiliated Originator requires
a current balance sheet describing assets and liabilities and a statement of
income and expenses, proof of income such as a paycheck stub or W-2 form (except
for certain self-employed prospective borrowers), proof of liquid assets
(required as of April 1991), telephone verification of employment (required as
of April 1991), which may be verified utilizing a third party national
employment verification service, and a credit report which summarizes the
prospective borrower's credit history with local merchants and lenders and any
record of bankruptcy. From February 1991 until May 1997, it was the policy of
each Affiliated Originator to obtain at least two credit reports (which could be
in the form of a merged credit bureau report) with respect to a prospective
borrower. Since May 1997, it has been the policy of each Affiliated Originator
to obtain the single most comprehensive readily available credit bureau report
with respect to a prospective borrower.
22
<PAGE>
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 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 an independent fee appraiser. 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. The independent appraisers do not receive any compensation dependent
upon either the amount of the loan or its consummation. In
23
<PAGE>
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 full 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
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
24
<PAGE>
Mortgage Loan, the borrower's repayment ability will have been determined only
at origination on the basis of such borrower's then-current income and
obligations and interest rates for adjustable interest rate mortgage loans
which, traditionally, have been lower than the interest rates charged by
mortgage lenders on fixed interest rate mortgage loans. The borrowers at their
exclusive options may elect to convert their mortgage loans into fixed interest
rate loans or to continue with the adjustable interest rate features. A
borrower's conversion option is conditional only upon a review by the applicable
Affiliated Originator of the loan payment history and payment of a conversion
fee. It is possible that the fixed interest rate payable by the borrower upon
conversion will be higher than the adjustable interest rate otherwise payable.
In that event, the borrower's capacity to repay the loan may be reduced.
Unless otherwise specified in the Prospectus Supplement, no ARM Pool will
contain ARMs which provide for conversion options.
Each Affiliated Originator originates Buydown Mortgage Loans. Unless
otherwise specified in the applicable Prospectus Supplement, (i) during the
buydown period, each of the Buydown Mortgage Loans will provide for payments
payable by the Mortgagor based on a hypothetical reduced interest rate (the
"buydown mortgage rate") that will not have been more than 5% below the mortgage
rate at origination, (ii) the annual increase in the buydown mortgage rate
during the buydown period will not exceed 1% or in the case of tiered payment
Mortgage Loans the annual increase in the mortgagors' monthly payment will
increase as described in the "THE POOLS--Mortgage Loans" and (iii) the buydown
period will not exceed three years in the case of Citibank Pools and Buydown
Mortgage Loans originated by the Florida branches of CFSB, five years in the
case of CMI Pools, and six years in the case of CFSB Pools (other than those
Buydown Mortgage Loans originated by its Florida branches). For all Pools, with
respect to Mortgage Loans originated prior to October 1, 1991, the maximum
amount of the buydown funds that may be contributed by the seller or builder of
the related Mortgaged Property is limited to 9% of the Original Value of the
Mortgaged Property; with respect to Mortgage Loans originated on or after
October 1, 1991, the maximum amount of buydown funds that may be contributed by
the seller or builder of the related Mortgaged Property is limited to 6% of the
Original Value of the Mortgaged Property. These limitations do not apply to
contributions from the Mortgagor or immediate relatives or the employer of the
mortgagor. Except as may be otherwise indicated in the applicable Prospectus
Supplement, the Mortgagor under each Buydown Mortgage Loan will have been
qualified at an interest rate which is not more than 5% per annum below the
current mortgage rate at origination. Accordingly, the repayment of a Buydown
Mortgage Loan is dependent on the ability of the Mortgagor to make larger
monthly payments after the buydown funds have been depleted and, for certain
Buydown Mortgage Loans, while such funds are being depleted.
All the above described Affiliated Originators (other than Citibank)
purchase mortgage loans originated by other parties. Except as may be otherwise
specified in the applicable Prospectus Supplement, mortgage loans acquired from
other parties, other than in a bulk purchase, are reviewed by such Affiliated
Originators or by unaffiliated third parties under contracts with such
Affiliated Originators for compliance with the above described underwriting
criteria, and such Affiliated Originators have the right to reject loans which
fail to conform to such criteria. In connection with an acquisition of mortgage
loans in a bulk purchase, (i.e., loans aggregating more than $15,000,000) from a
nationally recognized mortgage loan originator, the acquiring Affiliated
Originator will review the selling originator's underwriting policies and
procedures with a view to their compliance with such Affiliated Originator's or
FNMA/FHLMC underwriting standards and, in addition, will conduct a limited
mortgage loan file review.
LOAN UNDERWRITING 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. 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.
25
<PAGE>
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.
The Mortgaged Properties may be located in "anti-deficiency" states where,
in general, a lender providing credit on a one- to four-family property may not
seek a deficiency judgment against the Mortgagor but rather must look solely to
the property for repayment in the event of foreclosure. Each Affiliated
Originator's 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 increased from $34.1 billion on
December 31, 1996 to $41.1 billion on December 31, 1998. 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.
26
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE OF SERVICED PORTFOLIO
OF ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LOANS (1)
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- -------------------- -------------------
BY DOLLAR BY DOLLAR BY DOLLAR
AMOUNT OF AMOUNT OF AMOUNT OF
BY NO. OF LOANS BY NO. OF LOANS BY NO. OF LOANS
LOANS (IN MILLIONS) LOANS (IN MILLIONS) LOANS (MILLIONS)
------- ------------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio ..................... 309,754 $34,084.8 303,896 $35,955.8 310,628 $41,115.1
Period of Delinquency(2)
30-59 Days ......................... 10,487 $ 1,014.9 9,368 $ 906.9 7,466 $ 766.9
60-89 Days ......................... 2,444 $ 253.1 1,947 $ 194.3 1,603 $ 160.1
90 Days or more .................... 3,291 $ 371.8 2,646 $ 286.1 2,074 $ 226.8
Total Loans Delinquent .............. 16,222 $ 1,639.8 13,961 $ 1,387.3 11,143 $ 1,153.8
Delinquency Ratio ................... 5.24% 4.81% 4.59% 3.86% 3.59% 2.81%
Foreclosures(3) ..................... 5,822 $ 696.0 3,539 $ 406.3 2,726 $ 293.7
Foreclosure Ratio ................... 1.88% 2.04% 1.16% 1.13% 0.88% 0.71%
</TABLE>
- ----------
(1) The table includes mortgage loans serviced by CMI and held by an Originator,
in its own portfolio, and certain affiliates' portfolios. The table also
includes mortgage loans serviced by CMI which have been packaged and sold to
FNMA and FHLMC, in transactions pursuant to registration statements under
the Securities Act and in transactions exempt from the registration
requirements of the Securities Act. The table does not include loans
purchased strictly for servicing revenue or, in the case of the Florida
branches of CFSB, loans originated prior to the acquisition by the Citicorp
group of the Florida branches of CFSB in January 1984. The portfolio
includes cooperative loans. Since June 20, 1997, CMI has transferred the
servicing of 803 delinquent loans and loans in foreclosure totaling $106.0
million.
(2) The Period of Delinquency is based upon the number of days past due on a
contractual basis. No mortgage loan is considered delinquent for purposes of
this table until 30 days past due on a contractual basis.
(3) The table shows mortgage loans for which foreclosure proceedings had been
instituted at the dates indicated.
Unless otherwise specified in the Prospectus Supplement, CMI will act as
subservicer of the Mortgage Loans in the CMI Pools, CFSB Pools and Citibank
Pools.
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE OF AFFILIATED
ORIGINATORS' SECURITIZED PORTFOLIO
The delinquency, foreclosure and loss experience on the one- to four-family
conventional residential first mortgage loans that were originated or acquired
and subsequently sold by the Affiliated Originators, CMSI and certain other
affiliates of CMI pursuant to registration statements under the Securities Act
and serviced by CMI is set forth in the following tables for the periods
indicated. During the period covered in the tables, this group of securitized
mortgage loans increased from $5.5 billion on December 31, 1996 to $7.1 billion
on December 31, 1998. 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.
27
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE OF SECURITIZED
ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
AS OF AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------- -------------------- -------------------
BY DOLLAR BY DOLLAR BY DOLLAR
AMOUNT OF AMOUNT OF AMOUNT OF
BY NO.OF LOANS BY NO.OF LOANS BY NO.OF LOANS
LOANS (IN MILLIONS) LOANS (IN MILLIONS) LOANS (MILLIONS)
------- ------------- -------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Portfolio ..................... 40,489 $ 5,503.2 37,050 $ 5,738.4 34,350 $7,056.0
Period of Delinquency(1)
30-59 Days ......................... 1,339 $ 151.6 1,073 $ 126.0 715 $ 93.9
60-89 Days ......................... 321 $ 40.3 237 $ 26.7 152 $ 21.2
90 Days or more .................... 411 $ 58.7 313 $ 45.8 200 $ 28.7
Total Loans Delinquent .............. 2,071 $ 250.6 1,623 $ 198.5 1,067 $ 143.8
Delinquency Ratio ................... 5.11% 4.55% 4.38% 3.46% 3.11% 2.04%
Foreclosures(2) ..................... 993 $ 146.6 653 $ 90.5 392 $ 53.7
Foreclosure Ratio ................... 2.45% 2.66% 1.76% 1.58% 1.14% 0.76%
</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 PRINCIPAL AMOUNT OF
NET LOSSES(MILLIONS)(1) SECURITIES ISSUED (MILLIONS)(1)(2) LOSS RATIO(3)
----------------------- ---------------------------------- -------------
<S> <C> <C> <C>
As of December 31, 1996 ........ $413.8 $25,857.4 1.60%
As of December 31, 1997 ........ 469.8 27,214.6 1.73%
As of December 31, 1998 ........ 501.2 31,040.7 1.61%
- ----------
</TABLE>
(1) Rounded to the nearest hundred thousand.
(2) The Aggregate Principal 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
Principal Amount of Securities Issued under the Registration Statements.
There can be no assurance that the delinquency, foreclosure or historical
loss experience indicated in the preceding tables with respect to CMI's total
securitized portfolio will be similar to the results that may be experienced
with respect to the Mortgage Loans underlying the CitiMortgageCertificates or
the Certificates.
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.
28
<PAGE>
CITICORP
Citicorp is a holding company incorporated under the laws of Delaware whose
principal subsidiary is Citibank, N.A. Citicorp is a direct wholly owned
subsidiary of Citigroup Inc., a Delaware corporation. 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 and
Citibank, 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 Principal Amount are then being made, the
amount of such payment which represents a reduction in the Principal Amount and
the amount which represents interest, the amount, if any, which represents
losses and the Principal Amount of a Single Certificate of each Class after
giving effect to the reduction of Principal 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 Principal Amount of Certificates outstanding of each
Class after giving effect to reductions of Principal 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 Principal Amount of
Accrual CitiCertificates outstanding the amount of any accrued interest added to
the Principal 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 Principal Amount of such Accrual
CitiCertificate, and
(C) the Principal Amount of a Single Certificate of such Class of
Accrual CitiCertificate after giving effect to the addition thereto of all
interest accrued thereon during such Interest Accrual Period;
(iv) the amount of servicing compensation received by the Issuer during the
preceding Reporting Period and such other customary information as the Issuer
deems necessary or desirable to enable Certificateholders to prepare their tax
returns;
(v) the book value of any real estate acquired by the Pool through
foreclosure or otherwise;
(vi) the number and aggregate principal amount of Mortgage Loans delinquent
30 days and 60 or more days;
29
<PAGE>
(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 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. A similar compliance statement relating to the
servicing of Third Party Loans will be provided by the Third Party Master
Servicer on an annual basis. (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 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 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 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
30
<PAGE>
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 Principal 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 Principal Amount of the Certificates; and (iv) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Issuer indicating
its insolvency, reorganization or inability to pay its obligations. (Section
7.01)
RIGHTS UPON EVENT OF DEFAULT
As long as an Event of Default under the Pooling Agreement for any Series
remains unremedied, the Trustee or holders of not less than 66-2/3% of the
Principal 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)
31
<PAGE>
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 Principal 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 Principal 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 Principal Amount of the
Certificates of such differently affected Class shall be required and (ii) no
such amendment may (i) decrease in any manner the amount of, or delay the timing
of, payments or distributions received on Mortgage Loans or Mortgage
Certificates which are required to be distributed in respect of any such
Certificate without the consent of the holder of such Certificate or (ii) reduce
the aforesaid percentage of Certificates, the holders of which are required to
consent to any such amendment, without the consent of the holders of all
Certificates of each Affected Class then outstanding. (Section 10.01)
LIST OF CERTIFICATEHOLDERS
If the Trustee is not then the Certificate Registrar, the Issuer will
provide or cause to be provided to the Trustee within 15 days after receipt of
its written request a list of the names and addresses of all Certificateholders
of record of a particular Series as of the most recent record date for payment
of distributions to Certificateholders of that Series. Upon written request of
three or more Certificateholders of record of a Series of Certificates, for
purposes of communicating with other Certificateholders with respect to their
rights under the Pooling Agreement for such Series, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee. If such list is as of a
date more than 90 days prior to the date of receipt of such Certificateholders'
request, the Trustee shall promptly request from the Issuer a current list and
will afford such requesting Certificateholders access to such list promptly upon
receipt. (Section 5.05)
No Pooling Agreement will provide for the holding of any annual or other
meeting of Certificateholders.
TERMINATION; REPURCHASE OF MORTGAGE LOANS AND MORTGAGE CERTIFICATES
The obligations of the Issuer and the Trustee created by the Pooling
Agreement for each Series will terminate upon the earlier of (a) a complete
liquidation of the Pool as described in the Pooling Agreement and (b) the later
of (i)
32
<PAGE>
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), (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
33
<PAGE>
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)
CERTAIN 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
34
<PAGE>
Plans and the operation of the pools containing such underlying mortgages would
not give rise to prohibited transactions.
U.S. Department of Labor Prohibited Transaction Class Exemption 83-1 for
Certain Transactions Involving Mortgage Pool Investment Trusts ("PTE 83-1")
exempts certain transactions involving the creation, maintenance and termination
of certain residential mortgage pools and the direct or indirect acquisition and
holding of certain residential mortgage pool pass-through certificates by Plans,
from treatment as potential prohibited transactions, whether or not the Plan's
assets would be deemed to include an ownership interest in the mortgages in the
mortgage pool, and whether or not such transactions would otherwise be
prohibited under ERISA. PTE 83-1 sets forth certain "general conditions" and
"specific conditions" to its applicability. The Issuer believes that such
"general conditions" set forth in Section II of PTE 83-1 would be met with
respect to the purchase and holding of Senior Certificates evidencing ownership
interests in a Pool consisting of Real Estate Loans.
It appears that PTE 83-1 might not apply to the purchase and holding of
Senior Certificates evidencing ownership interests in a Pool consisting of
Cooperative Loans as well as Real Estate Loans, of Certificates which constitute
Residual Certificates, or of Senior Certificates which do not pass through both
principal and interest.
It is not clear whether PTE 83-1 applies to Senior Certificates evidencing
an interest in a Pool of Mortgage Certificates as opposed to Real Estate Loans;
when offering a Series of such Certificates, if it appears no other ERISA
prohibited transaction exemption is applicable, the Issuer intends to only
include in a Pool Mortgage Certificates which are "guaranteed governmental
mortgage pool certificates," or Mortgage Certificates which themselves would
meet the general conditions of PTE 83-1 if purchased directly by a Plan.
Further, in such circumstances, the Issuer intends to structure the offering of
any such Series of Certificates and the operations of the Pool and to take such
other actions as are both reasonable and appropriate so as to reduce the risk of
the occurrence of ERISA prohibited transactions should PTE 83-1 be held
inapplicable to the acquisition and holding of such Certificates.
Most 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. 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 or Salomon Smith Barney
Inc., 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
related 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.
35
<PAGE>
The purchase of a Residual Certificate by most varieties of ERISA Plans,
governmental plans, and certain church plans (as defined in section 3(33) of
ERISA) may give rise to "unrelated business taxable income" as described in Code
Sections 511-515 and 860E. Further, prior to the purchase of Residual
Certificates, a prospective purchaser may be required to provide an affidavit to
a transferor that it is not a "disqualified organization," which term as defined
herein includes certain tax-exempt entities not subject to Code Section 511,
including certain governmental plans, as discussed herein under the caption
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES-- Taxation of Residual
Certificates--Tax-Related Restrictions on Transfer of Residual
Certificates--Disqualified Organizations."
Due to the complexity of the foregoing rules and the penalties imposed upon
persons involved in prohibited transactions, it is particularly important that
potential Plan investors consult with their counsel regarding the consequences
under ERISA of their acquisition and ownership of Certificates. Unless otherwise
specified in the related Prospectus Supplement, no assets of a Plan which is
subject to ERISA may be invested in Subordinated Certificates.
LEGAL INVESTMENT
The Senior Certificates, and if so specified in the related Prospectus
Supplement, the Subordinated Certificates and the Residual Certificates will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended ("SMMEA"), so long as (i) they are
rated in one of the two highest rating categories by at least one nationally
recognized statistical rating organization and (ii) are part of a Series
representing interests in a Trust Estate consisting of Mortgage Loans originated
by certain types of originators specified in SMMEA and secured by first liens on
real estate. 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, depository institutions,
insurance companies and pension funds), 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 SMMEA, a number of States enacted legislation, on or before the October 3,
1991 cutoff for such enactments, limiting to varying extents the ability of
certain entities (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 SMMEA. Accordingly, the investors
affected by such legislation will be authorized to invest in the Certificates
only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
(ss) 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") 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 in 12 C.F.R. (ss) 1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. (ss) 1.2(1) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related
security" means, in relevant part, "mortgage related security" within the
meaning of SMMEA. The National Credit Union Administration (the "NCUA") has
adopted rules, codified at 12 C.F.R. Part 703, which permit federal credit
unions to invest in "mortgage related securities" under certain limited
circumstances, other than stripped mortgage related securities, residual
interests in mortgage related securities and commercial mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the "investment pilot program" described in 12 C.F.R. (ss)
703.140. The OTS has issued Thrift Bulletin 13a (December 1, 1998), "Management
of Interest Rate Risk, Investment Securities, and Derivatives Activities", which
thrift institutions subject to the jurisdiction of the OTS should consider
before investing in any of the Certificates.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 Policy Statement") of the
36
<PAGE>
Federal Financial Institutions Examination Council (the "FFIEC"), which has been
adopted by the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the OCC and the Office of Thrift Supervision,
effective May 26, 1998, and by the NCUA, effective October 1, 1998. The 1998
Policy Statement sets forth general guidelines which depository institutions
must follow in managing risks (including market, credit, liquidity, operational
(transaction), and legal risks) applicable to all securities (including mortgage
pass-through securities and mortgage-derivative products) used for investment
purposes.
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 (in particular,
Certificates which are entitled solely or disporportionately to distributions of
principal or interest) may be deemed unsuitable investments, or may otherwise be
restricted, under such rules, policies or guidelines (in certain instances
irrespective of SMMEA).
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 certain 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.
Accordingly, all investors whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Certificates of any Class or Subclass
constitute legal investments or are subject to investment, capital or other
restrictions and, if applicable, whether SMMEA has been overridden in any
jurisdiction relevant to such investor.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
CitiCertificates and Residual Certificates. The discussion below does not
purport to address all federal income tax consequences that may be applicable to
particular categories of investors, some of which may be subject to special
rules. The authorities on which this discussion is based are subject to change
or differing interpretations, and any such change or interpretation could apply
retroactively. The discussion reflects the applicable provisions of the Code, as
well as regulations (the "REMIC Regulations") promulgated by the U.S. Department
of the Treasury. Investors should consult their own tax advisors in determining
the federal, state, local, and any other tax consequences to them of the
purchase, ownership and disposition of CitiCertificates and Residual
Certificates. For purposes of this tax discussion, references to
"Certificateholder" or "holder" generally mean the beneficial owner of a
CitiCertificate or Residual Certificate.
With respect to each Series of CitiCertificates and Residual Certificates,
an election will be made to treat the related Trust or one or more segregated
pools of assets therein as one or more REMICs within the meaning of Code Section
860D. If an election is made to treat one or more segregated pools of assets
within the Trust property as a REMIC, references to the "Trust" or the "REMIC"
herein shall be deemed to refer to such portion or portions of the Trust
property. An election may also be made to treat the trust in which
CitiMortgageCertificates with respect to a Series represent an undivided
interest as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. With respect to each Series of CitiCertificates and Residual
Certificates (and, if applicable, CitiMortgageCertificates), Rona Daniels, Vice
President and Tax Counsel of Citibank, N.A., has advised the Issuer
37
<PAGE>
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)(4)(A), and interest on the
CitiCertificates and income with respect to Residual Certificates will be
considered "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section 856(c)(3)(B) in
the same proportion that, for both purposes, the assets and income of the REMIC
would be so treated. If at all times 95% or more of the assets of the REMIC
qualify for any of the foregoing treatments, the Certificates will qualify for
the corresponding status in their entirety. It is anticipated that the
Certificates will qualify for the foregoing treatments in their entirety. For
purposes of Code Section 856(c)(4)(A), payments of principal and interest on the
Mortgage Loans that are reinvested pending distribution to holders of
Certificates qualify for such treatment. Where two REMICs are a part of a tiered
structure they will be treated as one REMIC for purposes of the tests described
above respecting asset ownership of more or less than 95%. In addition, if the
assets of the REMIC include Buydown Mortgage Loans, it is possible that the
percentage of such assets constituting "loans . . . secured by an interest in
real property" for purposes of Code Section 7701(a)(19)(C)(v) may be required to
be reduced by the amount of the related buydown subsidy accounts. Certificates
held by a regulated investment company will not constitute "Government
securities" within the meaning of Code Section 851(b)(3)(A)(i). Certificates
held by certain financial institutions will constitute "evidence of
indebtedness" within the meaning of Code Section 582(c)(1). The Small Business
Job Protection Act of 1996 (the "SBJPA of 1996") repealed the reserve method for
bad debts of domestic building and loan associations and mutual savings banks,
and thus has eliminated the asset category of "qualifying real property loans"
in former Code Section 593(d) for taxable years beginning after December 31,
1995. The requirement in the SBJPA of 1996 that such institutions must
"recapture" a portion of their existing bad debt reserves is suspended if a
certain portion of their assets are maintained in "residential loans" under Code
Section 7701(a)(19)(C)(v), but only if such loans were made to acquire,
construct or improve the related real property and not for the purpose of
refinancing. However, no effort will be made to identify the portion of the
Mortgage Loans of any Series meeting this requirement, and no representation is
made in this regard.
QUALIFICATION AS A REMIC
In order for the Trust to qualify as a REMIC, there must be ongoing
compliance on the part of the Trust with the requirements set forth in the Code.
First, the Trust must fulfill an asset test, which requires that no more than a
de minimis portion of the assets of the Trust (as of the close of the third
calendar month beginning after the Startup Day and at all times thereafter) may
consist of assets other than "qualified mortgages" and "permitted investments."
The REMIC Regulations provide a safe harbor pursuant to which the de minimis
requirement will be met if, at all times, the aggregate adjusted basis of the
nonqualified assets is less than 1% of the aggregate adjusted basis of all the
Trust's assets. An entity that fails to meet the safe harbor may nevertheless
demonstrate that it holds no more than a de minimis amount of nonqualified
assets. A REMIC must also adopt "reasonable arrangements" to prevent its
residual interests from being held by "disqualified organizations" and must
furnish applicable tax information to transferors that violate this requirement.
See "--Taxation of Residual Certificates--Tax-Related Restrictions on Transfer
of Residual Certificates--Disqualified Organizations" below.
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
38
<PAGE>
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 beginning after
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 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
39
<PAGE>
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 Principal 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 Principal Amount upon the request of
a Certificateholder or by random lot (a "Retail Class CitiCertificate")) will be
treated as a single installment obligation for purposes of determining the
original issue discount includible in a Certificateholder's income. The total
amount of original issue discount on a CitiCertificate is the excess of the
"stated redemption price at maturity" of the CitiCertificate over its "issue
price." The issue price of a Class of CitiCertificates generally is the first
price at which a substantial amount of CitiCertificates of such Class is sold to
the public (excluding bond houses, brokers and underwriters). Although unclear
under the OID Regulations, the Issuer intends to treat the issue price of a
Class as to which there is no substantial sale as of the issue date or that is
retained by the Issuer as the fair market value of that Class as of the issue
date. The issue price of a CitiCertificate also includes any amount paid by the
initial Certificateholder for accrued interest that relates to a period prior to
the issue date of the CitiCertificate, unless the CitiCertificateholder elects
on its federal income tax return to exclude such amount from the issue price and
to recover it on the first Distribution Date. The stated redemption price at
maturity of a CitiCertificate always includes its Initial Stated Amount. The
stated redemption price at maturity generally will not include distributions of
interest if such interest distributions constitute "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means interest
payable at a single fixed rate or a qualified variable rate (as described
below), provided that such interest distributions are unconditionally
distributable at intervals of one year or less during the entire term of the
CitiCertificates. Because there is no penalty or default remedy in the case of
nonpayment of interest with respect to a CitiCertificate, it is possible that no
interest on any Class of CitiCertificates will be treated as qualified stated
interest. However, except as provided in the following three sentences or in the
applicable Prospectus Supplement, because the underlying Mortgage Loans provide
for remedies in the event of default, the Issuer intends to treat interest with
respect to the CitiCertificates as qualified stated interest. No distributions
on an Accrual CitiCertificate, or on other
40
<PAGE>
CitiCertificates with respect to which interest distributions may be deferred
and added to the Principal Amount, will constitute qualified stated interest
and, accordingly, the stated redemption price at maturity of such
CitiCertificates includes not only their Initial Principal 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 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
41
<PAGE>
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
Principal 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 Principal
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 reduced pro rata by a fraction, the numerator of which is the
excess of its purchase price over such adjusted issue price and the denominator
of which is the excess of the remaining stated redemption price at maturity over
the adjusted issue price. Alternatively, such a subsequent purchaser may elect
to treat all such acquisition premium under the constant yield method, as
described under the heading "--Election to Treat All Interest Under the Constant
Yield Method" below.
Variable Rate CitiCertificates
CitiCertificates may provide for interest based on a variable rate
("Variable Rate CitiCertificates"). Under the OID Regulations, interest is
treated as payable at a variable rate if, generally, (i) the issue price does
not exceed the original principal balance by more than a specified amount and
(ii) the interest compounds or is payable at least annually at current values of
(a) one or more "qualified floating rates," (b) a single fixed rate and one or
more qualified floating rates, (c) a single "objective rate," or (d) a single
fixed rate and a single objective rate that is a "qualified inverse floating
rate." A floating rate is a qualified floating rate if variations in the rate
can reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds, where such rate is subject to a multiple that is greater
than 0.65 but not greater than 1.35. Such rate may also be increased or
decreased by a fixed spread or subject to a fixed cap or floor, or a cap or
floor that is not reasonably expected as of the issue date to affect the yield
of the instrument significantly. An objective rate is any rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information, provided that such
information is not (i) within the control of the issuer or a related party or
(ii) unique to the circumstances of the issuer or a related party. A qualified
inverse floating rate is a rate equal to a fixed rate minus a qualified floating
rate that inversely reflects contemporaneous variations in the cost of newly
borrowed funds; an inverse floating rate that is not a qualified inverse
floating rate may nevertheless be an objective rate. A Class of CitiCertificates
may be issued under this Prospectus that does not have a variable rate under the
foregoing rules, for example, a Class that bears different rates at different
times during the period it is outstanding such that it is considered
significantly "front-loaded" or "back-loaded" within the meaning of the OID
Regulations. It is possible that such a Class may be considered to bear
"contingent interest" within the meaning of the OID Regulations. The OID
Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to CitiCertificates. However, if final regulations
dealing with contingent interest with respect to CitiCertificates apply the same
principles as the OID Regulations, such regulations may lead to different timing
of income inclusion than would be the case under the OID Regulations.
Furthermore, application of such principles could lead to the characterization
of gain on the sale of contingent interest CitiCertificates as ordinary income.
Investors should consult their tax advisors regarding the appropriate treatment
of any CitiCertificates that do not pay interest at a fixed rate or variable
rate as described in this paragraph.
42
<PAGE>
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. 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 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 Certificate 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
43
<PAGE>
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. 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. Final Treasury regulations issued under Code
Section 171 do not by their terms apply to prepayable debt instrument such as
the CitiCertificates. However, 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.
Under Code Section 166, 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 should 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
44
<PAGE>
debt deduction at such time as a loss is allocated to such Class of
CitiCertificates to reflect losses resulting from any liquidated Mortgage Loans.
The Internal Revenue Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect such
losses only after all the Mortgage Loans remaining in the Trust have been
liquidated or the applicable Class of CitiCertificates has been otherwise
retired. The Internal Revenue Service could also assert that losses on the
CitiCertificates are deductible on some other method that may defer such
deductions for all holders, such as reducing future cash flow for purposes of
computing original issue discount. This may have the effect of creating
"negative" original issue discount which would be deductible only against future
positive original issue discount or otherwise upon termination of the Class.
Holders of CitiCertificates are urged to consult their own tax advisors
regarding the appropriate timing, amount and character of any loss sustained
with respect to such CitiCertificates. While losses attributable to interest
previously reported as income should be deductible as ordinary losses by both
corporate and non-corporate holders, the Internal Revenue Service may take the
position that losses attributable to accrued original issue discount may only be
deducted as short-term capital losses by non-corporate holders not engaged in a
trade or business. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
CitiCertificates.
Election to Treat All Interest Under the Constant Yield Method
A holder of a debt instrument such as a CitiCertificate may elect to treat
all interest that accrues on the instrument using the constant yield method,
with none of the interest being treated as qualified stated interest. For
purposes of applying the constant yield method to a debt instrument subject to
such an election, (i) "interest" includes stated interest, original issue
discount, de minimis original issue discount, market discount and de minimis
market discount, as adjusted by any amortizable bond premium or acquisition
premium and (ii) the debt instrument is treated as if the instrument were issued
on the holder's acquisition date in the amount of the holder's adjusted basis
immediately after acquisition. It is unclear whether, for this purpose, the
initial prepayment assumption would continue to apply or if a new prepayment
assumption as of the date of the holder's acquisition would apply. A holder
generally may make such an election on an instrument by instrument basis or for
a class or group of debt instruments. However, if the holder makes such an
election with respect to a debt instrument with amortizable bond premium or with
market discount, the holder is deemed to have made elections to amortize bond
premium or to report market discount income currently as it accrues under the
constant yield method, respectively, for all premium bonds held or market
discount bonds acquired by the holder in the same taxable year or thereafter.
The election is made on the holder's federal income tax return for the year in
which the debt instrument is acquired and is irrevocable except with the
approval of the Internal Revenue Service. Investors should consult their own tax
advisors regarding the advisability of making such an election.
Sale or Exchange of CitiCertificates
If a holder sells or exchanges a CitiCertificate, the holder will recognize
gain or loss equal to the difference, if any, between the amount received and
its adjusted basis in the CitiCertificate. The adjusted basis of a
CitiCertificate generally will equal the cost of the CitiCertificate to the
seller, increased by any original issue discount or market discount previously
included in the seller's gross income with respect to the CitiCertificate, and
reduced by the distributions in reduction of the Principal 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 more than one year. 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
45
<PAGE>
holder with respect to such CitiCertificate. In addition, gain or loss
recognized from the sale of a CitiCertificate by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code Section
582(c). In general, short-term capital gains of certain non-corporate taxpayers
are subject to the same maximum tax rate of 39.6% as the ordinary income of such
taxpayers for property held for not more than one year, and long-term capital
gains of such taxpayers are subject to a maximum tax rate of 20% for property
held for more than one year. The maximum tax rate for corporations is the same
with respect to both ordinary income and capital gains.
TAXATION OF RESIDUAL CERTIFICATES
Taxation of REMIC Income
Generally, the "daily portions" of REMIC taxable income or net loss will be
includible directly on the federal income tax return of holders of Residual
Certificates ("Residual Holders") as ordinary income or loss, and will not be
taxed separately to the REMIC. The daily portions of REMIC taxable income or net
loss for a Residual Holder are determined by allocating the REMIC's taxable
income or net loss for each calendar quarter ratably to each day in such quarter
and by allocating such daily portion among the Residual Holders in proportion to
their respective holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the taxable
income of an individual using the accrual method of accounting, except that (i)
the limitation on deductibility of investment interest expense and expenses for
the production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on deductibility of interest and
expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, original issue discount income, and market discount income,
if any, on the Mortgage Loans or the mortgage loans underlying the Mortgage
Certificates owned by the REMIC, reduced by amortization of any premium on the
Mortgage Loans or the mortgage loans underlying the Mortgage Certificates, plus
amortization of premium on CitiCertificates issued at a premium, plus income on
reinvestment of cash flows and reserve assets, plus any cancellation of
indebtedness income upon allocation of realized losses to the CitiCertificates.
The REMIC's deductions include interest and original issue discount expense on
the CitiCertificates, servicing fees on the Mortgage Loans or the mortgage loans
underlying the Mortgage Certificates, other administrative expenses and realized
losses on the Mortgage Loans or Mortgage Certificates. The requirement that
Residual Holders report their pro rata share of taxable income or net loss of
the REMIC will continue until there are no Certificates of any Class of the
related Series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest and original issue discount or market 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
Principal 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 Principal 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 Principal 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
46
<PAGE>
which to offset such income, subject to the rules on "excess inclusions"
discussed below. The timing of such mismatching of income and deductions
described in this paragraph, if present with respect to a Series of
CitiCertificates, may have a significant adverse effect upon a Residual Holder's
after-tax rate of return. In addition, a Residual Holder's taxable income during
certain periods may exceed the income reflected by such Residual Holder for such
periods in accordance with generally accepted accounting principles. Investors
should consult their own accountants concerning the accounting treatment of
their investment in such Certificates.
Basis and Losses
The amount of any net loss of the REMIC that may be taken into account by
the Residual Holder is limited to the adjusted basis of the Residual Certificate
as of the close of the quarter (or time of disposition of the Residual
Certificate, if earlier), determined without taking into account the net loss
for the quarter. The initial adjusted basis of a purchaser of a Residual
Certificate is the amount paid for such Residual Certificate. Such adjusted
basis will be increased by the amount of taxable income of the REMIC reportable
by the Residual Holder and will be decreased (but not below zero), first, by a
cash distribution from the REMIC and, second, by the amount of loss of the REMIC
reportable by the Residual Holder. Any loss that is disallowed on account of
this limitation may be carried over indefinitely by the Residual Holder for whom
such loss was disallowed and may be used by such Residual Holder only to offset
any income generated by the same REMIC.
A Residual Holder will not be permitted to amortize directly the cost of its
Residual Certificate as an offset to its share of the taxable income of the
related REMIC. However, that taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets. Such
recovery of basis by the REMIC will have the effect of amortization of the issue
price of the Residual Certificates over their life. However, in view of the
possible acceleration of the income of Residual Holders described above under
"--Taxation of REMIC Income", the period of time over which such issue price is
effectively amortized may be longer than the economic life of the Residual
Certificates.
A Residual Certificate may have a negative value if the net present value of
anticipated tax liability exceeds the present value of anticipated cash flows.
The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC's basis in its assets. The preamble to the REMIC Regulations states
that the Internal Revenue Service may provide future guidance on the proper tax
treatment of payments made by the transferor of such a residual interest to
induce the transferee to acquire the interest, and Residual Holders should
consult their own tax advisors in this regard.
To the extent that the initial adjusted basis of a Residual Holder (other
than the original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC's basis in the Mortgage Loans or Mortgage
Certificates, the Residual Holder will not recover a portion of such basis until
termination of the REMIC unless otherwise provided in subsequent legislation or
future Treasury regulations. The REMIC Regulations currently in effect do not so
provide. See "Treatment of Certain Items of REMIC Income and Expense-Market
Discount" below regarding the basis of Mortgage Loans or Mortgage Certificates
to the REMIC and "Sale or Exchange of a Residual Certificate" below regarding
possible treatment of a loss upon termination of the REMIC as a capital loss.
Treatment of Certain Items of REMIC Income and Expense
Although the Issuer intends to compute REMIC income and expense in
accordance with the Code and applicable regulations, the authorities regarding
the determination of specific items of income and expense are subject to
differing interpretations. The Issuer makes no representation as to the specific
method that it will use for reporting income with respect to the Mortgage Loans
and expenses with respect to the CitiCertificates and different methods could
result in different timing of reporting of taxable income or net loss to
Residual Holders or differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC's deductions for
original issue discount and income or offset to interest (expense) from
amortization of issue premium will be determined in the same manner as original
issue discount income and premium amortization on CitiCertificates as described
above under "--Taxation of CitiCertificates--Original Issue Discount,"
"--Variable Rate CitiCertificates" and "--Deferred Interest" without regard to
the de minimis rule described therein, and "--Premium."
Deferred Interest. Any Deferred Interest that accrues with respect to any
adjustable rate Mortgage Loans held by the REMIC will constitute income to the
REMIC and will be treated in a manner similar to the Deferred Interest
47
<PAGE>
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 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
48
<PAGE>
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 record holder of the Residual Certificate, the
Pass-Through Entity does not have actual knowledge that such affidavit is false.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by Disqualified Organizations for purposes
of the tax imposed upon a Pass-Through Entity by section 860E(c) of the Code. An
exception to this tax, otherwise available to a Pass-Through Entity that is
furnished certain affidavits by record holders of interests in the entity and
that does not know such affidavits are false, is not available to an electing
large partnership.
For these purposes, (i) "Disqualified Organization" means the United States,
any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of 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
49
<PAGE>
from taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, (ii) "Pass-Through
Entity" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis (except as may be provided in Treasury
regulations, any person holding an interest in a Pass-Through Entity as a
nominee for another will, with respect to such interest, be treated as a
Pass-Through Entity) and (iii) an "electing large partnership" is a partnership
which had 100 or more members during the preceeding taxable year, other than
certain service partnerships and commodity pools, and elects to apply the
simplified reporting provisions of the Code.
The Pooling Agreement with respect to a Series will provide that no legal or
beneficial interest in a Residual Certificate may be transferred or registered
unless (i) the proposed transferee provides to the transferor, CMSI and the
Trustee an affidavit providing its taxpayer identification number and stating
that such transferee is the beneficial owner of the Residual Certificate and is
not a Disqualified Organization and that it is not purchasing such Residual
Certificate on behalf of a Disqualified Organization (i.e., as a broker, nominee
or middleman thereof), and (ii) the transferor provides a statement in writing
to CMSI and the Trustee that it has no actual knowledge that such affidavit is
false. Moreover, the Pooling Agreement will provide that any attempted or
purported transfer in violation of these transfer restrictions will be null and
void and will vest no rights in any purported transferee. Each Residual
Certificate with respect to a Series will bear a legend referring to such
restrictions on transfer, and each holder of a Residual Certificate will be
deemed to have agreed, as a condition of ownership thereof, to any amendments to
the related Pooling Agreement required under the Code or applicable Treasury
regulations to effectuate the foregoing restrictions. Information necessary to
compute an applicable excise tax must be furnished to the Internal Revenue
Service and to the requesting party within 60 days of the request, and CMSI or
the Trustee may charge a fee for computing and providing such information.
Noneconomic Residual Interests. The REMIC Regulations permit the Internal
Revenue Service to disregard certain transfers of Residual Certificates, in
which case the transferor would continue to be treated as the owner of the
Residual Certificates and thus would continue to be subject to tax on its
allocable portion of the net income of the REMIC. Under the REMIC Regulations, a
transfer of a "noneconomic residual interest" (as defined below) to a Residual
Holder (other than a Residual Holder who is not a U.S. Person, as defined below
under "Foreign Investors") is disregarded for all federal income tax purposes if
a significant purpose of the transferor is to impede the assessment or
collection of tax. A residual interest in a REMIC (including a residual interest
with a positive value at issuance) is a "noneconomic residual interest" unless,
at the time of the transfer, (i) the present value of the expected future
distributions on the residual interest at least equals the product of the
present value of the anticipated excess inclusions and the highest corporate
income tax rate in effect for the year in which the transfer occurs, and (ii)
the transferor reasonably expects that the transferee will receive distributions
from the REMIC at or after the time at which taxes accrue on the anticipated
excess inclusions in an amount sufficient to satisfy the accrued taxes on each
excess inclusion. The anticipated excess inclusions and the present value rate
are determined in the same manner as set forth above under "Disqualified
Organizations." The REMIC Regulations explain that a significant purpose to
impede the assessment or collection of tax exists if the transferor, at the time
of the transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A safe harbor is provided if (i) the transferor conducted, at the time of
the transfer, a reasonable investigation of the financial condition of the
transferee and found that the transferee historically had paid its debts as they
came due and found no significant evidence to indicate that the transferee would
not continue to pay its debts as they came due in the future, and (ii) the
transferee represents to the transferor that it understands that, as the holder
of a noneconomic residual interest, the transferee may incur tax liabilities in
excess of cash flows generated by the interest and that the transferee intends
to pay taxes associated with holding the residual interest as they become due.
The Pooling Agreement with respect to each Series of Certificates will require
the transferee of a Residual Certificate to certify to the matters in the
preceding sentence as part of the affidavit described above under the heading
"Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Certificate that has "tax avoidance potential" to a "foreign person"
will be disregarded for all federal tax purposes. This rule appears intended to
apply to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Certificate is deemed to have tax
avoidance potential unless at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC at or after the
time at which the excess inclusions accrue (and prior to the end of the
succeeding taxable year) for the accumulated withholding tax liability to be
paid. If the non-U.S.
50
<PAGE>
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 or partnership created or organized in or under the laws of the
United States, any State thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide otherwise),
including an entity treated as a corporation or partnership for Federal income
tax purposes, an estate that is subject to United States federal income tax
regardless of the source of its income or a trust, if, a court within the United
States is able to exercise primary supervision over the administration of such
trust, and one or more such U.S. Persons have the authority to control all
substantial decisions of such trust (or, to the extent provided in applicable
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to elect to be treated as U.S. Persons).
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).
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.
51
<PAGE>
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 beginning after the
year of acquisition, with a possible extension. Net income from foreclosure
property generally means gain from the sale of foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
LIQUIDATION OF THE REMIC
If a REMIC adopts a plan of complete liquidation within the meaning of Code
Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within the 90-day period beginning on
such date, the REMIC will not be subject to the prohibited transaction rules on
the sale of its assets, provided that the REMIC credits or distributes in
liquidation all of the sale proceeds plus its cash (other than amounts retained
to meet claims) to holders of all Certificates within the 90-day period. An
early termination of the Trust effected by a repurchase by the Issuer of all
remaining Mortgage Loans or Mortgage Certificates when the adjusted balances
thereof have declined to the percentage specified for a particular Series, and
the distribution to holders of Certificates of the proceeds of such sale and any
remaining assets of the REMIC, is contingent upon receipt of an opinion of
counsel or other evidence that such repurchase and distribution will constitute
a "qualified liquidation" within the meaning of Code Section 860F(a)(4)(A) and
will not adversely affect the REMIC status of the Trust.
ADMINISTRATIVE MATTERS
As a REMIC, the Trust must maintain its books on a calendar year basis and
must file federal income tax returns in a manner similar to a partnership for
federal income tax purposes. The form for such returns is Form 1066, U.S.
52
<PAGE>
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 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
53
<PAGE>
controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the Trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Section 1441 or 1442, with an appropriate
certification, signed under penalties of perjury, identifying the beneficial
owner and stating, among other things, that the beneficial owner of the
CitiCertificate is a Non-U.S. Person. If such certification, or any other
required certification, is not provided, 30% withholding will apply unless
reduced or eliminated pursuant to an applicable tax treaty or unless the
interest is effectively connected with the conduct of a trade or business within
the United States by such Non-U.S. Person. In the latter case, such Non-U.S.
Person will be subject to United States federal income tax at regular rates.
Investors who are Non-U.S. Persons should consult their own tax advisors
regarding the specific tax consequences to them of owning a CitiCertificate.
The Internal Revenue Service recently issued final regulations (the "New
Regulations") which would provide alternative methods of satisfying the
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations will require, in the case of CitiCertificates held
by a foreign partnership, that (x) the certification described above be provided
by the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. A look-through rule would apply in the case of tiered partnerships.
Non-U.S. Persons should consult their own tax advisors concerning the
application of the certification requirements in the New Regulations.
Residual Certificates
The Conference Committee Report to the 1986 Act indicates that amounts paid
to Residual Holders who are Non-U.S. Persons are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Treasury regulations provide that amounts distributed to Residual Holders may
qualify as "portfolio interest," subject to the conditions described in
"CitiCertificates" above, but only to the extent that (i) the Mortgage Loans or
the mortgage loans underlying the Mortgage Certificates were issued after July
18, 1984 and (ii) the Trust or the segregated pool of assets therein (as to
which a separate REMIC election will be made), to which the Residual
Certificates relate, consists of obligations issued in "registered form" within
the meaning of Code Section 163(f)(1). Generally, Mortgage Loans will not be,
but Mortgage Certificates or CitiCertificates representing either regular
interests in another Trust or a segregated pool of assets within the Trust will
be, considered obligations issued in registered form. Furthermore, a Residual
Holder will not be entitled to any exemption from the 30% withholding tax (or
lower treaty rate) to the extent of that portion of REMIC taxable income that
constitutes an "excess inclusion." See "--Taxation of Residual
Certificates--Limitations on Offset or Exemption of REMIC Income." If the
amounts distributed to Residual Holders who are Non-U.S. Persons are effectively
connected with the conduct of a trade or business within the United States by
such Non-U.S. Persons, 30% (or lower treaty rate) withholding will not apply.
Instead, the amounts paid to such Non-U.S. Persons will be subject to United
States federal income tax at regular rates. If 30% (or lower treaty rate)
withholding is applicable, such amounts generally will be taken into account for
purposes of withholding only when paid or otherwise distributed (or when the
Residual Certificate is disposed of under rules similar to withholding upon
disposition of debt instruments that have original issue discount). See
"--Taxation of Residual Certificates--Tax-Related Restrictions on Transfer of
Residual Certificates--Foreign Investors," above concerning the disregard of
certain transfers having "tax avoidance potential." Investors who are Non-U.S.
Persons should consult their own tax advisors regarding the specific tax
consequences to them of owning a Residual Certificate.
BACKUP WITHHOLDING
Distributions made on the CitiCertificates and proceeds from the sale of the
CitiCertificates to or through certain brokers may be subject to a "backup"
withholding tax under Code Section 3406 of 31% of "reportable payments"
(including interest distributions, original issue discount, and, under certain
circumstances, distributions in reduction of Stated Amount) unless, in general,
the holder of the CitiCertificate complies with certain reporting and/or
certification procedures, including the provision of its taxpayer identification
number to the Trustee, its agent or the broker who effected the sale of the
CitiCertificate, or such Certificateholder is otherwise an exempt recipient
under applicable provisions of the Code. Any amounts so withheld from
distributions on the CitiCertificates would be refunded by the Internal Revenue
Service or allowed as a credit against the holder's federal income tax
liability. The New Regulations change certain of the rules relating to certain
presumptions currently available relating to
54
<PAGE>
information reporting and backup withholding. Non-U.S. Persons are urged to
contact their own tax advisors regarding the application to them of backup
withholding and information reporting.
REPORTING REQUIREMENTS
Reports of accrued interest, original issue discount and information
necessary to compute the accrual of market discount will be made annually to the
Internal Revenue Service and to individuals, estates, non-exempt and
non-charitable trusts, and partnerships who are either holders of record of
CitiCertificates or beneficial owners who own CitiCertificates through a broker
or middleman as nominee. All brokers, nominees and all other non-tax-exempt
holders of record of CitiCertificates (including corporations, non-calendar year
taxpayers, securities or commodities dealers, real estate investment trusts,
investment companies, common trust funds, thrift institutions and charitable
trusts) may request such information for any calendar quarter by telephone or in
writing by contacting the person designated in Internal Revenue Service
Publication 938 with respect to a particular Series of Certificates. Holders
through nominees must request such information from the nominee.
The Internal Revenue Service's Form 1066, U.S. Real Estate Mortgage
Investment Conduit Income Tax Return, has an accompanying Schedule Q, Quarterly
Notice to Residual Interest Holders of REMIC Taxable Income or Net Loss
Allocation. Treasury regulations require that Schedule Q be furnished by the
REMIC to each Residual Holder by the last day of the month following each
calendar quarter (41 days after the end of a quarter under proposed Treasury
regulations) in which the REMIC is in existence.
Treasury regulations require that, in addition to the foregoing
requirements, information must be furnished quarterly to Residual Holders and,
if applicable, furnished annually to holders of CitiCertificates and filed
annually with the Internal Revenue Service concerning Code Section 67 expenses
(see "Limitations on Deduction of Certain Expenses" above) allocable to such
holders. Furthermore, under such regulations, information must be furnished
quarterly to Residual Holders, furnished annually to holders of
CitiCertificates, and filed annually with the Internal Revenue Service
concerning the percentage of the REMIC's assets meeting the qualified asset
tests described above under "Status of CitiCertificates and Residual
Certificates."
PLANS OF DISTRIBUTION
Certificates are being offered hereby in Series (each Series evidencing a
separate Pool) through one or more of the methods described below. The
Prospectus Supplement prepared for each Series will describe the method of
offering being utilized for that Series and will state the public offering or
purchase price of such Series, or the method by which such price is to be
determined, and the net proceeds from such sale.
The Issuer intends that Certificates will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Certificates may be made through one or more of these methods:
1. By negotiated firm commitment underwriting and public re-offering by
underwriters;
2. By placements by the Issuer with investors through dealers or agents;
and
3. By secondary offerings by an affiliate thereof in any of the manners
set forth above.
If underwriters are used in a sale of any Certificates, such Certificates
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Firm
commitment underwriting and public re-offering by underwriters 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
55
<PAGE>
Citicorp will indemnify the several underwriters against certain civil
liabilities, including liabilities under the Securities Act.
The Prospectus Supplement with respect to any Series of Certificates offered
other than through underwriters will contain information regarding the nature of
such offering and any agreements to be entered into between the Issuer and
dealers for the Certificates of such Series.
Affiliates of the Issuer may act as agents or underwriters in connection
with the sale of a Series of Certificates. Any affiliate of the Issuer so acting
will be named, and its affiliation with the Issuer and Citicorp described, in
the Prospectus Supplement with respect to such Series.
The Issuer anticipates that the Certificates will be sold primarily to
institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act in connection with
re-offers and sales by them of Certificates. Certificateholders should consult
with their legal advisors in this regard prior to any such re-offer or sale.
EXPERTS
Consolidated financial statements of Citicorp and subsidiaries included in
Citicorp's Annual Report on Form 10-K for 1998 have been incorporated herein by
reference in reliance upon the report set forth therein of KPMG LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
56
<PAGE>
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
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." 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 and contained
in CMSI Pools and CMI Pools. Such Mortgage Loans may include mortgage loans
originated or acquired by CFSB or originated by Citibank. 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 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
A-1
<PAGE>
(v) have original maturities as specified in the related Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the original
principal amount of each Mortgage Loan will not be more than 95% of the Original
Value of the related Mortgaged Property. The principal amount of the "loan," for
purposes of computation of loan-to-value ratios, includes the amount of any part
of an origination fee that is financed. The financed portion of the origination
fee will be less than 5% of the loan amount in each case.
Unless otherwise stated in the applicable Prospectus Supplement, a Pool may
contain Real Estate Loans, the original terms of which were modified prior to
their inclusion in such Pool pursuant to modification agreements (the
"Modification Agreements") or pursuant to modification, consolidation and
extension agreements (the "Consolidation Agreements"). A Modification Agreement
generally alters only the stated annual interest rate and (as a result) the
monthly payment amount for a Mortgage Loan. The terms of a Consolidation
Agreement may alter any one or more of the following: the type of Mortgage Loan,
the identity of a borrower or borrowers, the stated annual interest rate or
manner of determining such rate, the maturity date, the monthly payment amount
or the principal amount of the obligation secured by the mortgage. The
Consolidation Agreement amends the existing mortgage and the obligation secured
thereby. If additional principal was advanced at the time of amendment, the
Consolidation Agreement consolidates the new mortgage relating to the additional
principal with the existing mortgage. With respect to Real Estate Loans, the
terms of which were modified pursuant to Modification Agreements or
Consolidation Agreements, whenever the terms "original," "originated" or
"origination" are used in this Prospectus or any Prospectus Supplement to
describe certain characteristics of the Mortgage Loans on a particular date,
generally such terms shall refer to such characteristics (a) in the case of
Modification Agreements, at the original date of the extension of credit under
such Mortgage Loan except for the stated annual interest rate and monthly
payment as stated above and (b) in the case of Consolidation Agreements, at the
date of the applicable Consolidation Agreement and as modified thereby.
It is anticipated that each Pool will consist predominantly of Mortgage
Loans determined by the Issuer to be secured by the primary residence of the
borrower (the "Mortgagor"). The sole basis for such determination will be either
(i) the making of a representation by the Mortgagor at origination of the
Mortgage Loan either that the underlying property will be used by the Mortgagor
for a period of at least six months every year or that the Mortgagor intends to
use the underlying property as a primary residence, or (ii) a finding that the
address of the underlying Mortgaged Property is the Mortgagor's mailing address
as reflected in the Originator's records. The aggregate Adjusted Balance 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 Certificateholders 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 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
A-2
<PAGE>
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.
Each Prospectus Supplement will include, among other things, information, as
of the date of such Prospectus Supplement and to the extent then known to the
Issuer, as to (i) the aggregate Adjusted Balance of the Mortgage Loans to be
delivered into the related Pool and the years of origination thereof, (ii) if
Converted Mortgage Loans with an aggregate Adjusted Balance exceeding 10% of the
aggregate Adjusted Balance of all Mortgage Loans in the related Pool are to be
delivered, the aggregate Adjusted Balance of any such Converted Mortgage Loans,
(iii) the original loan-to-value ratios of the Mortgage Loans (which will not
include the amount of any subordinated loan in such loan-to-value calculation),
(iv) the types of Mortgaged Properties securing the Mortgage Loans, (v) the
geographic distribution of the Mortgaged Properties, prepared on a
state-by-state basis for states where Mortgage Loans having an aggregate
Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of Mortgage
Loans in the related Pool are located, (vi) if Buydown Mortgage Loans with an
aggregate Adjusted Balance exceeding 10% of the aggregate Adjusted Balance of
all Mortgage Loans in the related Pool are to be delivered, the aggregate
Adjusted Balance of Buydown Mortgage Loans in the related Pool, (vii) if
Leasehold Loans with an aggregate Adjusted Balance exceeding 10% of the
aggregate Adjusted Balance of all Mortgage Loans in the related Pool are to be
delivered, the aggregate Adjusted Balance of Leasehold Loans in the related Pool
and (viii) if 15-year, fixed rate tiered-payment Mortgage Loans originated by
CFSB's California branches and providing for a prepayment penalty during the
first 12 months following origination with an aggregate Adjusted Balance
exceeding 10% of the aggregate Adjusted Balance of all Mortgage Loans in the
related Pool are to be delivered, the aggregate Adjusted Balance of such
Mortgage Loans in the related Pool. In the event specific information with
respect to the Pool is not known at the time a Series is offered, more general
information of the nature described above will be provided in such Prospectus
Supplement and the specific information described above will be set forth in a
report on Form 8-K which will be filed with the Commission and made available to
Certificateholders of the Series within 15 days of the initial issuance of such
Series.
The Issuer will be responsible for administering and servicing the Mortgage
Loans purchased, directly or indirectly, by the Trust from CMI, Citibank or CFSB
or their affiliates (the "Affiliated Originators") and will act as master
servicer with respect to Mortgage Loans purchased, directly or indirectly, by
the Trust 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 with respect to the Third Party
Loans sold by Third Party Originators on a servicing-retained basis, to a Third
Party Master Servicer, who
A-3
<PAGE>
will in turn subcontract its duties 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). Such subcontracting and delegation
does not relieve the Issuer of its responsibility with respect to such duties
(the Issuer and CMI in such capacity, the "Servicer" 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. The Servicer will be entitled to retain all late payment
charges, assumption fees and similar charges, and all income or gain on funds
held in the related Certificate Account referred to below, as additional
servicing compensation. The Servicer will pay all expenses incurred in
connection with the servicing of the Mortgage Loans, including the fees of any
subcontractor. See "--Servicing and Other Compensation and Payment of Expenses"
below.
There can be no assurance that the foreclosure and delinquency experience on
the Mortgage Loans underlying the CitiCertificates or the Certificates will be
comparable to that set forth under "DELINQUENCY, FORECLOSURE AND LOSS
CONSIDERATIONS AND EXPERIENCE." If the residential real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties or interests in cooperatives in a particular Pool become equal to or
greater than the value of the Mortgaged Properties or interests in cooperatives
subject to the Mortgage Loans included in such Pool, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry. To the extent that
such delinquencies, foreclosures and losses are not covered by obligations under
any form of credit support, they will be borne by the holders of the related
CitiCertificates.
Because the principal amounts of Mortgage Loans (other than ARMs which
provide for a portion of interest to be deferred and added to the principal
balance of such ARMs) will decline monthly as principal payments, including
prepayments, are received, the principal balance of each CitiMortgageCertificate
in a series will decline correspondingly. The Stated Amount of each
CitiCertificate will decline as described under "DESCRIPTION OF CERTIFICATES" in
the body of this Prospectus or in the related Prospectus Supplement.
Fixed Rate Pools
A Fixed Rate Pool may contain any one or more 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
Mortgage Loan to be due and payable at the end of a certain specified period;
A-4
<PAGE>
(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) other fixed rate Mortgage Loans having the characteristics set forth in
the related Prospectus Supplement.
A Fixed Rate Pool may contain one or more Mortgage Loans each of which was
originated as an adjustable interest rate Mortgage Loan but has been converted,
at the sole option of the Mortgagor, into a fixed interest rate, fully
amortizing Mortgage Loan providing for level monthly payments over a term not
exceeding its remaining term to maturity (a "Converted Mortgage Loan"). Except
as otherwise provided in this Prospectus and in the applicable Prospectus
Supplement, a Converted Mortgage Loan at origination is subject to the same
origination and underwriting guidelines as a comparable adjustable rate mortgage
and such a Converted Mortgage Loan is not underwritten again at the time of its
conversion. The Note Rate (and, accordingly, the scheduled monthly payments) on
such a Converted Mortgage Loan may be higher or lower than the mortgage note
rate at the time of origination of such Converted Mortgage Loan. No Fixed Rate
Pool will contain Mortgage Loans which provide for negative amortization.
ARM Pools
ARM Pools will include only adjustable interest rate Mortgage Loans
("ARMs"), each bearing interest at a Note Rate which adjusts periodically to a
rate equal to the applicable Index 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
A-5
<PAGE>
ARMs which provide for a deferral of a portion of interest, as described
in the preceding paragraph. The Mortgagor under an ARM may have been qualified
at an interest rate which is lower than the current interest rate at
origination. Accordingly, the repayment of such ARM is dependent on the ability
of the Mortgagor to make larger monthly payments after the initial Note Rate
adjustment date.
The applicable Prospectus Supplement will contain information respecting the
index (the "Index") utilized to adjust the Note Rates of ARMs, the Mortgage
Margin, the frequency of interest rate and payment adjustments, the Periodic
Ceiling, the Periodic Floor, the Maximum Note Rate, the Minimum Note Rate, if
applicable, and provisions for deferred interest, if any. The ARMs included in a
particular ARM Pool will be more fully described in the related Prospectus
Supplement.
YIELD CONSIDERATIONS
A description of yield considerations with respect to any Series of
CitiCertificates, to the extent such considerations differ from those described
below, will be set forth in the related Prospectus Supplement.
The yield on any CitiCertificate or CitiMortgageCertificate will depend on
the price paid, the effective interest rate of the CitiCertificate or
CitiMortgageCertificate and the prepayment experience with respect to the
Mortgage Loans underlying the related Series.
Price
Subject to the effect of the amount of interest payable in connection with
prepayments as described below, prepayments of principal on the Mortgage Loans
in a Pool will increase the yield on a related CitiCertificate or
CitiMortgageCertificate purchased at a price less than the aggregate Adjusted
Balance of the Mortgage Loans in a Pool represented by such CitiCertificate or
CitiMortgageCertificate and will decrease the yield on a related CitiCertificate
or CitiMortgageCertificate purchased at a price greater than the aggregate
Adjusted Balance of the Mortgage Loans represented by such CitiCertificate or
CitiMortgageCertificate.
Effective Interest Rate
Interest on each Mortgage Loan is payable in arrears. Each monthly interest
payment on a Mortgage Loan is calculated as 1/12 of the applicable Note Rate
multiplied by the unpaid principal balance of such Mortgage Loan outstanding as
of the first day of the month. The amount of such payments distributed monthly
with respect to each Mortgage Loan will be similarly calculated on the basis of
the Pass-Through Rate for such Mortgage Loan. The difference between the Note
Rate and the Pass-Through Rate for a Mortgage Loan will 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.
A-6
<PAGE>
Other Yield Considerations
The Note Rates on ARMs adjust periodically in response to movements in the
Index. In connection with ARM Pools which provide for periodic adjustments to
scheduled monthly payments, the first distribution on the related
CitiCertificates or CitiMortgageCertificates reflecting a periodic adjustment to
scheduled monthly payments on the underlying ARMs will be passed through to
holders on the Distribution Date in the month following the month in which the
Note Rate on an ARM is adjusted. Furthermore, unless otherwise described in the
related Prospectus Supplement, adjustments in the Note Rates are based on the
relevant Index most recently available as of the date 45 days prior to the date
of the Note Rate adjustment. Accordingly, the yield to certificateholders of ARM
pools will be adjusted on a delayed basis relative to movements in the Index.
Furthermore, adjustments to the Note Rate on an ARM may be limited by a Minimum
Note Rate, Maximum Note Rate, Periodic Floor and Periodic Ceiling. The following
table illustrates the timing of the adjustments and receipt by
Certificateholders of related distributions for a hypothetical ARM Pool
containing ARMs having an adjustment date of July 1. All dates are assumed to be
business days.
May 1 .......................... Index is published.
July 1 ......................... Note Rates are adjusted based on the
May 15 Index.
August 1 ....................... Mortgagors make the first adjusted monthly
payments at the adjusted Note Rates.
August 18 ...................... Determination Date.
August 25 ...................... First payment to Certificateholders including
interest at the adjusted Pass-Through Rate
which payment reflects the adjusted scheduled
monthly payments on the underlying ARMs.
PREPAYMENT EXPERIENCE
The Mortgage Loans may be prepaid in full or in part at any time. The
prepayment experience of the Mortgage Loans will affect the weighted average
life of a series of CitiCertificates or CitiMortgageCertificates. Based on the
Originators' experience with their own conventional fixed interest rate mortgage
loan portfolios and public information with respect to the mortgage lending
industry, the Issuer anticipates that a significant number of Mortgage Loans
will be paid in full prior to their scheduled maturities. A number of factors,
including homeowner mobility, economic conditions, enforceability of due-on-sale
clauses, any prepayment penalty contained in the Mortgage Loans, mortgage market
interest rates and the availability of mortgage funds, may influence
prepayments. In general, due-on-sale clauses for Mortgage Loans will be enforced
in a manner consistent with applicable law whenever such due-on-sale clauses are
contained in the mortgage documents and such enforcement would not violate the
contractual arrangements with the Mortgagors. See "--Certain Legal Aspects of
the Mortgage Loans --Enforceability of Certain Provisions, Prepayment Charges
and Prepayments" below.
Unless the Prospectus Supplement indicates otherwise, Mortgage Loans
representing at least 90% of the aggregate Adjusted Balance of the Mortgage
Loans in a Fixed Rate Pool will contain a due-on-sale clause permitting the
mortgagee to accelerate the maturity of the Mortgage Loan upon conveyance by the
Mortgagor of the Mortgaged Property. Generally, ARMs in an ARM Pool will contain
a due-on-sale clause permitting the mortgagee to accelerate only in situations
where its security may be impaired.
Servicing institutions for loan pools are sometimes asked to refinance
existing loans by accepting prepayments of loans and making new loans secured by
the same property or assigning existing loans to new lenders, or by otherwise
modifying the terms of existing mortgage loans. A mortgagor may be legally
entitled to require a lender to grant such an assignment of a real estate loan.
See "--Certain Legal Aspects of the Mortgage Loans--Enforceability of Certain
Provisions, Prepayment Charges and Prepayments" below. The Issuer reserves the
right to offer incentives such as favorable loan terms or reduced fees to
encourage borrowers to refinance existing Mortgage Loans. The Issuer also
reserves the right to offer to mortgagors, at the request of mortgagors,
modifications of the terms of existing Mortgage Loans as an alternative to
refinancing, consistent with the REMIC provisions of the Code and the terms of
the applicable Pooling Agreement. Upon any such modification, the Issuer will
repurchase such Mortgage Loan from the Pool. The Issuer reserves the right to
accept prepayments of Mortgage Loans in any Pool and to make new loans to the
same borrowers or to refinance Real Estate Loans in any Pool pursuant to a
Consolidation Agreement. Upon any such refinancing or modification, either
pursuant to a Consolidation Agreement or a Modification Agreement or
A-7
<PAGE>
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, 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 and the Issuer do not expect to record or file any
assignments of the Mortgage Loans to the Trustee subsequent to the issuance of
CitiMortgageCertificates or CitiCertificates, as the case may be. 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 or the Issuer. However, so long as the Trustee is not the mortgagee
A-8
<PAGE>
of record, the Trustee might not be able, acting directly in its own name, to
enforce the Mortgage against the related Mortgaged Property or Mortgagor and may
be required to act indirectly through the mortgagee of record (who shall be an
Originator or an affiliate of an Originator). In addition, if any of the
Originators or the Issuer 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 or the Issuer 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
or the Issuer were commenced prior to such recording or filing, creditors of
such Originator or the Issuer, as the case may be, may be able to assert rights
in the affected Mortgage Loans superior to those of such Trustee.
The Trustee will review the above-mentioned documents (including any
Mortgage Certificates) within 90 days of the delivery of such documents and
shall promptly notify the Issuer if any document is not delivered or is found to
be defective in any material respect. If the Issuer cannot deliver such document
or cure such defect within 180 days (90 days if the defect affects the status of
the Mortgage Loan as a "qualified mortgage" for REMIC purposes) after notice
thereof, the Issuer will repurchase the related Mortgage Loan (or Mortgage
Certificate) from the Trustee within 180 days (90 days if the defect affects the
status of the Mortgage Loan as a "qualified mortgage" for REMIC purposes) after
such notice at a price equal to the principal balance owed by the Mortgagor,
plus accrued and unpaid interest thereon at the applicable Pass-Through Rate to
the first day of the month following the month of repurchase, less any
unreimbursed payments under any related Guaranty or other credit support and
unreimbursed Voluntary Advances (as described below). Such repurchase will not
diminish the amount available under any related Guaranty or other credit support
and is deemed to be a reimbursement. Except as provided in the last sentence of
this paragraph, this repurchase obligation constitutes the sole remedy available
to the CitiCertificateholders or the Trustee against the Issuer for a material
defect in a document relating to a Mortgage Loan. The Issuer will have certain
rights to substitute Mortgage Loans or Mortgage Certificates in respect of a
Pool. See "THE POOLS--Substitution of Mortgage Loans" in the body of this
Prospectus. In respect of a Pool, the related Originator will be required to
cure any defect in a document relating to, or repurchase, any Mortgage Loan
which it originated or acquired and which is found defective or repurchased by
the Issuer.
In the Pooling Agreement the Issuer will represent and warrant to the
related Trustee, among other things, that (i) the information set forth in the
schedule of Mortgage Loans attached thereto is correct in all material respects,
(ii) a lender's title and insurance policy or binder (or other satisfactory
evidence of title) for each Real Estate Loan was issued on the date of
origination thereof and each such policy or binder is valid and remains in full
force and effect, (iii) at the date of initial issuance of the CitiCertificates,
it has good title to the Mortgage Loans or the Mortgage Certificates and such
Mortgage Loans or Mortgage Certificates are free of offsets, defenses or
counterclaims and, in the case of Mortgage Certificates, free of liens, security
interests and other encumbrances, (iv) at the date of initial issuance of the
CitiCertificates, each Mortgage subject to such Pooling Agreement is a valid
first lien on the property securing the related Mortgage Note (subject only to
(a) the lien of current real property taxes and assessments, (b) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of the recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions generally
or specifically reflected in the related appraisal and (c) other matters to
which like properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by the Mortgage) and
such property is free of material damage and is in good repair, (v) if the Pool
includes Cooperative Loans, at the date of the initial issuance of the
CitiCertificates, each security interest created by the cooperative security
agreement is a valid first lien (subject only to the right of the related
cooperative to cancel the shares and terminate the proprietary lease for unpaid
assessments representing the Mortgagor's pro rata share of the cooperative's
payments for its blanket mortgage, current and future real property taxes,
maintenance charges and other capital and ordinary expenses to which like
collateral is commonly subject and for unpaid special assessments owed by the
Mortgagor to the cooperative) on the collateral securing the related Cooperative
Note, and the dwelling unit to which the Cooperative Loan relates is free of
material damage and is in good repair (it being recognized by the parties to the
Pooling Agreement that, while the Issuer warrants that each such security
interest is a valid first lien on the collateral securing the related
Cooperative Note, subject to the exceptions noted, the related proprietary lease
and occupancy agreement may be subordinated or otherwise subject to the lien of
any mortgage on the related cooperative building), (vi) at the applicable
Cut-Off Date, no subject Mortgage Loan is 30 days or more past due or has been
30 days or more past due more than once in the 12-month period immediately
preceding the Cut-Off Date and there are no delinquent tax or
A-9
<PAGE>
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 Ratings Group ("S&P") initially assigns a rating to the
CitiCertificates, then at any time that S&P's rating of Citicorp's long-term
senior debt is below the rating S&P has assigned to the highest rated
outstanding Class (or Subclass) of a particular Series of CitiCertificates, each
related Trustee will be required either to maintain possession of the related
Mortgage Notes or to appoint a custodian (which could be itself), which may not
be an affiliate of the Issuer, to maintain possession of the related Mortgage
Notes.
The Trustee will maintain possession of the documents relating to the
Mortgage Loans; provided, however, the Trustee will be authorized to appoint a
custodian or custodians, which may be an affiliate of the Issuer, except in the
circumstances described in the preceding paragraph, to maintain possession of
the documents relating to the Mortgage Loans. Such custodian may maintain all or
part of the documents relating to the Mortgage Loans. Any custodian will keep
such documents as the Trustee's agent under a custodial agreement.
PAYMENTS ON MORTGAGE LOANS IN POOLS
The Pooling Agreements will provide that the Issuer will establish and
maintain with one or more depository banks, savings and loan associations or
trust companies, any of which may be an affiliate of the Issuer (each, a
"Depository"), one or more accounts (the "Certificate Account") in the name of
the Trustee for the benefit of CitiCertificateholders. Amounts with respect to
any Series may, at the option of the Issuer, be held in the same deposit account
as amounts with respect to any other Series, provided that the rating by each
nationally recognized statistical rating organization of each such Series is the
same. For payments made on the Affiliated Mortgage Loans, the initial Depository
will be Citibank (New York State), unless otherwise specified in the applicable
Prospectus Supplement. For the Certificate Account related to the Affiliated
Mortgage Loans, upon two weeks' prior written notice to the Trustee, CMSI may at
any time and from time to time in its discretion transfer or direct the Trustee
in writing to transfer the Certificate Account relating to the Affiliated
Mortgage Loans to any Depository which meets any of the requirements as stated
below. In the event that the long-term debt obligations of any Depository of the
Certificate Account relating to the Affiliated Mortgage Loans shall be rated at
less than A2 by Moody's Investors Service, Inc. ("Moody's"), or the short-term
debt obligations of such depository shall be rated by S&P at less than A-1 or by
Moody's at less than P-1, then within 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
A-10
<PAGE>
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 Third Party Loans, CMSI will
establish and maintain accounts which are either (i) maintained with a
depositary institution the obligations of which (or in the case of a depository
institution that is the principal subsidiary of a holding company, the
obligations of such holding company) are rated in one of the two highest rating
categories by each rating agency that rated one or more classes of the related
Series of Certificates, (ii) an account or accounts the deposits in which are
fully insured by the FDIC, (iii) an account or accounts the deposits in which
are insured by the FDIC to the limits established by the FDIC and the uninsured
deposits in which are otherwise secured such that, as evidenced by an opinion of
counsel, the Certificateholders have a claim with respect to the funds in such
account or accounts, or a perfected first-priority security interest against any
collateral securing such funds, that is superior to the claims of any other
depositors or general creditors of the depository institution with which such
account or accounts are maintained or (iv) an account or accounts otherwise
acceptable to each such rating agency. The collateral eligible to secure amounts
in the Certificate Account is limited to Eligible Investments consisting of
United States government securities and other high-quality investments.
Payments, or proceeds of payments, of the types listed below are to be
deposited in the related Certificate Account for the related Series (other than
payments in respect of principal and interest on the related Mortgage Loans due
on or before the applicable Cut-Off Date):
(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;
A-11
<PAGE>
(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, 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 relatively
insignificant amounts. In the event the amount of delinquencies on Affiliated
Mortgage Loans or Third Party Loans cannot be covered by an advance out of cash
in the Certificate Account collected in relation to Affiliated Mortgage Loans or
Third Party Loans, respectively, being held for future distribution or
withdrawal (a "Certificate Account Advance"), (a) the Issuer may, but is not
obligated to, make Voluntary Advances in respect of Affiliated Mortgage Loans to
the extent that payments under credit support would otherwise be required and
(b) the respective services of Third Party Loans will make Voluntary Advances on
the loans serviced by them to the extent such advances are deemed recoverable by
them. The Issuer intends to make Voluntary Advances in respect of Affiliated
Mortgage Loans 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. In the absence of any issuer of credit support, the Issuer will make
Voluntary Advances in the amounts and under the conditions specified 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).
A-12
<PAGE>
January 1 .............. Cut-Off Date. The initial principal balance of the
Pool would be the aggregate Adjusted Balance of the
Mortgage Loans on January 1 after deducting principal
payments due on or before such date. Principal
payments due on January 1 and the accompanying
interest payments, which represent interest on
December 1 balances, are not part of the Pool and
will be retained by the Servicer.
January 1-January 31 ... Payment Period. Principal Prepayments posted during
this period will, together with interest, if any,
collected thereon (adjusted to the Pass-Through
Rate), be deposited in the Certificate Account and
will be passed through to CitiCertificateholders on
February 25. The Servicer collects interest on the
prepaid amount to the date of prepayment and, for
partial of full prepayments, collects no interest on
the prepaid amount for the month of prepayment
except, that in the case of certain Third Party
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.
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 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 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
A-13
<PAGE>
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.
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)
A-14
<PAGE>
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.
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 a Third
Party Master Servicer, who will in turn perform such functions principally
through Third Party Originators, as subservicers, with respect to Third Party
Loans acquired by the Issuer on a servicing-retained basis. See "THE
ORIGINATORS--Third Party Originators" herein. The Third Party Master Servicer
and such subservicers 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.
A-15
<PAGE>
Most of the properties securing the Real Estate Loans will be covered by
homeowners' insurance policies which, in addition to the standard form of fire
and extended coverage, provide coverage for certain other risks. These
homeowners' policies typically contain a "coinsurance" clause which in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, then the insurer's
liability in the event of a partial loss shall not exceed the lesser of (i) the
actual cash value (generally defined as replacement cost at the time and place
of loss, less physical depreciation) of the improvements damaged or destroyed or
(ii) such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance required to be maintained on the
improvements securing such Real Estate Loans may decline, and since residential
properties generally have historically appreciated in value over time, the
effect of coinsurance in the event of partial loss may be that hazard insurance
proceeds will be insufficient to restore fully the damaged property. However, to
the extent of the amount available to cover hazard losses under any Guaranty or
other credit support, CitiCertificateholders will not suffer loss by reason of
delinquencies or foreclosures following hazard losses, whether or not subject to
coinsurance clauses.
The Issuer and the Servicer will not require that a hazard or flood
insurance policy be maintained for any Cooperative Loan. Generally, the
cooperative itself is responsible for maintenance of hazard insurance for the
property owned by the cooperative, and the tenant-stockholders of that
cooperative do not maintain individual hazard insurance policies. To the extent,
however, a cooperative and the related borrower on a Cooperative Note do not
maintain such insurance or do not maintain adequate coverage or any insurance
proceeds are not applied to the restoration of the damaged property, damage to
such borrower's cooperative apartment or such cooperative's building could
significantly reduce the value of the collateral securing such Cooperative Note.
If an issuer's obligations under credit support are exhausted, and if a
Mortgagor defaults on his obligations to make payments on a Mortgage Loan, the
CitiCertificateholders will bear all risk of loss resulting from hazard losses
not covered by hazard insurance.
PRIMARY MORTGAGE INSURANCE
A Mortgage Loan secured by a Mortgaged Property having a loan-to-value ratio
in excess of 80% may 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
A-16
<PAGE>
any applicable Primary Mortgage Insurance Policy, the Servicer will not be
required to expend its own funds to restore the damaged property unless the
Servicer determines (i) that such restoration will increase the net proceeds to
Certificateholders upon liquidation of the Mortgage Loan after reimbursement of
the Servicer for its expenses and (ii) that such expenses will be recoverable to
it through liquidation proceeds.
Regardless of whether recovery under any Primary Mortgage Insurance Policy
is available or any further amount is payable under the credit support for a
Series of Certificates, the Servicer is nevertheless obligated to follow such
normal practices and procedures as it deems necessary or advisable to realize
upon the defaulted Mortgage Loan. However, the Servicer is not required under
the Pooling Agreement to expend its own funds to foreclose on a defaulted
Mortgage Loan unless it generally determines that foreclosure would increase the
net proceeds of liquidation available for distribution to Certificateholders and
its expenditures will be recoverable. If at any time no further amount is
payable under the credit support for a Series of Certificates, and if the
proceeds of any liquidation of the property securing the defaulted Mortgage
Loan, if such property is liquidated, are less than the principal balance of the
defaulted Mortgage Loans plus interest accrued thereon, Certificateholders will
realize a loss in the amount of such difference plus the aggregate of
unreimbursed advances of the Servicer with respect to such Mortgage Loan and
expenses incurred by the Servicer in connection with such proceedings which are
reimbursable under the Pooling Agreement.
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
A-17
<PAGE>
Pass-Through Rate for such Mortgage Loan. The Pooling Agreement with respect to
a Series will require that any property acquired by the Servicer by deed in lieu
of foreclosure with respect to a Liquidating Loan be administered so that it
meets the definition of "foreclosure property" in Section 860G(a)(8) of the Code
at all times, and so that no income from the rental or sale of such property
will be "net income from foreclosure property" within the meaning of Code
Section 860G(c).
Ordinarily, the holder of collateral acquired through foreclosure maximizes
recovery by providing financing to a new purchaser. As to collateral securing a
Cooperative Loan, any prospective purchaser will generally have to obtain the
approval of the board of directors of the relevant cooperative before purchasing
the shares and acquiring rights under the proprietary lease or occupancy
agreement securing that Cooperative Loan. See "--Certain Legal Aspects of the
Mortgage Loans--Foreclosure on Shares of Cooperatives" below. This approval is
usually based on the purchaser's income and net worth and numerous other
factors. The necessity of acquiring such approval could, however, limit the
number of potential purchasers for those shares and otherwise limit the Issuer's
or the Servicer's ability to sell, and realize the value of, those shares.
In general, a "tenant-stockholder" (as defined in Code Section 216(b)(2)) of
a corporation that qualifies as a "cooperative housing corporation" within the
meaning of Code Section 216(b)(1) is allowed a deduction for amounts paid or
accrued within his taxable year to the corporation representing his
proportionate share of certain interest expenses and certain real estate taxes
allowable as a deduction under Code Section 216(a) to the corporation under Code
Sections 163 and 164. In order for a corporation to qualify under Code Section
216(b)(1) for its taxable year in which such items are allowable as a deduction
to the corporation, such section requires, among other things, that at least 80%
of the gross income of the corporation be derived from its tenant-stockholders.
By virtue of this requirement, the status of a corporation for purposes of Code
Section 216(b)(1) must be determined on a year-to-year basis. Consequently,
there can be no assurance that cooperatives relating to the Cooperative Loans
will qualify under such section for any particular year. In the event that such
a cooperative fails to qualify for one or more years, the value of the
collateral securing any related Cooperative Loans could be significantly
impaired because no deduction would be allowable to tenant-stockholders under
Code Section 216(a) with respect to those years. In view of the significance of
the tax benefits accorded tenant-stockholders of a corporation that qualifies
under Code Section 216(b)(1), the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
If at any time no further amount is payable under any credit support for a
Series of CitiCertificates, the Issuer or the Servicer may expend its own funds
to restore property securing a Liquidating Loan included in such Series which
has sustained uninsured damage, but only if it determines that such restoration
will increase the proceeds to the CitiCertificateholders of liquidation of the
Liquidating Loan after reimbursement of the Issuer or the Servicer for its
expenses.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Issuer's or Servicer's primary compensation for its servicing activities
in respect of a Pool will come from the payment to it of a servicing fee. A
servicing fee will be paid to the Issuer in respect of Mortgage Loans underlying
a Pool as described under "DESCRIPTION OF CERTIFICATES--The Servicer" in the
body of this Prospectus. Such servicing fee paid to the Servicer in respect of a
Pool may be in an amount equal to a fixed annual percentage as specified in the
related Prospectus Supplement of the outstanding principal balance of such
Mortgage Loans on which interest is payable. In such event, the rate of
servicing compensation for each Mortgage Loan in a Pool will be fixed, and the
Pass-Through Rates of the Mortgage Loans will differ based on different mortgage
rates. Accordingly, the weighted average of the fixed Pass-Through Rates of the
Mortgage Loans underlying any Series of CitiCertificates will vary each month
based on the level of principal repayments (including prepayments) on the
underlying fixed rate Mortgage Loans. In such event, because the rate of
servicing compensation is fixed for each Mortgage Loan, disproportionate
principal payments among Mortgage Loans bearing different mortgage rates in a
Pool may affect the yield to the holder of a CitiCertificate, and accordingly,
may affect the market value of such CitiCertificate. Alternatively, if so
specified in the related Prospectus Supplement, the Pass-Through Rate may be the
same (or calculated in the same manner) for each Mortgage Loan in the Pool, and
the rate of servicing compensation with respect to each Mortgage Loan (equal to
the difference between the mortgage rate for such Mortgage Loan and such
Pass-Through Rate) may differ among different Mortgage Loans. In such event,
disproportionate principal payments among Mortgage Loans bearing different
mortgage rates in a Pool will not affect the weighted average Pass-Through Rate,
but may affect the weighted average rate of servicing compensation. In addition,
the rate of servicing compensation and the Pass-Through Rate may both differ
among different Mortgage Loans. Additional information
A-18
<PAGE>
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 (in the case of Affiliated Mortgage Loans) or the
related subservicer (in the case of Third Party Loans) will be responsible (to
the extent specified in the related Prospectus Supplement) for payment of
interest in respect of prepayments of principal of the Mortgage Loans to be
distributed to CitiCertificateholders in excess of the amount of such interest
received from the Mortgagors.
The Issuer or the Servicer will pay all expenses incurred in connection with
its servicing of the related Mortgage Loans (subject to limited reimbursement as
described herein), including, without limitation, payment of the fees and
disbursements of the Trustee (to the extent such fees are not deducted from
amounts received on the Mortgage Loans) and independent accountants, payments of
all fees and expenses in connection with the realization upon defaulted Mortgage
Loans, and payment of expenses incurred in connection with distributions and
reports to CitiCertificateholders.
If no further amount is payable under any credit support for a Series, the
Issuer or the Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Mortgage Loans,
and the holders of CitiCertificates will suffer loss to the extent that the
proceeds of the liquidation proceedings respecting any defaulted Mortgage Loan,
after reimbursement of the Issuer's or the Servicer's expenses, are less than
the principal balance of such Mortgage Loan. In addition, the Servicer will be
entitled to reimbursement of certain expenditures made by it in connection with
the preservation, protection or restoration of the security for a defaulted or
foreclosed Mortgage Loan.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
Mortgages
The Real Estate Loans will be secured by either mortgages or deeds of trust,
depending upon the prevailing practice in the state in which the property
subject to a Real Estate Loan is located. A mortgage or a deed of trust creates
a lien upon the real property encumbered by such instrument and represents the
security for the repayment of an obligation that is customarily evidenced by a
promissory note or a bond. It is not prior to the lien for real estate taxes and
assessments and certain other liens. Priority with respect to mortgages and
deeds of trust depends on their terms and generally on the order of recording
with a state, county or municipal office. There are two parties to a mortgage,
the mortgagor, who is the borrower/homeowner or the land trustee (as described
below), and the mortgagee, who is the lender. Under the mortgage instrument, the
mortgagor delivers to the mortgagee a note or bond and the mortgage. In the case
of a land trust, title to the property is held by a land trustee under a land
trust agreement, while the borrower/homeowner is the beneficiary of the land
trust; at origination of a mortgage loan, the borrower executes a separate
undertaking to make payments on the mortgage note. The security arrangements for
a living trust (also known as a family trust or inter vivos trust) are similar
to those for a land trust, except that the borrower executes the mortgage note.
Although a deed of trust is similar to a mortgage, a deed of trust formally has
three parties, the trustor (similar to a mortgagor), who is the homeowner and
may or may not be the borrower, the beneficiary (similar to a mortgagee), who is
the lender, and the trustee, a third-party grantee. Under a deed of trust, the
trustor grants the property, irrevocably 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
A-19
<PAGE>
owns all the real property that comprises the project, including the land,
separate dwelling units and all common areas. The cooperative is directly
responsible for project management and, in most cases, payment of real estate
taxes and hazard and liability insurance. If there is a blanket mortgage on the
cooperative apartment building and/or underlying land, as is generally the case,
the cooperative, as project mortgagor, is also responsible for meeting these
mortgage obligations. A blanket mortgage is ordinarily incurred by the
cooperative in connection with the construction or purchase of the cooperative's
apartment building. The interest of the occupant under proprietary leases or
occupancy agreements to which that cooperative is a party are generally
subordinate to the interest of the holder of the blanket mortgage in that
building. If the cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements. Also, the blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or the collateral securing the
Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing such tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement and, if
allowed under state law, a financing statement covering the proprietary lease or
occupancy agreement and the cooperative shares is filed in the appropriate state
and local offices to perfect the lender's interest in its collateral. Subject to
the limitations discussed below, upon default of the tenant-stockholder, the
lender may sue for judgment on the promissory note, dispose of the collateral at
a public or private sale or otherwise proceed against the collateral or
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and the
pledge of cooperative shares. See "Foreclosure on Shares of Cooperatives" below.
Foreclosure on Mortgages
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust which authorizes
the trustee to sell the property upon any default by the borrower under the
terms of the note or deed of trust. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person who
has recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee in some states must provide notice to any other individual
having an 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
A-20
<PAGE>
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 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
A-21
<PAGE>
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 most
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.
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.
- ----------
(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.
A-22
<PAGE>
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 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
A-23
<PAGE>
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.
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement and foreclosure on the
beneficial interest in a land trust. 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 Mortgage Loan secured by
shares of a cooperative, would be such shares and the related proprietary lease
or occupancy agreement) was conducted in a commercially reasonable manner.
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
A-24
<PAGE>
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 recovery of a deficiency judgment. In
addition, a deficiency judgment is prohibited even if judicial foreclosure is
pursued when a lender finances the purchase price of residential real property
and the property has four or fewer units and is occupied by the purchaser.
Because most mortgage loans fall into this category, the Issuer intends to
pursue nonjudicial foreclosure. While it is possible to sue the borrower for any
fraud or waste, it generally is not practical to do so.
For Mortgage Loans Secured by Property in Texas. In Texas most foreclosures
are non-judicial. However, it is necessary to give both notice of intent to
accelerate as well as notice of acceleration of the installment note unless
proper waiver language is included in the note. If the real property is used as
the debtor's residence, the debtor must be given at least 20 days to cure the
default before the entire debt is due and notice of sale is given. Any suit for
a deficiency judgment must be brought within two years after the date of
foreclosure. During the pendency of such suit, the debtor has the right to
request the court to determine the fair market value of the property foreclosed
upon. In the event the court determines that the fair market value of the
property is greater than the bid price paid at foreclosure, the debtor is
entitled to an offset against the deficiency claim in the amount by which the
fair market value exceeds the bid price.
For Mortgage Loans Secured by Property in Illinois. In Illinois, if the
price at the foreclosure sale is less than the total amount adjudicated due in
the judgment of foreclosure plus statutory interest, certain advances and costs
incurred at the time of judicial sale, the mortgagee may obtain deficiency
judgment against the mortgagor provided that there is personal jurisdiction over
the mortgagor.
For Mortgage Loans Secured by Property in Florida. Under Florida law, if the
fair market value of the mortgaged property at the time of the foreclosure sale
is less than the debt of the final judgement, the mortgagee may seek a
deficiency judgment, either as part of the foreclosure action or in a separate
action on the note. The decision whether to grant a deficiency judgment sought
as part of the foreclosure action lies within the sound judicial discretion of
the court but is subject to any equitable defenses by the borrower. No award of
a deficiency judgment can be made, either as part of or separately from the
foreclosure action, unless the court has personal jurisdiction over the
defendant. A request for a deficiency judgment is subject to dismissal for lack
of prosecution if the deficiency relief is not sought within one year from the
foreclosure sale date.
For Cooperative Loans. Generally, Article 9 of the UCC governs foreclosure
on cooperative shares and the related proprietary lease or occupancy agreement
in New York or New Jersey. Some courts have interpreted section 9-504 of the UCC
to prohibit a deficiency award unless the creditor establishes that the sale of
the 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.
A-25
<PAGE>
For all Mortgage Loans. In addition to anti-deficiency and related
legislation, numerous other federal and state statutory provisions, including
the United States Bankruptcy Code, 11 U.S.C. Sections 101 et seq. (the
"Bankruptcy Code"), and state laws affording relief to debtors may interfere
with or affect the ability of a secured mortgage lender to obtain payment of a
mortgage loan, to realize upon collateral and/or enforce a deficiency judgment.
For example, under the Bankruptcy Code, virtually all actions (including
foreclosure actions and deficiency judgment proceedings) are automatically
stayed upon the filing of a bankruptcy petition, and, usually, no interest or
principal payments are made during the course of the bankruptcy case.
Foreclosure of an interest in real property of a debtor in a case under the
Bankruptcy Code can typically occur only if the bankruptcy court vacates the
stay, an action, the court may be reluctant to take, particularly if the debtor
has the prospect of restructuring his or her debts and the mortgage collateral
is not deteriorating in value. The delay and the consequences thereof caused by
such automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor (a
subordinate lender secured by a mortgage on the property) may stay a senior
lender from taking action to foreclose.
A homeowner may file for relief under the Bankruptcy Code under any of three
different chapters of the Bankruptcy Code. Under Chapter 7, the assets of the
debtor are liquidated and a lender secured by a lien may "bid in" (i.e., bid up
to the amount of the debt) at the sale of the asset. See "--Foreclosure on
Mortgages." A homeowner may also file for relief under Chapter 11 of the
Bankruptcy Code and reorganize his or her debts through his or her
reorganization plan. Alternatively, a homeowner may file for relief under
Chapter 13 of the Bankruptcy Code and address his or her debts in a
rehabilitation plan. (Chapter 13 is often referred to as the "wage earner
chapter" or "consumer chapter" because most individuals seeking to restructure
their debts file for relief under Chapter 13 rather than Chapter 11).
The Bankruptcy Code permits a mortgage loan that is secured by property that
does not consist solely of the debtor's principal residence to be modified
without the consent of the lender provided certain substantive and procedural
safeguards are met. Under the Bankruptcy Code, the lender's security interest
may be reduced to the then-current value of the property as determined by the
court if the value is less than the amount due on the loan, thereby leaving the
lender as a general unsecured creditor for the difference between the value of
the collateral and the outstanding balance of the mortgage loan. A borrower's
unsecured indebtedness will typically be discharged in full upon payment of a
substantially reduced amount. Other modifications to a mortgage loan may include
a reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest, an alteration of the repayment
schedule, an extension of the final maturity date, and/or a reduction in the
outstanding balance of the secured portion of the loan. In certain
circumstances, subject to the court's approval, a debtor in a case under Chapter
11 of the Bankruptcy Code may have the power to grant liens senior to the lien
of a mortgage.
A reorganization plan under Chapter 11 and a rehabilitation plan under
Chapter 13 of the Bankruptcy Code may each allow a debtor to cure a default with
respect to a mortgage loan on such debtor's residence by paying arrearages over
a period of time and to deaccelerate and reinstate the original mortgage loan
payment schedule, even though the lender accelerated the loan and a final
judgment of foreclosure had been entered in state court (provided no sale of the
property had yet occurred) prior to the filing of the debtor's petition under
the Bankruptcy Code. Under a Chapter 13 plan, curing of defaults must be
accomplished within the five year maximum term permitted for repayment plans,
such term commencing when repayment plan becomes effective, while defaults may
be cured over a longer period of time under a Chapter 11 plan of reorganization.
Generally, a repayment plan in a case under Chapter 13 and a plan of
reorganization under Chapter 11 may not modify the claim of a mortgage lender if
the borrower elects to retain the property, the property is the borrower's
principal residence and the property is the lender's only collateral. Certain
courts have allowed modifications when the mortgage loan is secured both by the
debtor's principal residence and by collateral that is not "inextricably bound"
to the real property, such as appliances, machinery, or furniture.
The general protection for mortgages secured only by the debtor's principal
residence is not applicable in a case under Chapter 13 if the last payment on
the original payment schedule is due before the final date for payment under the
debtor's Chapter 13 plan (which date could be up to five years after the debtor
emerges from bankruptcy). Under several recently decided cases, the terms of
such a loan can be modified in the manner described above. While these decisions
are contrary to the holding a prior case by a senior appellate court, it is
possible that the later decisions will become the accepted interpretation in
view of the language of the applicable statutory provision. If this
interpretation
A-26
<PAGE>
is adopted by a court considering the treatment in a Chapter 13 repayment plan
of a Mortgage Loan, it is possible that the Mortgage Loan could be modified.
State statutes and general principles of equity may also provide a mortgagor
with means to halt a foreclosure proceeding or sale and to force a restructuring
of a mortgage loan on terms a lender would not otherwise accept.
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.
In a bankruptcy or similar proceeding of a mortgagor, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the mortgagor under the related mortgage loan prior to the
bankruptcy or similar proceeding. Payments on long-term debt may be protected
from recovery as preferences if they are payments in the ordinary course of
business made on debts incurred in the ordinary course of business or if the
value of the collateral exceeds the debt at the time of payment. Whether any
particular payment would be protected depends upon the facts specific to a
particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its costs
and expenses in preserving or selling the mortgaged property ahead of a payment
to the lender. Moreover, the laws of certain states also give priority to
certain tax and mechanics liens over the lien of a mortgage. Under the
Bankruptcy Code, if the court finds that actions of the mortgagee have been
unreasonable and inequitable, the lien of the related mortgage may be
subordinated to the claims of unsecured creditors.
The National Bankruptcy Review Commission (the "Bankruptcy Commission"), an
independent commission established under the Bankruptcy Reform Act of 1994 to
study issues and make recommendations relating to the Bankruptcy Code, delivered
its report to the President and Congress in October, 1997. The Bankruptcy
Commission recommended in its report that the Bankruptcy Code be amended to
treat any claim secured only by a junior lien on a borrower's principal
residence as unsecured to the extent that the amount of such claim exceeds the
appraised value of the mortgaged property at the date of origination of the loan
minus the value of all senior liens. If such a change in the Bankruptcy Code
were to be enacted, and if such change were to apply to loans originated prior
to enactment, a substantial number of the Mortgage Loans in a Pool could be
treated, in whole or in part, as unsecured debts in a case under Chapter 13 of
the Bankruptcy Code. As a consequence, borrowers who become Chapter 13 debtors
couldhave substantially less incentive to make arrangements for repayment of the
Mortgage Loans, and there is, accordingly, a significant risk that the recovery
on such Mortgage Loans would be materially less than the outstanding balance of
such Mortgage Loans, or that there could be no recovery.
The Bankruptcy Commission recommendation described was not incorporated in
bankruptcy reform legislation that was passed by the House of Representatives in
June, 1998. There can be no assurance, however, that such proposal would not be
enacted on other legislation.
Bankruptcy reform legislation being considered by the Senate would amend the
Bankruptcy Code (such amendment, the "TILA Amendment") to authorize bankruptcy
court judges to disallow claims based on secured debt if the creditor failed to
comply with certain provisions of the federal Truth in Lending Act. As most
recently proposed, such provision would apply retroactively to secured debt
incurred by a debtor prior to the date of effectiveness of such legislation,
including the Mortgage Loans. The House bill does not include a comparable
provision as of the date hereof. If the TILA Amendment were to become law, a
violation of the Truth in Lending Act with respect to a Mortgage Loan could
result in a total loss with respect to such loan in a bankruptcy proceeding. Any
such violation would be a breach of representation and warranty of the
depositor, and the depositor would be obligated to repurchase such Mortgage Loan
as described herein.
Various proposals to amend the Bankruptcy Code in ways that could adversely
affect the value of the Mortgage Loans in a trust have been considered by
Congress, and more such proposed legislation may be considered in the future. No
assurance can be given that any particular proposal will or will not be enacted
into law, or that any provision so enacted will not differ materially from the
proposals described above.
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
A-27
<PAGE>
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 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
A-28
<PAGE>
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 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.
A-29
<PAGE>
Adjustable Interest Rate Mortgage Loans
Adjustable interest rate mortgage loans originated by non-federally
chartered lenders have historically been subject to a variety of restrictions.
Such restrictions differed from state to state, resulting in difficulties in
determining whether a particular alternative mortgage instrument originated by a
state-chartered lender complied with applicable law. These difficulties were
alleviated substantially as a result of the enactment of Title VIII of the
Garn-St Germain Act ("Title VIII"). Title VIII provides that, notwithstanding
any state law to the contrary, state-chartered banks may originate "alternative
mortgage instruments" (including adjustable rate mortgage loans) in accordance
with regulations promulgated by the Comptroller of the Currency with respect to
origination of alternative mortgage instruments by national banks;
state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union
Administration with respect to origination of alternative mortgage instruments
by federal credit unions and all other non-federally chartered housing
creditors, including state-chartered savings and loan associations; and
state-chartered savings banks and mortgage banking companies may originate
alternative mortgage instruments in accordance with the regulations promulgated
by the Federal Home Loan Bank Board (now OTS) with respect to origination of
alternative mortgage instruments by federal savings and loan associations. Title
VIII provides that any state may reject applicability of the provisions of Title
VIII by adopting, prior to October 15, 1985, a law or constitutional provision
expressly rejecting the applicability of such provisions. Certain states have
taken such action.
The Issuer has been advised by its counsel that it is their opinion that a
court interpreting Title VIII would hold that adjustable interest rate mortgage
loans which were originated by state-chartered lenders before the date of
enactment of any state law or constitutional provision rejecting applicability
of Title VIII would not be subject to state laws imposing restrictions or
prohibitions on the ability of state-chartered lenders to originate alternative
mortgage instruments.
All of the ARMs which were originated by a state-chartered lender after the
enactment of a state law or constitutional provision rejecting the applicability
of Title VIII complied with applicable state law. All of the ARMs which were
originated by federally chartered lenders or which were originated by
state-chartered lenders prior to enactment of a state law or constitutional
provision rejecting the applicability of Title VIII were originated in
compliance with all applicable federal regulations.
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 and could
exceed the value of the property and the aggregate assets of the owner or
operator. 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
A-30
<PAGE>
contamination on the property. In addition, owners and operators of properties
that generate hazardous substances that are disposed of at other "off-site"
locations may be held strictly, jointly and severally liable for environmental
remediation and/or damages at those off-site locations. Many states also have
laws that are similar to CERCLA. Liability under CERCLA or under similar state
law could exceed the value of the property itself as well as the aggregate
assets of the property owner.
The law is unclear as to whether and under what precise circumstances
Cleanup Costs, or the obligation to take remedial actions, could be imposed on a
secured lender such as the Trust. Under the laws of some states and under
CERCLA, a lender may be liable as an "owner or operator" for costs of addressing
releases or threatened releases of hazardous substances on a mortgaged property
if such lender or its agents or employees have "participated in the management"
of the operations of the borrower, even though the environmental damage or
threat was caused by a prior owner or current owner or operator or other third
party. Excluded from CERCLA's definition of "owner or operator," is a person
"who without participating in the management of . . . [the] facility, holds
indicia of ownership primarily to protect his security interest" (the
"secured-creditor exemption"). This exemption for holders of a security interest
such as a secured lender applies only to the extent that the lender seeks to
protect its security interest in the contaminated facility or property. Thus, if
a lender's activities begin to encroach on the actual management of such
facility or property, the lender faces potential liability as an "owner or
operator" under CERCLA. Similarly, when a lender forecloses and takes title to a
contaminated facility or property, the lender may incur potential CERCLA
liability in various circumstances, including among others, when it holds the
facility or property as an investment (including leasing the facility or
property to a third party), fails to market the property in a timely fashion or
fails to properly address environmental conditions at the property or facility.
The Resource Conservation and Recovery Act, as amended ("RCRA"), contains a
similar secured-creditor exemption for those lenders who hold a security
interest in petroleum underground storage tanks ("USTs") or in real estate
containing a UST, or that acquire title to a petroleum UST or facility or
property on which such a UST is located. As under CERCLA, a lender may lose its
secured-creditor exemption and be held liable under RCRA as a UST owner or
operator if such lender or its employees or agents participate in the management
of the UST. And, if the lender takes title to or possession the UST or the real
estate containing the UST, under certain circumstances the secured-creditor
exemption may be deemed to be unavailable.
Court decisions have taken varying views of the scope of the
secured-creditor exemption, leading to administrative and legislative efforts to
provide guidance to lenders on the scope of activities that would trigger CERCLA
and/or RCRA liability. Until recently, these efforts have failed to provide
substantial guidance.
On September 30, 1996, however, the President signed into law legislation
intended to clarify the scope of the secured-creditor exemption under both
CERCLA and RCRA. This legislation more explicitly defined the kinds of
"participation in management" that would trigger liability under CERCLA and
specified certain activities that would not constitute "participation in
management" or otherwise result in a forfeiture of the secured-creditor
exemption prior to foreclosure or during a workout period. The legislation also
clarifies the extent of protection against liability under CERCLA in the event
of foreclosure. The legislation also authorizes certain regulatory
clarifications of the scope of the secured-creditor exemption for purposes of
RCRA, similar to the statutory protections under CERCLA. 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
A-31
<PAGE>
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-32
<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 which backs a
single issue of GNMA II Certificates. However, single issuer pools may be formed
under the GNMA II program as well.
B-1
<PAGE>
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 Certificate 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.
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
B-2
<PAGE>
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.
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.
B-3
<PAGE>
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.
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
B-4
<PAGE>
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.
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-5
<PAGE>
INDEX OF PRINCIPAL DEFINITIONS
TERM PAGE
- ---- ----
Accrual CitiCertificates .............................. 1
Acquisition Premium ................................... 42
Adjusted Balance ...................................... A-2
Affiliated Mortgage Loans ............................. 13
Affiliated Originators ................................ 1
Alternative Certificate Account ....................... A-11
Amount Available ...................................... 10
ARM Pool .............................................. A-1
ARMs .................................................. A-5
BIF ................................................... 19
Bankruptcy Code ....................................... A-26
Buydown Mortgage Loans ................................ 14
CERCLA ................................................ A-30
Certificate Account ................................... 19
Certificate Account Advance ........................... A-12
Certificate Distribution Amount ....................... 6
Certificateholders .................................... 2
Certificate Rate ...................................... 6
Certificates .......................................... 1
CFSB .................................................. 1
CFSB Pool ............................................. A-1
Charter Act ........................................... B-4
Citibank .............................................. 1
Citibank Pool ......................................... A-1
CitiCertificates ...................................... 1
CitiMortgageCertificates .............................. 1
Class ................................................. 1
Cleanup Costs ......................................... A-30
CMI ................................................... 1
CMI Pool .............................................. A-1
CMSI Pool ............................................. A-1
Code .................................................. 1
Commission ............................................ 2
Consolidation Agreements .............................. A-2
Converted Mortgage Loan ............................... A-5
Cooperative Loans ..................................... A-1
Cooperative Notes ..................................... A-1
Cooperatives .......................................... A-1
Credit Support Percentage ............................. 10
Cut-Off Date .......................................... A-9
Deferred Interest ..................................... 43
Depository ............................................ A-11
Detailed Information .................................. 2
Determination Date .................................... 5
Disqualified Organization ............................. 49
Distribution Date ..................................... 5
DTC ................................................... 4
i
<PAGE>
TERM PAGE
- ---- ----
Due Period ............................................ 8
Eligible Investments .................................. 18
EDGAR ................................................. 2
ERISA ................................................. 34
Events of Default ..................................... 31
Exchange Act .......................................... 2
FDIC .................................................. 19
FFIEC ................................................. 36
FHA ................................................... B-1
FHA Loans ............................................. B-1
FHLMC ................................................. 18
FHLMC Act ............................................. B-2
FHLMC Certificate Group ............................... B-3
FHLMC Certificates .................................... 18
Fixed Rate Pool ....................................... A-1
FNMA .................................................. 18
FNMA Certificates ..................................... 18
Foreign Investors ..................................... 50
Form of Pooling Agreement ............................. 3
Garn-St Germain Act ................................... A-28
GNMA .................................................. 18
GNMA Certificates ..................................... 18
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-6
Interest Accrual Period ............................... 6
IRA ................................................... 34
Issuer ................................................ 1
Issuer Certificates ................................... 1
Last Scheduled Distribution Date ...................... 12
Leasehold Loans ....................................... 18
Letter of Credit ...................................... 10
Limited Guaranty ...................................... 10
Liquidated Loan ....................................... 12
Liquidating Loan ...................................... 11
Loss Allocation Event ................................. 7
Market Discount ....................................... 43
Mark to Market Regulations ............................ 51
Master Servicer ....................................... A-4
Maximum Note Rate ..................................... A-5
Minimum Note Rate ..................................... A-5
Minimum Prepayment Agreement .......................... 19
Minimum Reinvestment Agreement ........................ 20
Modification Agreements ............................... A-2
Moody's ............................................... A-11
Mortgage Certificates ................................. 1
ii
<PAGE>
TERM PAGE
- ---- ----
Mortgage Loans ........................................ 1
Mortgage Margin ....................................... A-5
Mortgaged Properties .................................. A-1
Mortgagor ............................................. A-2
Mortgagor Bankruptcy Bond ............................. 10
NCUA .................................................. 36
New Regulations ....................................... 54
1986 Act .............................................. 40
1998 Policy Statement ................................. 36
Non-Conforming Loans .................................. 15
Noneconomic Residual Interests ........................ 50
Non-U.S. Person ....................................... 53
Note Rate ............................................. A-4
Notice Date ........................................... A-14
NYBU .................................................. 22
OCC ................................................... 36
OID Regulations ....................................... 40
Original Issue Discount ............................... 40
Original PCs .......................................... B-3
Original Value ........................................ 23
Originators ........................................... 1
OTS ................................................... 30
PA .................................................... A-1
Pass-Through Entity ................................... 50
Pass-Through Rate ..................................... A-4
Payment Period ........................................ A-13
Periodic Ceiling ...................................... A-5
Periodic Floor ........................................ A-5
Plans ................................................. 34
PCBs .................................................. A-30
Pool .................................................. 1
Pool Distribution Amount .............................. 5
Pool Insurance Policies ............................... 10
Pool Value ............................................ 6
Pool Value Group ...................................... 7
Pooling Agreement ..................................... 3
Premium ............................................... 44
Prepayment Assumption ................................. 41
Primary Mortgage Insurance Policy ..................... A-16
Principal Amount ...................................... 6
Principal Prepayment .................................. 5
Prospectus Supplement ................................. A-3
PTC ................................................... B-2
PTE 83-l .............................................. 35
Purchase Amount Advance ............................... 11
Rating Requirements ................................... A-11
RCRA .................................................. A-31
Real Estate Loans ..................................... A-1
Record Date ........................................... 5
Registration Statement ................................ 3
Regulations ........................................... 34
iii
<PAGE>
TERM PAGE
- ---- ----
REMIC ................................................. 1
REMIC Regulations ..................................... 37
REMIC Servicing Fee ................................... 13
Reserve Fund .......................................... 10
Residual Certificates ................................. 1
Residual Holders ...................................... 46
Retail Class CitiCertificate .......................... 40
SAIF .................................................. 19
SBJPA of 1996 ......................................... 38
Scheduled Principal ................................... A-12
Securities Act ........................................ 4
Senior Certificates ................................... 1
Senior/Subordinated Series ............................ 1
Series ................................................ 1
Servicer .............................................. 13
Servicing Account ..................................... A-15
Servicing Compensation ................................ 14
Servicing Fee ......................................... 14
Similar Law ........................................... 35
Single Certificate .................................... 5
SMMEA ................................................. 36
Special Distributions ................................. 8
Special Hazard Insurance Policies ..................... 10
S&P ................................................... A-10
Startup Day ........................................... 20
Subclass .............................................. 1
Subordinated Certificates ............................. 1
Subordination Amount .................................. 9
Subordination Reserve Fund ............................ 9
Superlien ............................................. A-30
Third Party Loans ..................................... 13
Third Party Master Servicer ........................... 13
Third Party Originators ............................... 1
Third Party Pool ...................................... A-1
Title V ............................................... A-29
Title VIII ............................................ A-30
Transfer Instrument ................................... 16
Trust ................................................. 1
Trustee ............................................... 3
UCC ................................................... A-23
Underlying Trustee .................................... 17
U.S. Person ........................................... 51
USTs .................................................. A-31
VA .................................................... 21
VA Loans .............................................. B-1
Variable Rate CitiCertificates ........................ 42
Voluntary Advances .................................... A-12
Whole or Partial Pool Issuer Certificates ............. 17
Window Period Loans ................................... A-28
Window Period States .................................. A-28
iv
<PAGE>
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THE PROSPECTUS OR THIS PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. NEITHER THE PROSPECTUS NOR THIS PROSPECTUS SUPPLEMENT
CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES OTHER THAN THE OFFERED CITICERTIFICATES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE
OFFERED CITICERTIFICATES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THE
PROSPECTUS NOR THIS PROSPECTUS SUPPLEMENT NOR ANY SALE MADE THEREUNDER OR
HEREUNDER AT ANY TIME IMPLIES THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Summary of Terms ................................................... S-4
Risk Factors ....................................................... S-12
Description of the Pool and the Mortgaged
Properties ........................................................ S-16
Description of the Offered CitiCertificates ........................ S-17
Certain ERISA Considerations ....................................... S-44
Legal Investment ................................................... S-45
Certain Federal Income Tax Consequences ............................ S-45
Plan of Distribution ............................................... S-46
Legal Matters ...................................................... S-46
Incorporation of Certain Documents by Reference .................... S-47
Index of Principal Definitions in Prospectus
Supplement ........................................................ S-48
PROSPECTUS
Reports to Certificateholders ...................................... 2
Additional Information ............................................. 2
Available Information .............................................. 2
Available Detailed Information ..................................... 2
Incorporation of Certain Documents By Reference .................... 3
Description of Certificates ........................................ 4
The Pools .......................................................... 13
Citicorp Mortgage Securities, Inc. ................................. 21
The Originators .................................................... 21
Loan Underwriting Policies ......................................... 22
Delinquency, Foreclosure and Loss Considerations
and Experience .................................................... 26
Citicorp ........................................................... 29
Use of Proceeds .................................................... 29
The Pooling Agreements ............................................. 29
Certain ERISA Considerations ....................................... 34
Legal Investment ................................................... 36
Certain Federal Income Tax Consequences ............................ 37
Plans of Distribution .............................................. 55
Experts ............................................................ 56
Appendix A: The Mortgage Loans and
CitiMortgageCertificates
Appendix B: The Agency Certificates
Index of Principal Definitions
$298,592,684
(APPROXIMATE)
CITICORP MORTGAGE
SECURITIES, INC.
(PACKAGER AND SERVICER)
REMIC PASS-THROUGH CERTIFICATES
SERIES 1999-1
---------------
PROSPECTUS SUPPLEMENT
MARCH 25, 1999
---------------
|
Credit | First
Suisse | Boston
|
================================================================================
