Prospectus
January 25, 2000
Citicorp Mortgage Securities, Inc.
12855 North Outer Forty Drive
St. Louis, MO 63141
(314) 851-1467
$201,423,825 (approximate)
REMIC Pass-Through Certificates
Series 2000-1
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consisting of approximately
o $194,008,825, in 8 subclasses, of senior class A Certificates
o $4,774,000 of senior subordinated class M Certificates
o $2,641,000, in 2 subclasses, of subordinated class B Certificates
The purchase price for the offered Certificates will be set by the underwriter
or negotiated by the purchaser and the underwriter at the time of sale. Total
proceeds to the Trust for the offered Certificates will be approximately
$193,645,130, plus accrued interest from January 1, 2000 to the closing date.
CMSI does not intend to list the Certificates on a national securities exchange
or the Nasdaq Stock Market.
YOU SHOULD READ "GENERAL RISK FACTORS," BEGINNING ON
PAGE 3 OF THE CORE PROSPECTUS, AND "SERIES RISK
FACTORS," BEGINNING ON PAGE S-7 OF THE SUPPLEMENT,
BEFORE YOU PURCHASE ANY CERTIFICATES.
CREDIT SUISSE FIRST BOSTON
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The Certificates are not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission nor any state
securities commission has approved the Certificates or
determined that this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
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HOW TO READ THIS PROSPECTUS
This prospectus consists of a prospectus supplement followed by a core
prospectus. The core prospectus gives general background information that
applies to all Series of Certificates. The supplement gives specific information
about your Series of Certificates. You should carefully read both the core
prospectus and the supplement before investing.
The supplement may update or modify information in the core prospectus.
Whenever information in the supplement differs from information in the core
prospectus, you should rely on the information in the supplement.
In deciding whether to purchase Certificates, you should rely solely on the
information in this prospectus. We have not authorized anyone to give you
different information about the Certificates.
Contents
PROSPECTUS SUPPLEMENT
Summary S-3
Series risk factors S-7
Ratio stripping S-8
Subordination S-9
Distributions of interest S-12
Distributions of principal S-13
Losses S-15
Sensitivity of Certificates to prepayments S-17
Voting Rights S-24
Additional ERISA considerations S-24
Legal investment S-25
Federal income tax consequences S-25
Plan of distribution S-25
Legal opinions S-26
Incorporation of additional SEC filings S-26
Appendix--Detailed description
of the mortgage loans S-27
CORE PROSPECTUS
Summary 2
General risk factors 3
Distributions on the Certificates 4
Delinquency, foreclosure and loss experience 11
The mortgage loans 12
Defective mortgage loans 15
Insurance and other credit support 16
Mortgage documents 17
CMSI and its affiliates 17
Mortgage loan underwriting 18
Servicing 21
Default by CMSI 23
The Trustee 23
The pooling agreement 24
Book-entry and physical Certificates 26
ERISA considerations 27
Legal investment considerations 29
Taxation of Certificate holders 30
Taxation of the Trust 38
Legal aspects of mortgage loans 39
Use of proceeds 51
Additional information 51
Index 52
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Prospectus Supplement
January 25, 2000
SUMMARY
Series overview--the Certificates
Offered by this prospectus
<TABLE>
<CAPTION>
Principal balance Expected
at cut-off date, rating
Class +/- up to 5% Interest rate Special features S&P/Fitch Subordinated to Book-entry
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
A-1 $69,583,000 7.00% AAA/AAA N/A Yes
A-2 49,672,000 7.00% AAA/AAA N/A Yes
A-3 14,001,000 7.00% AAA/AAA N/A Yes
A-4 10,848,000 7.00% AAA/AAA N/A Yes
A-5 15,100,000 7.00% AAA/AAA N/A Yes
A-6 13,736,000 7.00% Accrual AAA/AAA N/A Yes
A-7 20,315,000 7.00% NAS AAA/AAA N/A Yes
A-PO 753,825 0% PO strip AAAr/AAA N/A No
M 4,774,000 7.00% --/AA A No
B-1 1,727,000 7.00% --/A A, M No
B-2 914,000 7.00% --/BBB A, M, B-1 No
Not offered by this prospectus
<CAPTION>
Principal balance
at cut-off date,
Class +/- up to 5% Interest rate Special features Subordinated to
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A-IO $181,880,734 (notional) Variable IO strip N/A
B-3 711,000 7.00% A, M, B-1, B-2
B-4 508,000 7.00% A, M, B-1, B-2, B-3
B-5 507,971 7.00% A, M, B-1, B-2, B-3, B-4
Residual N/A N/A Residual N/A
</TABLE>
S-3
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<TABLE>
<S> <C>
Trustee The Bank of New York
101 Barclay Street, Floor 12W
New York, New York 10286
(212) 815-7166
Paying agent, transfer agent and
certificate registrar The Bank of New York
Relative size of classes Principal balance of class or subclass as percentage
of principal balance of all Certificates at
Class cut-off date (the class percentage)
----- -----------------------------------
A 94.50% to 96.50%
M 1.85% to 2.85%
B 1.65% to 2.65%
B-1 0.65% to 1.05%
B-2 0.25% to 0.65%
Ratings The offered Certificates will not be sold unless Standard &
Poor's Ratings Group (S&P) and/or Fitch IBCA, Inc. (Fitch) have
rated the offered Certificates as shown above.
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.
You should evaluate these ratings independently from similar ratings
on other types of securities. A rating is not a recommendation to
buy, sell or hold securities. S&P or Fitch may revise or withdraw
a rating at any time.
Denominations $1,000 and any whole dollar amount above $1,000 except that one
Certificate of each such subclass may be in a different
denomination.
Distribution days 25th day (or, if that is not a business day, the next business day)
of each month, beginning February 25, 2000.
Last distribution day January 25, 2030, except that based on assumptions described in
"Sensitivity of Certificates to prepayment--The prepayment model,"
the last distribution day for the class A-5 Certificates should be
no later than September 25, 2010.
Clean-up call Permitted when principal balance of the mortgage loans is below 5%
of the scheduled principal balance of the mortgage loans as of the
cut-off date.
Loss limits (approximate) Special hazard: $2,031,508 (or approximately 1% of the
initial aggregate scheduled principal
balance of the mortgage loans)
Fraud: $2,031,508 (1%)
Bankruptcy: $100,000 (0.05%)
Prepayment rate assumed in
structuring Series 225% of the prepayment model.
"Mortgage related securities"
under SMMEA Classes A and M.
Record date For a distribution day, the close of business on the last business
day of the calendar month preceding that distribution day.
Closing date January 27, 2000.
Conditions to closing The Certificates offered by this prospectus will not be sold
unless the Certificates in classes B-3, B-4 and B-5 (none of
</TABLE>
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<TABLE>
<S> <C>
which are offered by this prospectus) are sold on the closing
date.
Credit Suisse First Boston Corporation has agreed to purchase
the offered Certificates on the closing date, subject to the
satisfaction of customary closing conditions. Also see
"Ratings" above.
SERIES OVERVIEW--THE MORTGAGE LOANS AT THE CUT-OFF DATE
Cut-off date January 1, 2000.
Number of mortgage loans 575.
Types of mortgage loans Fixed rate one- to four-family residential, of which
o at least 95% of the mortgaged properties will be one-family
dwellings,
o no more than 15% of mortgaged properties will be condominiums,
townhouses, rowhouses or cooperative apartments,
o less than 5% of the mortgaged properties will be investment
properties, and
o at least 95% of the mortgaged properties are determined by CMSI
to be primary residences of borrowers.
(Percentages are of scheduled principal balance of mortgage loans.)
Geographic concentration No more than
o 22% of the mortgaged properties are in California and no more
than 21% are in New York,
o 10% of the mortgaged properties are in any one other state, and
o 5% of the mortgaged properties are in any one ZIP code.
(Percentages are of scheduled principal balance of mortgage loans.)
Scheduled principal balance on
cut-off date $203,150,796 +/- up to 5%.
Range of scheduled principal o No more than 5% of the mortgage loans will have a scheduled
balances on cut-off date principal balance less than $250,000.
o At least 80% of the mortgage loans will have a scheduled
principal balance less than $500,000.
o No mortgage loan will have a scheduled principal balance greater
than $1,000,000.
(Percentages are of scheduled principal balance of mortgage loans.)
Loan-to-value ratios At origination,
o no more than 15% of the mortgage loans had a loan-to-value ratio
greater than 80%,
o no more than 5% of the mortgage loans had a loan-to-value ratio
greater than 90%,
o none of the mortgage loans had a loan-to-value ratio greater than
95%, and
o the weighted average loan-to-value ratio of the mortgage loans
was no more than 76%.
(Percentages are of scheduled principal balance of mortgage loans.)
S-5
</TABLE>
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<TABLE>
<S> <C>
Mortgage loans for which additional collateral (i.e., collateral
other than the mortgaged property) was considered in calculating
loan-to-value ratios represent not more than 5% of the mortgage
loans by scheduled principal balance. If the loan-to-value ratios
for these loans are calculated without regard to the value of the
additional collateral, their weighted average loan-to-value ratio
is approximately 98%.
Range of interest rates on
mortgage loans
(before deduction of
servicing fee) 6.0% to 9.125% per annum.
Weighted average mortgage
interest rate (before
deduction of servicing fee) 7.842% per annum.
Servicing fee 0.25% per annum.
Range of maturities 20 to 30 years.
Latest scheduled maturity January 1, 2030.
Weighted average remaining term
to maturity 356 months.
Weighted average original term
to maturity 359 months.
Premium mortgage loans--i.e., Scheduled principal balance: $181,880,734 (approximate). Weighted
loans with net loan rates (interest average interest rate: 7.941% per annum (approximate).
rate less servicing fee) of 7.00% Weighted average remaining term to maturity: 356 months
or more (approximate).
Discount mortgage loans-- Scheduled principal balance: $21,270,061 (approximate). Weighted
i.e., loans with net loan rates average interest rate: 7.002% per annum (approximate).
less than 7.00%
Weighted average remaining term to maturity: 352 months
(approximate).
Mortgage loans originated or Citicorp Mortgage, Citi FSB, Citibank (originator only).
acquired by
Originated from January 1, 1992 through January 1, 2000.
Underwriting policies o At least 95% of the mortgage loans were originated using loan
underwriting policies that require, proof of income and liquid
assets and telephone verification of employment, or are refinanced
mortgage loans originated using alternative or streamlined
underwriting policies.
o No more than 5% of the mortgage loans were orginated using a loan
underwriting policy that requires verification of employment and
may require proof of liquid assets, but does not require
verification of the prospective borrower's income as stated on the
loan application.
o No more than 30% of the mortgage loans will be refinanced
mortgage loans originated using alternative or streamlined
underwriting policies.
(Percentages are of scheduled principal balance of the mortgage
loans.)
</TABLE>
S-6
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DETAILED INFORMATION
Additional Information on the mortgage loans expected to be included in the
Trust on the closing date is set forth in the Appendix to this supplement. The
mortgage loans actually included in the Trust may differ from the description in
the summary and the Appendix, but the differences will not be material. Within
15 days after the closing date, CMSI will file a Form 8-K with the SEC
containing detailed information on the mortgage loans actually in the Trust and
other matters, including
o years of origination,
o types of dwellings,
o principal balances,
o loan-to-value ratios at origination,
o mortgage interest rates,
o geographical distribution by state,
o the special hazard, fraud and bankruptcy loss limits,
o the aggregate initial principal balances of the class A, class M and class
B Certificates, and
o the subordination levels for classes A, M, B-1, B-2, B-3 and B-4.
SERIES RISK FACTORS
You should consider the following risk factors for this Series, as well as the
general risk factors for the Certificates discussed in the core prospectus,
before you purchase any Certificates.
LIMITED CREDIT ENHANCEMENT
Credit enhancement for the senior classes of Certificates is provided by the
subordination of other classes of Certificates. The amount of credit enhancement
provided by subordination for any class of Certificates will, however, be
limited and will decrease over the life of the transaction due to reductions of
the principal balances of the subordinated classes through the distribution of
principal and allocation of principal losses to them. Also, special hazard,
fraud and bankruptcy losses will only be allocated to the subordinated classes
up to specific dollar limits; once these limits are reached, such losses will be
allocated proportionally among all classes other than the class A-PO
Certificates, which will absorb all such losses experienced by the hypothetical
PO loans. The class A-6 Certificates, which are accrual Certificates, will be
allocated principal losses on the basis of the lesser of their current or
initial principal balance.
GEOGRAPHIC CONCENTRATION
Approximately 22% of the total initial scheduled principal balance of the
mortgage loans in this Series are mortgage loans secured by mortgaged properties
located in California and approximately 21% are secured by mortgaged properties
located in New York. No other state contains mortgaged properties securing more
than 10% of the initial scheduled principal balance of the mortgage loans.
In recent years, California, the New York metropolitan area and several other
regions have experienced significant fluctuations in housing prices. Weaker
economic conditions and housing markets may result in a higher rate of
delinquencies and defaults by homeowners 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 homeowners 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
Certificates, especially if your Certificates are subordinated. In addition,
delinquencies 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 Certificates.
SUBORDINATION
Classes M and B are subordinated. Consequently, shortfalls in payments received
on the mortgage loans will result in shortfalls in distributions to the
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subordinated classes, in the following order of priority:
o Class M is subordinated to class A. Class M will therefore not receive a
distribution of interest or principal on a distribution day until class A
has received full distributions on that day.
o Class B-1 is subordinated to classes A and M. Class B-1 will therefore not
receive a distribution of interest or principal on a distribution day until
classes A and M have received full distributions on that day.
o Class B-2 is subordinated to classes A, M and B-1. Class B-2 will therefore
not receive a distribution of interest or principal on a distribution day
until classes A, M and B-1 have received full distributions on that day.
If a principal loss is allocated to a class, it reduces (by the amount of the
loss) the principal balance that can ultimately be distributed to that class.
Principal losses realized on mortgage loans are generally allocated to the most
subordinated class until its principal balance is reduced to zero, then to the
next most subordinated class until its principal balance is reduced to zero, and
so on through the subordinated classes. As a result, the ultimate distribution
to holders of the class M and the offered class B Certificates of their
principal balances depends upon the timing and the level of losses realized on
the mortgage loans and other shortfalls in payments on the mortgage loans.
Although some realized losses on mortgage loans may initially be allocated to
the class A-PO Certificates, these losses are likely to be allocated ultimately
to the subordinated classes. This is because the class A-PO Certificates will
generally be reimbursed for principal losses out of amounts of principal
otherwise distributable to classes B and M. See "Subordination" below.
RATINGS CONSIDERATIONS
The ratings of S&P on mortgage pass-through certificates address the likelihood
of the receipt by certificateholders of timely payments of interest and the
ultimate return of principal. S&P ratings take into consideration the credit
quality of the mortgage pool, including any credit support providers, structural
and legal aspects associated with the certificates, and the extent to which the
payment stream on the mortgage pool is adequate to make payments required under
the certificates. S&P's ratings on such certificates do not, however, constitute
a statement regarding frequency of prepayments on the mortgage loans. S&P's
rating does not address the possibility that investors may suffer a lower than
anticipated yield as a result of prepayments of the underlying mortgages. In
addition, in some structures a default on a mortgage is treated as a prepayment
and may have the same effect on yield as a prepayment.
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.
RATIO STRIPPING
This Series uses a structuring technique known as "ratio stripping." Ratio
stripping converts a pool of mortgage loans with varying interest rates into
three hypothetical pools:
o a pool with a single fixed target interest rate,
o a pool of principal-only mortgage loans (i.e., loans with a zero interest
rate), and
o a pool of interest-only mortgage loans.
This structure is achieved by dividing the loans into one group of premium
loans with net loan rates equal to or greater than the target rate, which for
this Series is 7.00%, and one group of discount loans with net loan rates less
than the target rate. The net loan rate is the interest rate on the mortgage
loan minus the servicing fee. Then:
o For each premium loan, the interest rate in excess of the target rate is
"stripped off" from the loan and considered as a separate "interest-only"
mortgage loan. For example, a premium loan with a 7.50% net loan
rate--0.50% greater than the target rate--and a principal balance of
$100,000 will be divided into a target-rate loan with a 7.00% net loan rate
and a $100,000 principal balance and an interest-only (or IO) loan with a
$100,000 "notional" principal amount and a 0.50% net loan
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rate. The IO loan will distribute 0.50% per annum on its notional principal
balance, but will never distribute any principal.
o For each discount loan, a portion of the principal of the loan is stripped
off and applied to create a principal-only (or PO) loan. This stripping-off
of principal is done to make the effective yield on the remaining loan
equal the target rate. For example, suppose a discount loan has a 5.60% net
loan rate and a $100,000 principal balance. Such a loan would be split into
a target-rate loan with a $80,000 principal balance (5.60% of $100,000
being the same as 7.00% of $80,000) and a $20,000 PO loan. The PO loan will
make scheduled distributions of principal equal to 20% of the scheduled
principal payments on the original discount loan (before stripping), but
will not distribute any interest.
In general, the principal amount of the target-rate loan can be calculated
by solving the equation:
(principal of discount loan) X (net interest rate on discount loan) =
(principal of target-rate loan) X (target rate).
The principal amount of the PO loan is then found by subtracting the principal
amount of the target-rate loan from the principal amount of the discount loan.
o Finally, the target-rate loans are grouped into a target-rate strip, the PO
loans are grouped into a PO strip, and the IO loans are grouped into an IO
strip.
Subject to the qualifications described below in this supplement,
o payments received on the PO strip will be directed to a PO class--for this
Series, class A-PO,
o payments received on the IO strip will be directed to an IO class--for this
Series, class A-IO, and
o payments received on the target-rate strip will be directed to the
remaining classes.
Those classes of Certificates that receive interest and/or principal
distributions from the target-rate strip--classes M and B, and all class A
subclasses except the class A-PO and A-IO subclasses--will be the target-rate
classes.
If there is a prepayment on a discount loan, the prepayment is divided
between the target-rate loan and the PO loan in proportion to their principal
balances. Thus, a $10,000 prepayment on the $100,000 discount loan described
above would result in an $8,000 prepayment of the target-rate loan and a $2,000
prepayment of the PO loan. These prepayments on the target-rate and PO loans
will reduce the target-rate strip by the same $8,000 and the PO strip by the
same $2,000.
Prepayments on premium loans work a bit differently: the full prepayment is
applied both to reduce the principal balance of the target-rate loan and to
reduce the notional principal balance of the IO loan. For example, for the
$100,000 premium loan described above, a $10,000 prepayment will reduce both the
principal balance of the target-rate loan and the notional principal balance of
the IO loan to $90,000. The $10,000 prepayment on the premium loan would be
distributed solely to the target-rate classes.
Principal losses are handled similarly. A $10,000 principal loss on the
$100,000 discount loan described above would reduce the principal balance of the
target-rate loan (and the target-rate strip) by $8,000 and the principal balance
of the PO loan (and the PO strip) by $2,000. A $10,000 principal loss on the
premium loan described above will reduce both the principal balance of the
target-rate loan and the notional principal balance of the IO loan by $10,000
(and similarly for the strips of which the target-rate and IO loans are a part).
The target rate, IO and PO strips are groups of hypothetical mortgage
loans, not real mortgage loans. The obligations of a homeowner with a premium or
discount loan are not affected in any way by ratio stripping. Principal and
interest payments received on premium loans will not be segregated from
principal and interest payments received on discount loans, nor will funds to be
directed to target-rate classes be kept separately from funds to be directed to
other classes. Rather, the strips are ways of understanding how mortgage loan
payments are allocated among the different classes of the Series.
SUBORDINATION
DISTRIBUTION PRIORITIES
On each distribution day, cash in the Trust that is available for distribution
will be distributed in the following order of priority:
1 accrued interest on class A (including any past due interest),
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2 principal on class A,
3 reimbursement to class A-PO of any principal losses allocated to it,
4 accrued interest on class M (including any past due interest),
5 principal on class M,
6 accrued interest on class B-1 (including any past due interest),
7 principal on class B-1,
8 accrued interest on class B-2 (including any past due interest),
9 principal on class B-2 and
10 accrued interest (including any past due interest) and principal on the
remaining class B subclasses, sequentially to classes B-3, B-4 and B-5.
Reimbursement to class A-PO under clause 3 above will only be made out of
amounts that would otherwise have been distributed as principal on class M and
the class B subclasses on that distribution day, with such amounts being
redirected from the most subordinated of those classes or subclasses before any
amount is redirected from the next most subordinated class or subclass.
PROTECTION AGAINST LOSSES AND SHORTFALLS
Subordination protects the senior classes against losses and shortfalls in
receipts of interest and principal on the mortgage loans caused by
o delinquent monthly payments that are not covered by an advance, and
o mortgage loans that have gone into default where the proceeds of insurance,
foreclosure sales and any other receipts do not cover the principal balance
plus accrued interest on the loans.
An interest loss or shortfall will result in an equal shortfall in the
distribution received by the most subordinated class. The general principle is
that a senior class (other than class A-PO) will not experience a loss or a
shortfall in required distributions so long as there is a more subordinated
class outstanding. However, once the principal amounts of classes M and B are
reduced to zero, all credit enhancement from subordination will be gone. The
date on which this occurs is the subordination depletion date", "subordination
depletion date".
LOSSES AND SHORTFALLS THAT ARE NOT COVERED BY SUBORDINATION
There are four exceptions to the general principle that, on each distribution
day, a senior class (other than class A-PO) will not experience a loss or
shortfall so long as on that distribution day a more subordinate class is
outstanding:
1 The benefits of subordination will not cover delinquencies and losses
resulting from certain extraordinary events, including
o hostile or warlike action in peace or war,
o the use of any nuclear weapon in peace or war, and
o insurrection, rebellion, revolution or civil war, or governmental
action to prevent such occurrences (but not including peacetime
looting or rioting).
2 Class A-PO will not have the same senior status as the other class A
subclasses. Instead, class A-PO will have the right to be reimbursed out of
principal that otherwise would be distributed to classes M and B for
principal losses that are initially allocated to class A-PO. Reimbursement
will be made from principal payable on that distribution day to the most
subordinate class until there is no more principal to be distributed to it,
then from principal payable to the next most subordinate class until there
is no more principal to be distributed to it, and so on. As a result, one
or more class B subclasses and, depending on the amount of the
reimbursement, the class M Certificates may not receive their anticipated
payments of principal.
3 If a borrower prepays any principal during a month and does not also pay a
full month's accrued interest on the amount of the prepayment, there will
be a prepayment interest shortfall. If there is a prepayment interest
shortfall on a distribution day, CMSI will apply up to one-half of the
servicing fee it would be entitled to retain out of the scheduled principal
and interest payments on the mortgage loans due on the first day of the
month (but not more than the servicing fee it actually receives during the
calendar month before the distribution day) to reduce the shortfall. To the
extent a net shortfall remains, it will be allocated over all
interest-bearing classes in proportion to interest accrued.
4 Losses on mortgage loans include
o special hazard losses--that is, direct physical loss or damage from a
cause that is not an extraordinary event referred to in the first
exception to subordination listed above and is not covered by (a) a
homeowner's fire, flood or extended coverage insurance policy required
by the mortgage
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loan or (b) hazard insurance on the mortgaged property that CMSI is
required to maintain,
o bankruptcy losses attributable to the actions of a bankruptcy court,
including a reduction of the principal balance or interest rate on a
mortgage loan or an extension of its maturity, and
o fraud losses resulting from fraud committed by the borrower in
obtaining the mortgage loan.
Special hazard, bankruptcy and fraud losses are only covered by
subordination up to dollar limits specified by the rating agencies for each type
of loss. Once the limit for one of these types of losses is exceeded, that
portion of the loss allocable to the target-rate strip will be allocated among
the target-rate classes
o if it is a loss of interest, in proportion to their accrued interest, and
o if it is a loss of principal, in proportion to their principal balances
(with adjustments for accrual classes, as described in "Losses--Loss
allocations" below).
The initial limits for special hazard, bankruptcy and fraud losses are
approximately:
o Special hazard: $2,031,508 (or 1.00% of the
initial aggregate scheduled
principal balance)
o Fraud: $2,031,508 (1.00%)
o Bankruptcy: $100,000 (0.05%)
Thereafter, the limit for each type of loss will be reduced by any losses of
that type, except that:
o The special hazard loss limit can not at any time be greater than the
amount on the preceding anniversary of the cut-off date of the greater of
(1) 1% (or, if greater than 1%, the highest percentage of mortgage loans by
principal balance in any California ZIP code) of the scheduled principal
balance of the mortgage loans and (2) twice the largest scheduled principal
balance of any mortgage loan.
o After the first anniversary of the cut-off date, the bankruptcy loss limit
will be (1) the bankruptcy loss limit on the business day preceding the
most recent anniversary of the cut-off date minus (2) the aggregate amount
of bankruptcy losses since that anniversary.
o From the second through the fifth anniversary of the cut-off date, the
fraud loss limit will be (1) the lesser of (a) the fraud loss limit on the
most recent anniversary of the cut-off date and (b) 0.50% of the aggregate
scheduled principal balance of the mortgage loans on the most recent
anniversary of the cut-off date minus (2) the aggregate amount of fraud
losses since that anniversary. After the fifth anniversary of the cut-off
date, the fraud loss limit will be zero.
o The bankruptcy loss limit and the related coverage levels described above
may be reduced or modified if S&P and Fitch confirm in writing that the
reduction or modification will not adversely affect their then-current
ratings of the Certificates.
MAINTENANCE OF SUBORDINATION
Credit enhancement is provided to the Certificates through subordination. The
distribution priorities described under "Distribution priorities" above reflect
this subordination.
The degree of credit enhancement enjoyed by a class due to subordination may
be measured by that class's subordination level. A class's subordination level
is the sum of the class percentages of all classes that are subordinated to that
class. On the closing date, the following classes will have the following
approximate subordination levels:
Class A: 4.50% ($9,141,971)
Class M: 2.15% ($4,367,971)
Class B-1: 1.30% ($2,640,971)
Class B-2: 0.85% ($1,726,971)
Thus, those classes subordinate to class A will have an aggregate principal
balance on the closing date that is approximately 4.50% of the aggregate
principal balance of all the Certificates.
To preserve the class A target-rate subclasses' subordination level, for five
years after the first distribution day, all principal prepayments and other
unscheduled receipts on the target-rate loans will be distributed solely to the
class A target-rate subclasses. This disproportionate allocation will result in
a faster reduction of the class A target-rate subclasses' principal balances
than would have occurred if these distributions were made proportionately. As a
result, the class A target-rate subclasses' class percentage will decrease, and
the class A target-rate subclasses' subordination level will increase. After
five years, the percentage of prepayment principal and other receipts
distributed to the class A target-rate subclasses will gradually decline for a
further five years to a proportionate share.
Classes M, B-1, B-2, B-3 and B-4 are also entitled to maintain a degree of
credit enhancement
S-11
<PAGE>
by subordination throughout the life of the transaction:
o If on a distribution day, class M's subordination level is less than it was
on the closing date, then class B will not receive a principal distribution
on that distribution day, such distribution instead being added to the
principal distribution to class M.
o If class M's subordination level on the distribution day is at least equal
to what it was on the closing date, but class B-1's subordination level is
lower than it was on the closing date, then classes B-2 through B-5 will
not receive a principal distribution on that distribution day, such
distribution instead being added to the principal distribution to classes M
and B-1 in proportion to their principal balances.
o If class M's and class B-1's subordination levels on the distribution day
are at least equal to what they were on the closing date, but class B-2's
subordination level is lower than it was on the closing date, then classes
B-3 through B-5 will not receive a principal distribution on that
distribution day, such distribution instead being added to the principal
distribution to classes M, B-1 and B-2 in proportion to their principal
balances.
o Finally, if the subordination level of the class B-3 or B-4 subclasses is
lower than it was on the closing date, then the more subordinate subclasses
will not receive a principal distribution on that distribution day.
Instead, such distribution will be added to the principal distributions
being made to class M and the less subordinate class B subclasses in
proportion to their principal balances.
DISTRIBUTIONS OF INTEREST
Interest for the preceding calendar month on the principal balance of each class
(other than class A-IO) at the annual interest rate for the class shown in
"Series overview--The Certificates" above will be distributed on a distribution
day, subject to
o the distribution priorities described in "Subordination" above,
o a reduction to interest accrued for the class's proportionate share of (1)
any prepayment interest shortfalls that are not recovered from CMSI's
servicing fee and (2) the interest portion of any special hazard,
bankruptcy and fraud losses that exceed the limits for such losses, and
o the availability of sufficient cash.
No interest will be paid on the accrual class A-6 Certificates until either
the distribution day following the day on which the principal balance of the
class A-5 Certificates is reduced to zero or the subordination depletion date
has occurred. Prior to that time the amount of interest that would otherwise be
payable on the class A-6 Certificates will instead be paid as principal to the
class A-5 Certificates as described under "Distributions of
principal--Priorities in class A principal distributions" below. The principal
balance of the class A-6 Certificates will increase on each distribution day to
the extent accrued interest is not paid on that class.
The class A-IO Certificates will accrue interest on their notional amount at
a per annum rate equal to the weighted average of the net loan rates of the
premium loans minus 7.00%; the initial interest rate is expected to be
approximately 0.6906% per annum.
INTEREST SHORTFALLS
In the unlikely event that, on a distribution day before the subordination
depletion date, there is not enough available cash to distribute all interest
that the class A Certificates, the class M Certificates or the class B
subclasses are entitled to receive, any shortfall in accrued interest allocated
to such class or subclass will be carried forward to the next distribution day,
subject to the conditions for interest distributions described above.
On each distribution day, available cash for interest distributions to the
class A Certificates, class M Certificates and class B subclasses will first be
used to distribute accrued interest for the preceding month to such class or
subclass, and any cash remaining will be used to distribute any interest
shortfalls that have been carried forward. Distributions of interest shortfalls
to class A will be allocated among the class A subclasses in proportion to the
amount of interest shortfalls carried forward.
S-12
<PAGE>
No interest will accrue on any unpaid interest shortfalls.
DISTRIBUTIONS OF PRINCIPAL
SCHEDULED AND UNSCHEDULED PRINCIPAL PAYMENTS ON MORTGAGE LOANS
Principal received on mortgage loans is either scheduled principal or
unscheduled principal.
Scheduled principal for a mortgage loan on a distribution day consists of:
o the scheduled payment of principal due on the mortgage loan (including a
defaulted mortgage loan, other than a loan for which the related mortgaged
property has been acquired by the Trust) on the first day of the month in
which the distribution day occurs, whether or not actually received by
CMSI, minus
o if the dollar limit for bankruptcy losses has been exceeded, any reduction
in the homeowner's scheduled principal payments due to bankruptcy
proceedings.
Unscheduled principal for a mortgage loan on a distribution day is the sum
of:
o all principal prepayments received by CMSI in the calendar month preceding
the distribution day,
o the principal balance of the mortgage loan if CMSI repurchased the loan
during the calendar month preceding the distribution day, as described in
the core prospectus under "Defective mortgage loans--Repurchase or
substitution," and
o the net liquidation proceeds on the mortgage loan if it became a liquidated
loan during the calendar month preceding the distribution day, less the
principal portion of any unreimbursed advances previously made by CMSI or
the Trustee on the loan and the portion of the net liquidation proceeds
allocable to interest.
The scheduled principal balance of a mortgage loan on a distribution day is
the loan's actual principal balance, subject to the following adjustments:
o it takes into account the scheduled principal payment for that calendar
month, whether or not received;
o it does not take into account any unscheduled principal payments received
in that month; and
o it does not take into account scheduled principal payments for later months
even if already received.
The principal balance of each class of Certificates will be equal to the
initial principal balance of that class indicated on page S-3 minus all
principal payments paid on, and all principal losses allocated to, that class.
For class A-6, the principal balance will be increased by all interest accrued
but not paid on each distribution day. On each distribution day after the
payment of principal and the allocation of losses, the total principal balance
of all of the Certificates must be equal to the scheduled principal balance of
all of the mortgage loans.
The principal balance of each class of Certificates will be reduced to the
extent that class is allocated principal losses on the mortgage loans as
described under "Subordination" above and "Losses" below. Generally, the more
subordinated a class, the more likely it is to be allocated losses.
PRINCIPAL DISTRIBUTIONS TO CLASS A-PO
Class A-PO will be entitled to receive on each distribution day a principal
distribution equal to the scheduled and unscheduled principal payments on the
hypothetical mortgage loans in the PO strip. If there is not enough money
available to make a full principal distribution to class A-PO on a distribution
day, or if class A-PO realizes a principal loss on a hypothetical mortgage loan
in the PO strip that is covered by subordination, the class A-PO Certificates
will be reimbursed on that day for the amount of the shortfall and/or loss and
any shortfall or loss from a prior distribution day that is covered by
subordination and has not been reimbursed. Reimbursement will be made from
principal that would otherwise be distributed to classes M and B on that
distribution day, beginning with the principal that would be distributed to the
most subordinated class. Once there is no more principal available for
reimbursement from that class, reimbursement will be made from the next most
subordinated class, and so on until the shortfall or loss has been reimbursed or
there is no more principal distributable on that day to the class M and B
Certificates.
PRINCIPAL DISTRIBUTIONS TO TARGET-RATE CLASSES
The target-rate classes (that is, the class A subclasses, other than classes
A-PO and A-IO, and the class M and the class B subclasses) will receive an
aggregate principal distribution on each distribution day equal to the scheduled
and unscheduled
S-13
<PAGE>
principal payments on the target-rate strip for that distribution day. The
distributions will be allocated, subject to subordination and priorities, as
follows:
o the class A target-rate subclasses, the class M and the class B subclasses
will each receive a percentage of the scheduled principal distributions
proportionate to their principal balances. On the first distribution day,
the class A target-rate subclasses are expected to receive distributions of
between 94.48% and 96.48% of scheduled principal payments on the
target-rate strip. This distribution to class A will be allocated among the
class A target-rate subclasses according to the priorities described in the
next section.
o Until the fifth anniversary of the first distribution day, the class A
target-rate subclasses will receive principal distributions equal to 100%
of all unscheduled principal on the target-rate strip. From the fifth
anniversary of the first distribution day, class A target-rate subclasses
will receive principal distributions equal to the percentage set forth
below (the class A prepayment percentage", "class A prepayment
percentage">) of all unscheduled principal on the target-rate strip.
Subject to the following sentence, any remaining unscheduled principal will
be distributed to the class M and the class B subclasses in proportion to
their principal balances.
o Some class B subclasses may not be entitled to a principal distribution on
a distribution day as described under "Subordination--Maintenance of
subordination" above.
<TABLE>
<CAPTION>
PERIOD (DATES INCLUSIVE) CLASS A PREPAYMENT PERCENTAGE
- ------------------------ -----------------------------
<S> <C>
February 2005-January 2006 Class A's class percentage plus 70% of the class A subordination level*
February 2006-January 2007 Class A's class percentage plus 60% of the class A subordination level*
February 2007-January 2008 Class A's class percentage plus 40% of the class A subordination level*
February 2008-January 2009 Class A's class percentage plus 20% of the class A subordination level*
February 2009 and after Class A's class percentage*
</TABLE>
*For these purposes, class A's class percentage and subordination level are
calculated solely by reference to the target-rate classes.
However, the class A prepayment percentage will be 100% for any distribution day
on which the ratio of the principal balance of the class A target-rate
subclasses to all target-rate classes is greater than it was on the closing
date.
In addition, no reduction of the class A prepayment percentage as described
in the preceding table will occur on a distribution day unless:
o on the first distribution day to which a reduction applies, either (1) the
scheduled principal balance of 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 homeowner default), averaged over the
last six months, is less than 50% of the sum of the class M principal
balance and the class B principal balance averaged over the last six
months, or (2) the scheduled principal balance of such delinquent mortgage
loans averaged over that period, is less than 2% of the scheduled principal
balance of all mortgage loans averaged over that period, and
o cumulative realized losses on the mortgage loans are less than:
(a) for distribution days in February 2005 through January 2006, 30% of the
aggregate initial principal balance of class M and class B (the original
subordinated amount),
(b) for distribution days in February 2006 through January 2007, 35% of the
original subordinated amount,
(c) for distribution days in February 2007 through January 2008, 40% of the
original subordinated amount,
(d) for distribution days in February 2008 through January 2009, 45% of the
original subordinated amount, and
(e) for distribution days in February 2009 and afterwards, 50% of the
original subordinated amount.
Principal distributed to a class A subclass will be distributed
proportionately among holders of Certificates of the subclass.
PRIORITIES IN CLASS A PRINCIPAL DISTRIBUTIONS
On each distribution day before current accrued interest is paid on the accrual
class A-6 Certificates, the amount of interest that is added to the principal
balance of the class A-6 Certificates instead of being paid on the class A-6
Certificates will be applied to make principal payments to the class A-5
Certificates until their principal balance is
S-14
<PAGE>
reduced to zero, and then to the class A-6 Certificates.
On each distribution day before the subordination depletion date, principal
distributions to the class A-PO Certificates will be made based on the principal
paid from the PO strip until the principal balance of the class A-PO
Certificates is reduced to zero.
On each distribution day before the subordination depletion date, principal
distributions to the class A target-rate subclasses will be allocated first to
the class A-7 Certificates according to the special rules set out in "Special
rules for class A-7" below. The remaining principal will be allocated in the
following sequence:
First, until the principal balance of the class A-1 Certificates is reduced to
zero, concurrently as follows:
1 56.3680697320% to class A-1, and
2 43.6319302680% to class A-2 until its principal balance is reduced to zero,
and then to class A-3.
Then, in the following order to each of the following classes of Certificates
until its principal balance is reduced to zero:
Class A-3.
Class A-4.
Class A-5.
Class A-6.
Beginning on the subordination depletion date, cash available to the class
A-PO Certificates and the class A target-rate subclasses will be distributed
proportionally based on the amount of principal to which the class A-PO
Certificates and the class A target-rate subclasses are entitled, without regard
to the priorities of distributions described above.
SPECIAL RULES FOR CLASS A-7
Class A-7 is a "non-accelerated senior" (nas) class. So long as any other class
A subclass is outstanding, class A-7 will not receive a principal distribution
before February 2005. From February 2005 through January 2009, class A-7 will be
eligible to receive the percentage set forth below of its proportional share of
scheduled and unscheduled principal for the target-rate strip allocated to the
class A Certificates for that distribution day, based on the proportion of class
A-7 principal balance to the aggregate principal balances of all the class A
subclasses (other than class A-PO), until its principal balance is reduced to
zero.
DISTRIBUTION DAY PERCENTAGE
- ---------------- ----------
February 2005 through January 2006 30%
February 2006 through January 2007 40%
February 2007 through January 2008 60%
February 2008 through January 2009 80%
February 2009 and thereafter 100%
Class A-7's weighted average life will be longer, and could be significantly
longer, than if it always received principal distributions proportional to its
principal balance.
CLEAN-UP CALL
CMSI may, at any time after the principal balance of the mortgage loans is less
than 5% of the initial scheduled principal balance, repurchase the mortgage
loans and any other property owned by the Trust. Certificate holders would then
receive a final distribution reducing the principal balance of their
Certificates to zero. The final distribution of principal on the Certificates
will be made according to the distribution priorities described above under
"Subordination--Distribution priorities" and "Distributions of principal." Some
Certificates may not receive a distribution equal to their principal balance
plus accrued interest if CMSI's purchase price is based in part on the fair
market value of the Trust's property.
CMSI may transfer its right to repurchase the mortgage loans to a third
party.
LOSSES
REALIZED LOSSES
If the net liquidation proceeds on a liquidated mortgage loan are less than
the loan's principal balance plus accrued interest at the mortgage loan interest
rate through the last day of the month in which the loan was liquidated, the
difference will be a realized loss. Realized losses also include special hazard,
fraud and bankruptcy losses.
A mortgage loan becomes a liquidated loan if CMSI either
o determines that all recoverable liquidation and insurance proceeds have
been received, or
o accepts payment for the release of the mortgage of less than the principal
balance of the loan after determining that liquidation expenses would
exceed the difference between the cash portion of the payment and the
principal balance.
S-15
<PAGE>
Liquidation proceeds are amounts received or property acquired by CMSI in
liquidating a defaulted mortgage loan. In calculating a liquidated loan loss,
net liquidation proceeds (after reimbursement to CMSI and the Trustee for
unreimbursed advances and liquidation expenses on the mortgage loan) are applied
first to accrued interest and then to the principal balance of the loan.
LOSS ALLOCATIONS
The interest portion of a realized loss on a mortgage loan will reduce the
amount available to make payments to the classes of Certificates. The most
subordinate class will bear such realized losses as a result of the priorities
in distribution of cash actually available as described under
"Subordination--Distribution priorities" above.
Allocation to a class of part or all of the principal portion of a realized
loss on a mortgage loan will reduce the class's principal balance by the amount
of the loss allocated to the class. A principal loss can therefore not be
allocated to a class that exceeds the principal balance of the class.
Realized losses on hypothetical mortgage loans in the target-rate strip
that are covered by subordination will be allocated to the target-rate classes
in accordance with their subordination priorities. That is, losses will be
allocated first to class B-5 until its principal balance is reduced to zero,
then to class B-4 until its principal balance is reduced to zero, and so forth.
Realized losses that are not covered by subordination will be allocated among
the classes in accordance with their principal balances.
Example 1: Suppose the principal balance of class B-5 is $1,000 and of
class B-4 is also $1,000. Then a realized $1,500 loss on the target-rate strip
that is covered by subordination would be allocated to class B-5 until its
principal balance is reduced to zero. The remaining $500 of the loss would then
be allocated to class B-4, reducing its principal balance to $500.
Example 2: Same facts, except that the loss is a bankruptcy loss that
exceeds the limit for such losses. Since such an excess loss is not covered by
subordination, classes B-4 and B-5 will each be allocated their proportional
share of the loss, based on the principal balances of all the target-rate
classes.
Principal losses on the target-rate strip will be allocated among class A
(other than class A-PO), class M and the class B subclasses in proportion to
their principal balances. Principal losses on the target-rate strip that are
allocated to class A will be further allocated to the class A target-rate
subclasses in proportion to their principal balances (or, for class A-6, its
initial principal balance, if lower). Principal losses allocated to a class will
be allocated to the Certificates in the class in proportion to their principal
balances.
Realized principal losses on the PO strip will be allocated to class A-PO.
However, if the loss is covered by subordination, it will be reimbursed by
classes B and M, as described in "Distributions of principal--Principal
distributions to class A-PO" above.
A bankruptcy loss will not be allocated so long as CMSI has notified the
Trustee in writing that CMSI is diligently pursuing any remedies that may exist
in connection with the representations and warranties made regarding the related
mortgage loan and either
o the mortgage loan is current on payments due, or
o delinquent payments of principal and interest on the mortgage loan,
premiums on any applicable standard hazard insurance policy and any escrow
payments for the mortgage loan are being advanced on a current basis by
CMSI,
in each case without giving effect to any reduction in monthly payments on the
loan due to bankruptcy proceedings.
Prior to the subordination depletion date, the principal balance of the
most subordinate class will be reduced by the amount, if any, needed so that the
sum of the principal balances of the class A, class M and class B subclasses
equals the scheduled principal balances of the mortgage loans.
After the subordination depletion date, the principal balances of the class
A target-rate subclasses will be reduced so that the sum of the principal
balances equals the principal balance of the target-rate strip and the principal
balance of class A-10 will be reduced so that its principal balance equals the
principal balance of the PO strip.
RECOVERIES
Any recovery of principal on a mortgage loan that had previously been allocated
as a realized loss will be allocated to the classes in order of seniority,
beginning with the most senior class. The
S-16
<PAGE>
amount of all recoveries allocated to a class will not, however, exceed the
amount of principal losses previously allocated to the class.
SENSITIVITY OF CERTIFICATES TO PREPAYMENTS
THE PREPAYMENT MODEL
As discussed in the core prospectus ("Distributions on the Certificates--Effect
of prepayments"), the rate at which mortgage loans are prepaid (including by
refinancing, repurchase or foreclosure) affects a Certificate's
o weighted average life, and
o for Certificates purchased at a premium or a discount, yield to maturity.
Prepayments on mortgage loans are commonly measured by a prepayment model.
A prepayment model is a set of assumptions about the rate at which homeowners
will prepay their mortgage loans. "Prepayment" includes refinancings,
liquidations and repurchases by CMSI. The model used in this prospectus assumes
that homeowners will prepay new mortgage loans at some multiple of
o 0.2% per annum of the principal balance of the mortgage loans in the first
month of the mortgage loans,
o an additional 0.2% per annum in each month thereafter (i.e., 0.4% per annum
in the second month, 0.6% per annum in the third month) until the 30th
month, and
o beginning in the 30th month and in each month thereafter, 6.0% per annum.
If homeowners prepaid their mortgages at exactly these rates, we would say
that they were prepaying at 100% of the prepayment model. Similarly, we would
say that homeowners were prepaying at 200% of the prepayment model if they
prepaid their loans twice as fast as 100%--that is, 0.4% per annum in the first
month, 0.8% per annum in the second month, and so forth. If homeowners never
made a prepayment, they would be said to prepay at 0% of the prepayment model.
There is no assurance 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 prepay faster than if prevailing rates rise or remain level.
Conversely, if interest rates rise above the interest rates on the mortgage
loans, we would expect the rate of prepayment to decrease.
Other factors affecting prepayment of mortgage loans include changes in
homeowners' housing needs, job transfers, unemployment and homeowners' 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 will depend on the
rate of repayment (including prepayments) of the mortgage loans, the date by
which the principal balance of any class is reduced to zero is likely to occur
earlier than the last scheduled distribution day of January 25, 2030. In
particular, assuming the structuring assumptions described below and that no
prepayments are made on the mortgage loans, the last scheduled distribution day
for the class A-5 Certificates should be no later than September 25, 2010.
The following tables of weighted average lives and yields to maturity have
been prepared using the following structuring assumptions:
o The mortgage loans and the classes of Certificates have the characteristics
set forth in "Summary--Series overview" above, without regard to any
variation or approximation provided for in that section.
o Scheduled payments of principal and interest on the mortgage loans are
received in a timely manner.
o The discount mortgage loans have a weighted average original term to
maturity of 359 months, a weighted average remaining term to maturity of
352 months, a gross weighted average interest rate of 7.0019155050% and an
aggregate scheduled principal balance of $21,270,061.
o The premium mortgage loans have a weighted average original term to
maturity of 359 months, a weighted average remaining term to maturity of
S-17
<PAGE>
356 months, a gross weighted average interest rate of 7.9405918725% and an
aggregate scheduled principal balance of $181,880,734.05.
o CMSI does not make a clean-up call.
o You purchase the Certificates on January 27, 2000.
o CMSI'S servicing fee is 0.25% per annum.
THE PREPAYMENT MODEL, THE STRUCTURING ASSUMPTIONS AND THE OTHER ASSUMPTIONS
DESCRIBED BELOW ARE MADE FOR ILLUSTRATIVE PURPOSES ONLY. IT IS HIGHLY UNLIKELY
THAT THE MORTGAGE LOANS WILL PREPAY AT A CONSTANT RATE UNTIL MATURITY. THE
CHARACTERISTICS OF THE ACTUAL MORTGAGE LOANS ARE ALSO LIKELY TO DIFFER FROM THE
STRUCTURING AND OTHER ASSUMPTIONS. AS A RESULT, THE ACTUAL PRINCIPAL BALANCES,
WEIGHTED AVERAGE LIVES AND PRE-TAX YIELDS OF THE CERTIFICATES ARE LIKELY TO
DIFFER FROM THOSE SHOWN IN THE TABLES IN THE FOLLOWING SUBSECTIONS OF THIS
"SENSITIVITY OF CERTIFICATES TO PREPAYMENT" SECTION, EVEN IF ALL OF THE MORTGAGE
LOANS PREPAY AT THE INDICATED PERCENTAGES OF THE PREPAYMENT MODEL. WE URGE YOU
TO CONSULT YOUR INVESTMENT ADVISOR AND TO MAKE YOUR INVESTMENT DECISION BASED ON
YOUR OWN DETERMINATION AS TO ANTICIPATED RATES OF PREPAYMENT UNDER A VARIETY OF
SCENARIOS AND THE SUITABILITY OF A CLASS OF CERTIFICATES TO YOUR INVESTMENT
OBJECTIVES.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the average amount of time from the date a
Certificate is owned by you until its principal balance is reduced to zero. The
weighted average life of each class or subclass shown in the following tables is
determined by (1) multiplying the amount of each distribution of principal by
the number of years from January 27, 2000 to the related distribution day, (2)
adding the results and (3) dividing the sum by the initial principal balance of
the class or subclass.
S-18
<PAGE>
<TABLE>
PRINCIPAL BALANCE AS PERCENT OF INITIAL PRINCIPAL BALANCE
<CAPTION>
PERCENTAGE OF PREPAYMENT MODEL
-------------------------------------------------------------------------------------
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DAY 0% 125% 225% 350% 500% 0% 125% 225% 350% 500%
Initial 100 100 100 100 100 100 100 100 100 100
January 25, 2001 99 95 91 87 82 98 94 91 86 81
January 25, 2002 97 85 75 63 49 97 83 73 60 45
January 25, 2003 95 72 55 36 15 95 70 51 30 8
January 25, 2004 94 61 38 14 0 93 57 33 7 0
January 25, 2005 92 50 23 0 0 91 46 17 0 0
January 25, 2006 90 41 12 0 0 89 36 4 0 0
January 25, 2007 88 32 2 0 0 87 27 0 0 0
January 25, 2008 85 25 0 0 0 84 19 0 0 0
January 25, 2009 83 19 0 0 0 82 12 0 0 0
January 25, 2010 81 13 0 0 0 79 6 0 0 0
January 25, 2011 78 8 0 0 0 76 * 0 0 0
January 25, 2012 75 3 0 0 0 73 0 0 0 0
January 25, 2013 72 0 0 0 0 69 0 0 0 0
January 25, 2014 68 0 0 0 0 66 0 0 0 0
January 25, 2015 65 0 0 0 0 62 0 0 0 0
January 25, 2016 61 0 0 0 0 57 0 0 0 0
January 25, 2017 56 0 0 0 0 53 0 0 0 0
January 25, 2018 52 0 0 0 0 48 0 0 0 0
January 25, 2019 47 0 0 0 0 42 0 0 0 0
January 25, 2020 41 0 0 0 0 36 0 0 0 0
January 25, 2021 35 0 0 0 0 30 0 0 0 0
January 25, 2022 29 0 0 0 0 23 0 0 0 0
January 25, 2023 22 0 0 0 0 16 0 0 0 0
January 25, 2024 15 0 0 0 0 8 0 0 0 0
January 25, 2025 7 0 0 0 0 0 0 0 0 0
January 25, 2026 0 0 0 0 0 0 0 0 0 0
January 25, 2027 0 0 0 0 0 0 0 0 0 0
January 25, 2028 0 0 0 0 0 0 0 0 0 0
January 25, 2029 0 0 0 0 0 0 0 0 0 0
January 25, 2030 0 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE
LIFE (YEARS) 16.80 5.56 3.49 2.53 1.98 16.07 5.03 3.21 2.35 1.86
<CAPTION>
PERCENTAGE OF PREPAYMENT MODEL
----------------------------------------
CLASS A-3 CERTIFICATES
----------------------------------------
<S> <C> <C> <C> <C> <C>
DISTRIBUTION DAY 0% 125% 225% 350% 500%
Initial 100 100 100 100 100
January 25, 2001 100 100 100 100 100
January 25, 2002 100 100 100 100 100
January 25, 2003 100 100 100 100 100
January 25, 2004 100 100 100 100 0
January 25, 2005 100 100 100 43 0
January 25, 2006 100 100 100 0 0
January 25, 2007 100 100 78 0 0
January 25, 2008 100 100 23 0 0
January 25, 2009 100 100 0 0 0
January 25, 2010 100 100 0 0 0
January 25, 2011 100 100 0 0 0
January 25, 2012 100 83 0 0 0
January 25, 2013 100 62 0 0 0
January 25, 2014 100 26 0 0 0
January 25, 2015 100 0 0 0 0
January 25, 2016 100 0 0 0 0
January 25, 2017 100 0 0 0 0
January 25, 2018 100 0 0 0 0
January 25, 2019 100 0 0 0 0
January 25, 2020 100 0 0 0 0
January 25, 2021 100 0 0 0 0
January 25, 2022 100 0 0 0 0
January 25, 2023 100 0 0 0 0
January 25, 2024 100 0 0 0 0
January 25, 2025 96 0 0 0 0
January 25, 2026 52 0 0 0 0
January 25, 2027 0 0 0 0 0
January 25, 2028 0 0 0 0 0
January 25, 2029 0 0 0 0 0
January 25, 2030 0 0 0 0 0
WEIGHTED AVERAGE
LIFE (YEARS) 25.98 13.23 7.56 4.96 3.68
</TABLE>
* Indicates that between zero and 0.5% of initial principal balance is
outstanding.
S-19
<PAGE>
<TABLE>
PRINCIPAL BALANCE AS PERCENT OF INITIAL PRINCIPAL BALANCE
<CAPTION>
PERCENTAGE OF PREPAYMENT MODEL
-------------------------------------------------------------------------------------
CLASS A-4 CERTIFICATES CLASS A-5 CERTIFICATES
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DAY 0% 125% 225% 350% 500% 0% 125% 225% 350% 500%
Initial 100 100 100 100 100 100 100 100 100 100
January 25, 2001 100 100 100 100 100 93 93 93 93 93
January 25, 2002 100 100 100 100 100 86 86 86 86 86
January 25, 2003 100 100 100 100 100 79 79 79 79 79
January 25, 2004 100 100 100 100 85 71 71 71 71 71
January 25, 2005 100 100 100 100 0 62 62 62 62 0
January 25, 2006 100 100 100 24 0 53 53 53 53 0
January 25, 2007 100 100 100 0 0 43 43 43 0 0
January 25, 2008 100 100 100 0 0 32 32 32 0 0
January 25, 2009 100 100 65 0 0 20 20 20 0 0
January 25, 2010 100 100 14 0 0 8 8 8 0 0
January 25, 2011 100 100 0 0 0 0 0 0 0 0
January 25, 2012 100 100 0 0 0 0 0 0 0 0
January 25, 2013 100 100 0 0 0 0 0 0 0 0
January 25, 2014 100 100 0 0 0 0 0 0 0 0
January 25, 2015 100 91 0 0 0 0 0 0 0 0
January 25, 2016 100 52 0 0 0 0 0 0 0 0
January 25, 2017 100 15 0 0 0 0 0 0 0 0
January 25, 2018 100 0 0 0 0 0 0 0 0 0
January 25, 2019 100 0 0 0 0 0 0 0 0 0
January 25, 2020 100 0 0 0 0 0 0 0 0 0
January 25, 2021 100 0 0 0 0 0 0 0 0 0
January 25, 2022 100 0 0 0 0 0 0 0 0 0
January 25, 2023 100 0 0 0 0 0 0 0 0 0
January 25, 2024 100 0 0 0 0 0 0 0 0 0
January 25, 2025 100 0 0 0 0 0 0 0 0 0
January 25, 2026 100 0 0 0 0 0 0 0 0 0
January 25, 2027 60 0 0 0 0 0 0 0 0 0
January 25, 2028 0 0 0 0 0 0 0 0 0 0
January 25, 2029 0 0 0 0 0 0 0 0 0 0
January 25, 2030 0 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE
LIFE (YEARS) 27.12 16.10 9.35 5.82 4.20 6.00 6.00 5.99 5.00 3.91
<CAPTION>
PERCENTAGE OF PREPAYMENT MODEL
----------------------------------------
CLASS A-6 CERTIFICATES
----------------------------------------
<S> <C> <C> <C> <C> <C>
DISTRIBUTION DAY 0% 125% 225% 350% 500%
Initial 100 100 100 100 100
January 25, 2001 107 107 107 107 107
January 25, 2002 115 115 115 115 115
January 25, 2003 123 123 123 123 123
January 25, 2004 132 132 132 132 132
January 25, 2005 142 142 142 142 127
January 25, 2006 152 152 152 152 47
January 25, 2007 163 163 163 155 4
January 25, 2008 175 175 175 107 0
January 25, 2009 187 187 187 78 0
January 25, 2010 201 201 201 60 0
January 25, 2011 210 210 187 47 0
January 25, 2012 210 210 158 36 0
January 25, 2013 210 210 133 28 0
January 25, 2014 210 210 111 21 0
January 25, 2015 210 210 93 16 0
January 25, 2016 210 210 77 12 0
January 25, 2017 210 210 64 9 0
January 25, 2018 210 196 53 7 0
January 25, 2019 210 171 43 5 0
January 25, 2020 210 148 35 4 0
January 25, 2021 210 127 28 3 0
January 25, 2022 210 108 22 2 0
January 25, 2023 210 90 17 1 0
January 25, 2024 210 73 13 1 0
January 25, 2025 210 58 10 1 0
January 25, 2026 210 43 7 * 0
January 25, 2027 210 30 4 * 0
January 25, 2028 166 18 2 * 0
January 25, 2029 67 7 1 * 0
January 25, 2030 0 0 0 0 0
WEIGHTED AVERAGE
LIFE (YEARS) 28.65 22.63 15.68 10.23 5.80
</TABLE>
* Indicates that between zero and 0.5% of initial principal balance is
outstanding.
S-20
<PAGE>
<TABLE>
PRINCIPAL BALANCE AS PERCENT OF INITIAL PRINCIPAL BALANCE
<CAPTION>
PERCENTAGE OF PREPAYMENT MODEL
-------------------------------------------------------------------------------------
CLASS A-7 CERTIFICATES CLASS A-PO CERTIFICATES
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DISTRIBUTION DAY 0% 125% 225% 350% 500% 0% 125% 225% 350% 500%
Initial 100 100 100 100 100 100 100 100 100 100
January 25, 2001 100 100 100 100 100 99 96 93 90 86
January 25, 2002 100 100 100 100 100 98 88 81 73 63
January 25, 2003 100 100 100 100 100 97 81 69 57 44
January 25, 2004 100 100 100 100 100 95 74 59 44 30
January 25, 2005 100 100 100 100 100 94 67 50 34 21
January 25, 2006 100 97 95 92 88 92 61 43 27 14
January 25, 2007 99 94 89 83 73 91 56 37 21 10
January 25, 2008 98 88 80 70 49 89 50 31 16 7
January 25, 2009 97 82 70 57 32 87 46 26 12 5
January 25, 2010 95 74 60 44 22 85 41 22 10 3
January 25, 2011 92 67 50 34 15 83 37 19 7 2
January 25, 2012 90 60 43 26 10 81 33 16 6 1
January 25, 2013 88 54 36 20 7 78 30 13 4 1
January 25, 2014 85 49 30 15 5 75 27 11 3 1
January 25, 2015 82 43 25 12 3 73 24 9 3 *
January 25, 2016 79 39 21 9 2 70 21 8 2 *
January 25, 2017 76 34 17 7 1 66 19 6 1 *
January 25, 2018 72 30 14 5 1 63 16 5 1 *
January 25, 2019 68 26 12 4 1 59 14 4 1 *
January 25, 2020 64 23 9 3 * 55 12 3 1 *
January 25, 2021 59 20 8 2 * 51 10 3 * *
January 25, 2022 54 17 6 1 * 46 9 2 * *
January 25, 2023 49 14 5 1 * 41 7 2 * *
January 25, 2024 43 11 4 1 * 36 6 1 * *
January 25, 2025 37 9 3 * * 30 5 1 * *
January 25, 2026 30 7 2 * * 24 3 1 * *
January 25, 2027 22 5 1 * * 17 2 * * *
January 25, 2028 14 3 1 * * 10 1 * * *
January 25, 2029 6 1 * * * 3 * * * *
January 25, 2030 0 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE
LIFE (YEARS) 21.51 14.99 12.32 10.39 8.64 19.39 9.91 6.70 4.67 3.41
<CAPTION>
PERCENTAGE OF PREPAYMENT MODEL
------------------------------------------
CLASS M, B-1 AND B-2 CERTIFICATES
------------------------------------------
<S> <C> <C> <C> <C> <C>
DISTRIBUTION DAY 0% 125% 225% 350% 500%
Initial 100 100 100 100 100
January 25, 2001 99 99 99 99 99
January 25, 2002 98 98 98 98 98
January 25, 2003 97 97 97 97 97
January 25, 2004 96 96 96 96 96
January 25, 2005 95 95 95 95 95
January 25, 2006 93 91 89 87 84
January 25, 2007 92 87 83 78 72
January 25, 2008 90 82 75 67 57
January 25, 2009 89 75 66 54 42
January 25, 2010 87 68 56 42 29
January 25, 2011 85 62 47 32 20
January 25, 2012 83 56 40 25 14
January 25, 2013 81 50 33 19 9
January 25, 2014 78 45 28 15 6
January 25, 2015 76 40 23 11 4
January 25, 2016 73 36 19 9 3
January 25, 2017 70 32 16 6 2
January 25, 2018 66 28 13 5 1
January 25, 2019 63 24 11 4 1
January 25, 2020 59 21 9 3 1
January 25, 2021 54 18 7 2 *
January 25, 2022 50 15 6 1 *
January 25, 2023 45 13 4 1 *
January 25, 2024 40 10 3 1 *
January 25, 2025 34 8 2 * *
January 25, 2026 27 6 2 * *
January 25, 2027 21 4 1 * *
January 25, 2028 13 3 1 * *
January 25, 2029 5 1 * * *
January 25, 2030 0 0 0 0 0
WEIGHTED AVERAGE
LIFE (YEARS) 20.12 14.15 11.73 10.00 8.82
</TABLE>
* Indicates that between zero and 0.5% of initial principal balance is
outstanding.
S-21
<PAGE>
YIELD TO MATURITY
If a Certificate is purchased at a discount from parity (as described below),
and the anticipated yield to maturity of the Certificate assumed faster
prepayments of the mortgage loans than are actually received, the actual yield
to maturity will generally be lower than anticipated. Conversely, if a
Certificate is purchased at a premium to parity, and the anticipated yield to
maturity of the Certificate assumed slower prepayments of the mortgage loans
than are actually received, the actual yield to maturity will generally be lower
than anticipated. Parity is the price at which a Certificate will yield its
coupon, after giving effect to any payment delay.
The yield on the class A-PO Certificates, which are not entitled to receive
interest, will be very sensitive to prepayments on the hypothetical loans in the
PO strip. A slower than anticipated rate of prepayment on these loans will lower
their yield. Since the PO strip is derived from the discount loans, which accrue
interest at a rate below the target rate, it is historically more likely that
these loans will prepay more slowly than the premium loans.
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 the investor's expectations. In
general, the earlier a prepayment is received, the greater the effect on the
investor's yield to maturity. As a result, higher (or lower) than anticipated
principal payments during the period immediately following the closing date will
not be offset by the same amount of lower (or higher) principal payments in a
subsequent period.
CMSI intends to file additional yield tables and other computational material
for some classes of Certificates with the SEC in a report on Form 8-K. See
"Incorporation of additional sec filings" below. These tables and materials were
prepared by the underwriter at the request of some prospective investors, based
on assumptions provided by, and satisfying the special requirements of, the
investors. These assumptions may differ from the structuring assumptions and may
not be relevant to or appropriate for other investors.
SENSITIVITY OF THE CLASS A-PO CERTIFICATES
The following tables indicate 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-PO Certificates. In addition to the structuring assumptions
described in "The prepayment model" above, we have assumed that the class A-PO
Certificates will be issued at a purchase price of approximately 55.00% of their
initial principal balance.
You should note that the only prepayments that affect the class A-PO
Certificates are prepayments on the hypothetical loans in the PO strip.
PRE-TAX YIELDS
PERCENTAGES OF PREPAYMENT MODEL
Class | 0% 125% 225% 350% 500%
- -------------|------------------------------------------------------------------
Class A-PO | 3.279% 7.402% 11.397% 16.465% 22.411%
The pre-tax yields set forth in the preceding table (and in the tables below for
yields on offered class B Certificates) were calculated by
o determining the monthly discount rates that, when applied to the streams of
cash flows assumed to be paid on the Certificates, would make the discounted
present value of the assumed stream of cash flows equal to the assumed
purchase price on January 27, 2000 for each class of Certificates, and
o converting the monthly rates to corporate bond equivalent rates.
The calculation does not take into account the interest rates at which you
might reinvest distributions received by you on the Certificates.
YIELDS ON OFFERED CLASS B CERTIFICATES
If the principal balances of the unoffered class B Certificates are reduced to
zero, the yields to maturity on the offered class B Certificates will become
S-22
<PAGE>
extremely sensitive to the amount and timing of losses on the mortgage loans,
because the losses (other than losses that are not covered by subordination)
will be entirely allocated to class B-2 until its principal balance is reduced
to zero, and then to class B-1.
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", "standard default assumption", or SDA", "SDA", assumes constant
default rates of
o 0.02% per annum of the principal balance in the first month of the mortgage
loans,
o an additional 0.02% per annum in each month from the second month until the
30th month,
o 0.60% per annum in each month from the 30th month through the 60th month,
o 0.0095% per annum less in each month from the 61st month through the 120th
month, and
o 0.03% per annum in each month after the 121st month.
Mortgage loans that conform to this assumption are said to be 100% SDA. A
default assumption of 50% SDA would assume default rates in each month that were
50% of the assumption, and similarly for 150% SDA and other assumptions. No
percentage SDA purports to be a historical description of default experience or
a prediction of the anticipated rate of default of any pool of mortgage loans.
The following yield tables have been prepared using the structuring
assumptions, except that we assumed that
o scheduled interest and principal payments on the mortgage loans are received
timely, except for mortgage loans on which defaults occur in accordance with
the indicated percentages of SDA,
o all defaulted loans are liquidated after exactly 12 months,
o there are realized losses of a percentage (referred to in the tables as the
"loss severity" percentage) of the principal balance at liquidation of the
liquidated mortgage loans,
o all realized losses are covered by subordination,
o the class A prepayment percentage is reduced only when permitted as described
above under "Distributions of principal--Principal distributions to
target-rate classes," and
o there are no interest shortfalls due to prepayments.
The pre-tax yields shown in the following tables were calculated in the same
manner as the pre-tax yields on the class A-PO Certificates, as described in the
preceding section. We assumed purchase prices of 87.25% of the initial principal
balance plus accrued interest for the class B-1 Certificates and 83.00% of the
initial principal balance plus accrued interest for the class B-2 Certificates.
PRE-TAX YIELD TO MATURITY OF CLASS B-1 CERTIFICATES
PREPAYMENT RATE
SDA Percentage | 20% Loss Severity | 40% Loss Severity
- ---------------|-------------------------------|------------------------------
| 125% 225% 350% | 125% 225% 350%
- ---------------|-------------------------------|------------------------------
50% | 8.792% 8.955% 9.122% | 8.812% 8.960% 9.124%
100% | 8.815 8.963 9.125 | 8.649 8.997 9.141
150% | 8.843 8.984 9.127 | 4.642 7.603 9.155
200% | 8.691 8.998 9.144 | (16.353) 1.362 6.443
PRE-TAX YIELD TO MATURITY OF CLASS B-2 CERTIFICATES
PREPAYMENT RATE
SDA Percentage | 20% Loss Severity | 40% Loss Severity
- ---------------|-------------------------------|------------------------------
| 125% 225% 350% | 125% 225% 350%
- ---------------|-------------------------------|------------------------------
50% | 9.468% 9.690% 9.920% | 9.491% 9.697% 9.922%
100% | 9.495 9.702 9.925 | 2.950 7.435 9.944
150% | 8.796 9.728 9.926 | (23.122) (18.127) 1.547
200% | 3.486 7.698 9.949 | (33.726) (30.347) (24.747)
S-23
<PAGE>
The following table shows aggregate realized losses on all the Certificates
under the assumptions used in preparing the preceding tables, expressed as a
percentage of the aggregate initial principal balance of the Certificates:
AGGREGATE REALIZED LOSSES
PREPAYMENT RATE
SDA Percentage | 20% Loss Severity | 40% Loss Severity
- ---------------|-------------------------------|------------------------------
| 125% 225% 350% | 125% 225% 350%
- ---------------|-------------------------------|------------------------------
50% | 0.294% 0.240% 0.191% | 0.588% 0.481% 0.382%
100% | 0.584 0.478 0.380 | 1.167 0.955 0.760
150% | 0.869 0.711 0.566 | 1.737 1.423 1.133
200% | 1.149 0.942 0.751 | 2.299 1.884 1.502
Investors should note that
o the loss severity percentage does not purport to be a historical description
of loss severity experience or a prediction of the anticipated loss severity
of any pool of mortgage loans, and
o even if subsequently cured, delinquencies may affect the timing of
distributions on the offered class B Certificates, because the entire amount
of the delinquencies would be borne by the offered class B subclasses in
reverse order of seniority before they would affect the class M and A
Certificates.
VOTING RIGHTS
At all times,
o 98% of the voting rights of registered holders of the Certificates will be
allocated among the class A (other than the A-IO), M and B Certificates in
proportion to their principal balances, and
o 2% of such voting rights will be allocated to the class A-IO Certificates.
ADDITIONAL ERISA CONSIDERATIONS
The Department of Labor has granted the underwriter, Credit Suisse First Boston
(csfb), an administrative exemption, Prohibited Transaction Exemption PTE 89-90,
from some of ERISA's prohibited transaction rules and some of the excise taxes
imposed by the Internal Revenue Code for 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 CSFB's exemption. CSFB'S exemption
should apply to the acquisition, holding, and resale of the offered class A
Certificates by an ERISA plan, provided that specified conditions are met,
including
o the acquisition of offered class A Certificates by an ERISA plan is on terms
that are at least as favorable to the ERISA plan as they would be in an
arm's-length transaction with an unrelated party,
o the rights and interests evidenced by the offered class A Certificates
acquired by the ERISA plan are not subordinated to the rights and interests
evidenced by other Certificates issued by the Trust,
o at the time the ERISA plan acquired the offered class A Certificates, S&P,
Fitch, Duff & Phelps Credit Rating Co. or Moody's Investors Service, Inc.
rated the Certificates in one of the three highest generic rating categories,
o the sum of all payments made to the underwriter in connection with the
distribution of the offered class A Certificates represents not more than
reasonable compensation for underwriting those Certificates, and
o the sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for the services provided to the Trust by
the servicer and for reimbursement of the servicer's reasonable expenses in
providing those services.
CSFB's exemption does not apply to the acquisition and holding of offered
class A Certificates by ERISA plans sponsored by CMSI, the underwriter, the
Trustee or any of their affiliates. Moreover, the exemption provides relief from
certain self-dealing/conflict of interest prohibited transactions only if, among
other requirements
o an ERISA plan's investment in each class A subclass does not exceed 25% of
the outstanding amount of that subclass at the time it acquired that
position, and
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<PAGE>
o immediately after it acquired that position, 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 Internal Revenue Code section 4975. However, a governmental plan may be
subject to similar federal, state or local laws. A fiduciary of a governmental
plan should make its own determination as to the need for the availability of
any exemptive relief under such similar laws.
Neither CSFB's exemption nor PTE 83-1 (discussed under "ERISA considerations"
in the core prospectus) applies to the acquisition or holding of the class M
Certificates or the offered class B Certificates, which are subordinated to the
class A Certificates.
LEGAL INVESTMENT
The offered class A and class M Certificates will be "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ss (SMMEA), so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization. The offered class B Certificates will not be "mortgage related
securities" under SMMEA.
FEDERAL INCOME TAX CONSEQUENCES
The assets of the Trust will consist of mortgage loans. For federal income tax
purposes, an election will be made to treat the Trust as a REMIC. Each class of
the offered Certificates will be designated as a regular interest in the REMIC.
Offered Certificates will be treated as debt instruments for US federal income
tax purposes.
It is anticipated that
o the class A-6 Certificates will be issued with original issue discount (OID)
equal to the excess of the sum of all distributions of principal and interest
(whether current or accrued) expected to be received on those Certificates
over their issue price (including accrued interest from January 1, 2000).
o the class A-PO Certificates will be issued with OID equal to the excess of
their initial principal balance over their issue price.
o the class A-1, A-2, A-4, A-7, M, B-1 and B-2 Certificates will be issued with
OID equal to the excess of their initial principal balance (plus two days of
accrued interest) over their respective issue prices (including accrued
interest from January 1, 2000).
The offered Certificates will be treated as
o "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,
o "real estate assets" for real estate investment trusts,
o "qualified mortgages" for another REMIC, and
o "permitted assets" for a financial asset securitization investment trust.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the underwriting agreement among
Citicorp, CMSI and CSFB, CSFB, as underwriter, will purchase the offered
Certificates from CMSI upon issuance. The underwriter has committed to purchase
all the offered Certificates if any Certificates are purchased. The underwriter
will distribute the offered Certificates from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale.
Proceeds to CMSI will be approximately 96.29528% of the aggregate initial
principal balance of the class A Certificates, approximately 92.90086% of the
aggregate initial principal balance of the class M Certificates and
approximately 90.44668% of the aggregate initial principal balance of the
offered class B Certificates, plus accrued interest at the rate of 7.00% and
before deducting expenses of approximately $230,000 payable by CMSI, provided
that if the aggregate initial principal balance of the class A Certificates is
less than $194,008,825, the aggregate proceeds to CMSI (as a percentage of the
aggregate initial principal balance of the class A Certificates) will be
adjusted upwards by not more than 0.003% and if the aggregate initial principal
balance of the class A Certificates is greater than $194,008,825, the aggregate
proceeds to CMSI (stated as a percentage of the aggregate initial principal
balance of the class A Certificates) will be adjusted downwards by not more than
0.003%. In connection with the purchase and sale of the offered Certificates,
the
S-25
<PAGE>
underwriter may be deemed to have received compensation from CMSI in the
form of underwriting discounts.
Subject to the terms and conditions of the purchase agreement among Citicorp,
CMSI and CSFB, CSFB will purchase the unoffered class B Certificates upon
issuance. CSFB has committed to purchase all of the unoffered class B
Certificates if any offered Certificates are purchased. CSFB will offer the
unoffered class B Certificates through 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 Certificates is a condition to the closing of
the sale of the offered Certificates to the underwriter.
The underwriting agreement provides that CMSI and Citicorp will indemnify the
underwriter against certain civil liabilities under the Securities Act of 1933
or contribute to payments the underwriter may be required to make under that
Act.
In connection with this offering, the underwriter may over-allot or effect
transactions that stabilize or maintain the market price of the offered
Certificates at a level above that which might otherwise prevail in the open
market. Such stabilizing, if commenced, may be discontinued at any time.
CMSI anticipates that Certificates will be sold primarily to institutional
investors. A purchaser of Certificates, including a dealer, may be deemed to be
an "underwriter" of those securities under the Securities Act of 1933 in making
re-offers and sales by it of Certificates. Certificate holders should consult
their legal advisers as to the consequences of being deemed an "underwriter."
Underwriters and agents participating in the distribution of the
Certificates, and their affiliates, may engage in transactions with and perform
services for Citicorp or its affiliates in the ordinary course of business.
LEGAL OPINIONS
Legal opinions will be delivered for CMSI and Citicorp by John R. Dye, as
Associate General Counsel--Corporate Law of Citigroup, and for the underwriter
by Cadwalader, Wickersham & Taft, New York, New York. Mr. Dye owns or has the
right to acquire less than 0.01% of the outstanding common stock of Citigroup.
Cadwalader, Wickersham & Taft, will deliver opinions on ERISA matters and
federal income tax matters for CMSI.
INCORPORATION OF ADDITIONAL SEC FILINGS
The following documents filed with the SEC by CMSI under the Securities Exchange
Act of 1934 are incorporated by reference in this prospectus as of their filing
dates:
o Current Reports on Form 8-K dated January 13 24 a,nd 25, 2000, filed pursuant
to Section 13, and
o all reports subsequently filed pursuant to sections 13(a), 13(c) or 15(d)
prior to the termination of the offering of the Certificates.
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<PAGE>
APPENDIX--DETAILED DESCRIPTION OF THE MORTGAGE LOANS
The following tables give additional information about the mortgage loans as of
January 1, 2000. The mortgage loans actually included in the Trust may differ
from their description below, but the differences will not be material.
YEARS OF ORIGINATION
Year originated Number of loans Aggregate principal balance
- --------------- --------------- ---------------------------
1992 1 $ 437,892
1998 8 3,052,496
1999 566 199,660,408
- --------------------------------------------------------------------------------
Total 575 $203,150,796
================================================================================
TYPES OF DWELLINGS
Type Number of loans Aggregate principal balance
- ---- --------------- ---------------------------
Detached house 506 $180,466,118
2 to 4 family 5 2,546,027
Townhouse 11 3,523,674
Condominium 17 4,781,614
(one to four stories)
Condominium 7 2,473,094
(over four stories)
Cooperative 29 9,360,269
- --------------------------------------------------------------------------------
Total 575 $203,150,796
================================================================================
NUMBER OF UNITS IN DWELLINGS
Type Number of loans Aggregate principal balance
- ---- --------------- ---------------------------
1-family 570 $200,604,769
2-family 3 1,531,664
3-family 2 1,014,363
- --------------------------------------------------------------------------------
Total 575 $203,150,796
================================================================================
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<PAGE>
SIZE OF LOANS
Principal balance Number of loans Aggregate principal balance
- ------------------- --------------- ---------------------------
$149,999 and under 13 $ 1,312,448
$150,000 - 199,999 7 1,235,911
$200,000 - 249,999 6 1,315,654
$250,000 - 299,999 199 55,485,680
$300,000 - 349,999 131 42,526,388
$350,000 - 399,999 80 29,943,684
$400,000 - 449,999 48 20,512,964
$450,000 - 499,999 32 15,153,520
$500,000 - 549,999 24 12,579,086
$550,000 - 599,999 13 7,439,681
$600,000 - 649,999 8 4,969,776
$650,000 - 699,999 8 5,466,200
$700,000 - 749,999 0 0
$750,000 - 799,999 2 1,561,218
$800,000 - 849,999 1 827,508
$850,000 - 899,999 0 0
$900,000 - 949,999 2 1,826,712
$950,000 - 999,999 1 994,366
- --------------------------------------------------------------------------------
Total 575 $203,150,796
================================================================================
DISTRIBUTION BY INTEREST RATES
Interest rate Number of loans Aggregate principal balance
- --------------- --------------- ---------------------------
6.000% 1 $ 223,879
6.001% - 6.500% 2 474,843
6.501% - 7.000% 29 10,385,260
7.001% - 7.500% 112 42,826,979
7.501% - 8.000% 243 84,522,528
8.001% - 8.500% 162 55,852,056
8.501% - 9.000% 23 7,824,364
9.001% - 9.125% 3 1,040,887
- --------------------------------------------------------------------------------
Total 575 $203,150,796
================================================================================
S-28
<PAGE>
DISTRIBUTION BY LOAN-TO-VALUE RATIO AT ORIGINATION
Loan-to-value ratio Number of loans Aggregate principal balance
- ------------------- --------------- ---------------------------
65.00% and below 120 $ 45,677,317
65.001% - 75.000% 110 40,215,010
75.001% - 80.000% 260 90,067,511
80.001% - 85.000% 15 4,646,311
85.001% - 90.000% 56 18,525,206
90.001% - 95.000% 14 4,019,441
- --------------------------------------------------------------------------------
Total 575 $203,150,796
================================================================================
GEOGRAPHIC DISTRIBUTION
State Number of loans Aggregate principal balance
- ----- --------------- ---------------------------
Alabama 8 $ 2,952,952
Arizona 1 424,685
Arkansas 4 1,356,785
California 120 43,809,053
Colorado 11 4,142,201
Connecticut 18 6,277,708
Delaware 1 176,329
District of Columbia 2 591,562
Florida 22 8,011,087
Georgia 22 7,139,340
Illinois 19 5,824,429
Indiana 3 727,376
Kansas 1 211,900
Kentucky 2 647,511
Louisiana 7 2,729,610
Maryland 11 3,830,263
Massachusetts 22 8,508,085
Michigan 5 1,793,264
Minnesota 4 1,379,565
Missouri 2 661,878
Nebraska 3 872,694
Nevada 4 1,741,820
New Jersey 50 16,969,634
New Mexico 6 2,113,671
New York 116 42,306,127
North Carolina 16 5,955,386
Ohio 4 1,203,030
Oklahoma 1 276,123
Oregon 1 229,114
Pennsylvania 8 3,182,008
South Carolina 8 2,750,144
Tennessee 15 5,729,617
Texas 20 7,028,749
Utah 2 547,462
Virginia 26 8,077,028
Washington 9 2,778,831
West Virginia 1 193,774
- --------------------------------------------------------------------------------
Total 575 $203,150,796
================================================================================
S-29
<PAGE>
Core prospectus
January 25, 2000
Citicorp Mortgage Securities, Inc.
12855 North Outer Forty Drive
St. Louis, MO 63141
(314) 851-1467
REMIC Pass-Through Certificates
- -------------------------------
Holders of Certificates will have an interest in a Trust whose assets consist
principally of mortgage loans, or interests in mortgage loans, on one- to
four-family residences or cooperative apartments. Each Certificate will entitle
its holder to a portion of distributions of principal and interest payments that
the Trust receives on the mortgage loans or mortgage loan interest, as described
in this prospectus.
YOU SHOULD READ "GENERAL RISK FACTORS,"
BEGINNING ON PAGE 3 OF THIS CORE PROSPECTUS,
AND ANY "SERIES RISK FACTORS" SECTION IN THE
PRECEDING SUPPLEMENT, BEFORE YOU PURCHASE
ANY CERTIFICATES.
<PAGE>
SUMMARY
THE CERTIFICATES
Citicorp Mortgage Securities, Inc. (CMSI) will set up a Trust under New York law
that will purchase a pool of mortgage loans from CMSI. The Trustee for the Trust
is identified in the supplement. The Trustee is not affiliated with CMSI.
Each mortgage loan will be secured, usually by a first-priority mortgage on a
one- to four-family residential property. Some mortgage loans may be loans on
cooperative apartments, which will be secured by a first-priority lien on shares
in a cooperative apartment corporation and the related lease or occupancy
agreement. Other mortgage loans may be secured by leases of residential
property. The supplement describes the specific properties of the mortgage
loans.
The mortgage loans in the Trust may be either
o affiliated mortgage loans originated by CMSI or its affiliates or purchased
from third parties and serviced by CMSI or its affiliates, or
o third-party mortgage loans originated by third parties and sold to CMSI on a
"servicing retained" basis--that is, where a third-party continues to service
the loan.
The Trust will sell Certificates evidencing interests in one pool of mortgage
loans. The Certificates offered by the Trust will comprise a single Series of
Certificates. A Certificate holder will own, through the Trust, a portion of the
payments on the mortgage loans received by the Trust and other property held by
the Trust. Payments received by the Trust will, after deduction of servicing and
other costs, be distributed to the Certificate holders.
The Trust will receive scheduled payments of principal and interest on the
mortgage loans, prepayments of principal, proceeds of foreclosure proceedings on
the mortgaged properties securing the mortgage loans and payments of hazard or
other insurance on the mortgaged properties or mortgage loans. The Trust may
also receive other payments described in this prospectus. Other property of the
Trust may include mortgaged properties acquired by foreclosure, reserve funds or
other credit support, and insurance policies. The Trust's expenses will include
fees paid to CMSI and/or others for servicing the mortgage loans, expenses of
foreclosure proceedings, and other expenses.
DIFFERENT CLASSES OF CERTIFICATES
A Series of Certificates will usually consist of several classes of
Certificates. Some classes of Certificates may not be offered publicly but may
be sold privately (including sales to CMSI or an affiliated company). Only
Certificates rated as investment grade by a nationally recognized rating agency
will be offered to the public.
Holders of Certificates in different classes will be entitled to different
distributions out of payments received by the Trust. For example:
o Different classes may not receive interest at the same rate on their
principal balances. Some principal-only, or PO, classes may receive no
interest at all.
o Some classes may receive interest but not principal. Such interest-only, or
IO classes will receive interest on a "notional" balance, but will not
receive distributions of any part of their notional balance.
o Some accrual classes may not receive interest distributions for a specified
period, with the deferred interest being added to the class's principal
balance.
o Some classes may not receive distributions of some or all of their principal
for a stated time or until a stated event (such as reduction to zero of the
principal balance of another class). As a result, some classes will have
their principal balances reduced faster than other classes.
o Some classes may be subordinated to other more senior classes. If there are
delinquencies or losses on the mortgage loans so that the Trust does not have
enough money to distribute the accrued interest and principal to all the
classes, the subordinated classes as a group will absorb a disproportionately
large amount of these shortfalls or losses.
A class of Certificates may be divided into subclasses. References to
"classes" of Certificates will include subclasses, unless otherwise noted.
The supplement describes each class of Certificates in the Series.
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<PAGE>
REMIC ELECTION
The Trust will elect to be treated as a "real estate mortgage investment
conduit" (or REMIC) under US federal tax laws. The Trust may be comprised of
multiple REMICs. A REMIC is generally not subject to US federal corporate tax,
so payments of principal and interest received by the Trust can generally be
distributed to Certificate holders without deduction for those taxes. See
"Taxation of the Trust" below.
TRUSTS OF CERTIFICATES
The Trust may contain in addition to, or instead of, mortgage loans,
mortgage-backed securities issued by the Government National Mortgage
Association (popularly known as Ginnie Mae), the Federal Home Loan Mortgage
Corporation (popularly known as Freddie Mac), Fannie Mae (formerly Federal
National Mortgage Association) (collectively, agency certificates) or by other
REMICs. Principal and interest received on agency certificates or REMIC
securities will be distributed to Certificate holders in much the same way as
principal and interest payments received on mortgage loans.
GENERAL RISK FACTORS
You should consider the following general risk factors, and any risk factors
described in the supplement that are specific to the Series, before you purchase
any Certificates.
LIMITED LIQUIDITY
The liquidity of the Certificates may be limited.
o A secondary market for a class of Certificates may not develop or, if it
does, it may not provide you with liquidity of investment or continue for the
life of the Certificates.
o While CMSI anticipates that the underwriter will establish a secondary market
for the Certificates, the underwriter will not have to do so or to continue
doing so for any period of time.
o CMSI does not intend to list any Certificates on a securities exchange or
automated quotation system.
LIMITED ASSETS
The Trust's assets are generally limited to mortgage loans. If payments and
recoveries on the mortgage loans are insufficient to make all distributions of
interest and principal on the Certificates, there may be no other assets
available to make up the deficiency.
CMSI may advance its own funds to cover delinquent scheduled payments of
principal or interest on the mortgage loans it services, but is not obligated to
do so. CMSI 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. If CMSI fails to make an advance, the Trustee, acting in
its individual capacity and not as Trustee, will make an advance to cover
delinquencies, but only to the extent it believes its advances will be
reimbursed from future payments and collections on the related mortgage loans.
Other servicers and master servicers of third-party mortgage loans must
advance their own funds to cover delinquent scheduled payments of principal and
interest on the loans they service, but only to the extent they determine that
the funds advanced will be reimbursed from future payments and collections on
the related mortgage loans.
To the extent that CMSI, other servicers and master servicers and the Trustee
do not make advances, the only source of cash for distributions on the
Certificates will be cash received on the mortgage loans.
UNCERTAINTY OF YIELDS
The yield to maturity of each class of Certificates will be sensitive, in
varying degrees, to
o the rate of principal prepayments and other unscheduled receipts on the
mortgage loans,
o the allocation of prepayments and unscheduled receipts among the classes of
Certificates,
o the amount, timing and cause of losses and payment shortfalls on the mortgage
loans,
o the allocation of losses and distribution shortfalls among the classes of
Certificates and
o any difference between the purchase price of a Certificate and its principal
balance at the time of purchase.
If you purchase a Certificate at a discount, a slower than anticipated rate
of prepayment will result in an actual yield lower than the anticipated yield.
If you purchase a Certificate at a premium, a faster than anticipated rate of
prepayment will result in an actual yield lower than the anticipated
3
<PAGE>
yield. If losses or distribution shortfalls are allocated to your Certificates,
your actual yield will be adversely affected. You should therefore understand
the terms and conditions of any Certificates in which you are considering an
investment and the priorities for principal and interest distributions and
allocations of losses and shortfalls before you make an investment. See
"Distributions on the Certificates" below and "Distributions of interest,"
"Distributions of principal," "Losses" and "Sensitivity of Certificates to
prepayments" in the Supplement.
LEGAL INVESTMENT
Institutions whose investment activities are subject to legal investment laws
and regulations or to regulatory review may be subject to restrictions on
investment in subordinated classes of Certificates. CMSI cannot represent that
any class of subordinated Certificates will be a legal investment for you. You
should consult your counsel on whether any subordinated class of Certificates is
a legal investment for you.
RESTRICTIONS ON TRANSFER
The purchase and holding of subordinated classes of Certificates by or on behalf
of an employee benefit plan subject to the Employee Retirement Security Act of
1974 (ERISA) may result in prohibited transactions under ERISA, the Internal
Revenue Code or similar law. These laws may restrict the number and types of
investors that can buy subordinated classes of Certificates and could therefore
adversely affect the liquidity of these Certificates.
The Trust will not register or recognize a transfer of Certificates of a
subordinated class unless the transferee satisfies the conditions set forth in
"ERISA considerations--Class exemption" below.
DISTRIBUTIONS ON THE CERTIFICATES
SCHEDULED PAYMENTS ON MORTGAGE LOANS
Each mortgage loan will have a scheduled payment that is due on the first day of
each month. The scheduled payment will consist of
o interest on the unpaid principal amount (the principal balance) of the
mortgage loan for the preceding month, and
o a specified part of the principal balance. Scheduled payments may also
include payments for real estate taxes or other assessments and property
insurance. The homeowner usually has a grace period in which he or she can
make the payment without having to pay additional interest or a late payment
charge. (In this prospectus, we often refer to the borrower under a mortgage
loan as the homeowner, even though he or she may be a tenant or a cooperative
apartment shareholder.)
PROPERTY OF THE TRUST; THE CUT-OFF DATE
The principal balance of each mortgage loan in the Trust will be determined as
of the first day of the month in which the Certificates are issued (the cut-off
date). Prepayments of principal received on or before the cut-off date will not
be property of the Trust. Nor will scheduled payments of principal and interest
for months ending before the cut-off date, even if the homeowners make the
payments on or after the cut-off date.
Example: A Trust issues Certificates on January 15. Then January 1 is the
cut-off date. Principal prepayments received on or before January 1 are not
property of the Trust, nor are scheduled payments of principal and interest due
on or before January 1, no matter when they are received. Principal prepayments
received after January 1 are property of the Trust, as are scheduled payments
due on February 1 or later, even if the scheduled payments were received before
the cut-off date.
DISTRIBUTION OF SCHEDULED PAYMENTS
CMSI, as paying agent for the Trust, will distribute principal and interest on
the Certificates at regular intervals. For most Series of Certificates,
distributions will be made monthly, but distributions can be made quarterly,
semi-annually or at other intervals, but not less often than annually. In this
core prospectus, unless otherwise stated, it will be assumed that distributions
are monthly.
On the 18th day of each month (the determination day), CMSI will determine
how much of the scheduled principal and interest payments due on the first day
of that month has been received by the persons administering and servicing the
mortgage loans (the servicers) and forwarded to the Trust. After deduction of
the servicers' fees, these funds will be distributed on the 25th day of the
month (the distribution day) to the Certificate holders as principal and
interest on the Certifi-
4
<PAGE>
cates. (If the 18th day of the month is not a business day, the determination
day will be the next business day after the 18th; similarly for the distribution
day.)
Interest will be paid on each class of Certificates at the rate stated for
the class in the supplement. The interest rate for a class of Certificates may
differ from the average interest rate on the mortgage loans or the rate on any
particular mortgage loan. Principal will be distributed to the various classes
of Certificates in accordance with the priorities stated in the supplement.
In addition to those regular classes of Certificates that have a principal
balance and/or an interest rate, there will be a single residual class of
Certificates that will have no interest rate and may have no principal balance.
The residual class will receive in each month only part or all of any amounts
that were available for distribution but that exceeded the distributions to be
made to the regular classes.
CALCULATION OF INTEREST; EFFECTIVE RATE
Monthly distributions of interest on those Certificates having a fixed rate of
interest are calculated on the basis of a 360-day year of twelve 30-day months.
This means that
o interest for a calendar month will be calculated by multiplying the principal
balance by 1/12 of the annual interest rate for the Certificate, regardless
of the number of days in the month, and
o interest for a part of a calendar month will be calculated by multiplying the
principal balance by the annual interest rate for the Certificate times a
fraction that is the number of days in the month for which interest is owed
over 360.
Calculation of interest for any Certificates bearing a variable or floating
rate of interest is described in the supplement.
Interest accrued on mortgage loans during a calendar month will be due from
the homeowner on the first day of the following month, along with the scheduled
principal payment due on that first day, but will not be distributed to
Certificate holders until the distribution day. These payments of principal and
interest will not accrue interest from the first day of the month to the
distribution day. For example, interest accrued during January on the principal
balances of the mortgage loans, and the scheduled payments of principal, will be
due from the homeowners on February 1 but will not earn interest from February 1
to the February 25 distribution day. This delay in the Certificate holder's
receipt of principal and interest for a period during which no additional
interest accrues means that the effective interest rate on a Certificate with a
fixed interest rate will be lower than its stated interest rate.
ADEQUACY OF SCHEDULED PAYMENTS
The Certificates in each Series will usually be structured so that the aggregate
principal balances of the mortgage loans in the Trust at the cut-off date
(without regard to principal prepayments received on or before the cut-off date
or scheduled payments due on or before the cut-off date) will equal the
aggregate principal balances of the Certificates. Moreover, the aggregate
principal balance of the Certificates on each distribution day after the
distribution has been made will equal the aggregate scheduled principal balance
of the mortgage loans.
The scheduled principal balance of a mortgage loan on a distribution day will
equal its actual principal balance, except that it is assumed that
o no prepayments (whole or partial) have been made during that month, and
o the homeowner has made all scheduled payments of principal and interest that
have become due, and has not made a scheduled payment that is not yet due.
If each homeowner were to make all of his or her scheduled monthly payments
of principal and interest before the determination day for the month, and never
prepay any principal (see below), the Trust would have sufficient funds (1) to
distribute interest to all the classes of Certificates at their interest rates
on each distribution day and (2) to distribute the last installment of the
aggregate principal balance of the Certificates by no later than the
distribution day following the last scheduled payment of principal and interest
on any mortgage loan. While it is extremely unlikely that no homeowner will be
late or otherwise default on a mortgage loan payment, or that no homeowner will
make a principal prepayment, understanding the adequacy of the scheduled
payments on the mortgage loans to provide funds for full distributions on the
Certificates will help you
5
<PAGE>
understand the effects of the Trust's receipt of payments that are larger or
smaller than scheduled.
If the Trust does not have enough money on a distribution day to distribute
all the principal and interest required to be distributed to a particular class,
available funds will first be used to distribute current interest, then past due
interest and lastly principal to the class. Money available for distribution may
be applied to principal or interest on a class without regard to whether it was
received as principal or interest on a mortgage loan. Thus, cash received by the
Trust as principal payments on mortgage loans may be distributed to Certificate
holders as interest, and vice-versa. Principal and interest will be distributed
to the Certificates within a single class in proportion to the principal
balances of the Certificates.
You should note that when we say that the Trust does not have enough money on
a distribution day to distribute all required principal and interest, we mean
only that the Trust has not received enough money that is available for
distribution on the distribution day. For instance, a scheduled payment that the
Trust receives after the determination day is not available to be distributed on
the following distribution day. Also, as described below, prepayments will not
be available for distribution until a later distribution day, and escrowed or
other funds held by the Trust or a servicer for a special purpose (such as the
payment of real estate taxes on the mortgaged properties) will not be available
for distribution at all.
DELINQUENCIES AND THEIR EFFECT; ADVANCES
Homeowners from time to time delay making scheduled payments of principal and
interest until after the determination day for the month. Even a small number of
delinquent payments could mean that the Trust will not have enough money
available to make full distribution of principal and interest to all the
Certificates on the distribution day.
If the Trust does not have enough money on a distribution day to distribute
full interest and principal to all classes of Certificates, it could use money
received as principal payments on mortgage loans to pay interest to Certificate
holders. If the Trust were to do so, it would have to allocate a principal loss
to some classes of Certificates. A loss allocation would be required to keep the
aggregate scheduled principal balance of the mortgage loans the same as the
aggregate principal balance of the Certificates.
To avoid a loss allocation to a class of Certificates,
o the Trust may advance prepayments received in the month of the distribution
day to cover shortfalls, and
o if such prepayments are not adequate to enable the Trust to make a full
distribution, CMSI, any third-party servicers and the Trustee may advance
money to the Trust to enable it to make full distributions on the
Certificates.
If the Trust uses prepayments received in the month of the distribution day
to cover shortfalls on that distribution day, the Trust will reimburse itself
out of payments received for the following month.
While not required to do so, CMSI may make a voluntary advance to the Trust
of a delinquent payment on an affiliated mortgage loan, and a third-party
servicer may make a voluntary advance of a delinquent payment on a third-party
mortgage loan. A delinquent payment, and the advance, may be for principal,
interest, taxes or insurance premiums.
CMSI intends to make a voluntary advance for a delinquent payment on an
affiliated mortgage loan if it believes the advance will be recoverable from
future payments and proceeds on the loan. The Trust will reimburse CMSI or a
third-party servicer for a voluntary advance, without interest, out of later
payments received on the mortgage loan for which the advance was made, or if
CMSI determines that the advance will not be recoverable from payments on that
mortgage loan, from payments on other mortgage loans.
If on a distribution day, the scheduled payments due in that month that have
actually been received from homeowners, prepayments received in that month and
voluntary advances made by CMSI and any third-party servicers are less than the
scheduled payments due in that month from homeowners, the Trustee will advance
the difference to the Trust, but only up to an amount the Trustee determines
will be recoverable from future payments, proceeds or recoveries on the mortgage
loans. The Trustee will make separate determinations and advances for the
affiliated mortgage loans and for the third-party mortgage loans. In
6
<PAGE>
determining whether to make, and in making, an advance, the Trustee will be
acting in its individual capacity, and not as a trustee. Advances by the Trustee
on affiliated mortgage loans will be reimbursed from future payments on
affiliated mortgage loans received by the Trust, and similarly for advances on
third-party mortgage loans.
PREPAYMENTS ON MORTGAGE LOANS
A homeowner may prepay part or all of his or her mortgage loan at any time. That
is, a homeowner can pay more principal than he or she is scheduled to pay. The
homeowner can include this additional payment with the scheduled payment of
principal and interest, or can pay it at some other time. A homeowner will
usually not incur an additional prepayment charge for prepaying a mortgage loan.
A mortgage loan may also be prepaid in other circumstances, described in "Types
of prepayment" below.
CMSI anticipates that a significant number of mortgage loans will be prepaid
in whole or in part. Homeowner mobility, economic conditions, enforceability of
due-on-sale clauses, mortgage market interest rates and the availability of
mortgage funds will all influence the level of pre-payments.
DELAY IN DISTRIBUTION OF PREPAYMENTS
Prepayments received by the servicers in a calendar month will generally not be
distributed as principal to Certificate holders until the distribution day in
the following month. For example, if $1,000 of prepayments are received in
March, the Trust will distribute these prepayments to the Certificate holders on
the April 25 distribution day. Accordingly, if a homeowner on March 1 makes the
scheduled payment due on that date, and simultaneously makes a full or partial
prepayment, the homeowner's scheduled payment will be distributed on the March
25 distribution day but the prepayment will not be available for distribution
until the April 25 distribution day.
(Prepayments received in a month may be advanced by the Trust to cover
shortfalls on a distribution day in that month, as described in "Delinquencies
and their effect; advances" above.)
EFFECT OF PREPAYMENTS
Prepayments can have a number of effects on the Certificates:
o Prepayments increase the speed at which the principal balance of the
Certificates will be distributed. Principal distributions that are faster or
slower than anticipated can profoundly affect the return, or yield, on a
Certificate. Consider for example a Series consisting of just two classes--an
interest-only (IO) class and a principal-only (PO) class. (This is an
unlikely structure for a Series, but one in which the effect of prepayments
can be clearly seen.) If prepayments on the mortgage loans are greater than
anticipated, the PO class will be paid off faster, and the IO class will
receive less interest, than anticipated. In the extremely unlikely event that
all the mortgage loans are completely prepaid in the first month, the PO
class will be paid off on the first distribution day, greatly increasing its
rate of return, while the IO class will receive only one distribution of
interest. Conversely, if prepayments are less than anticipated, the IO class
would benefit, but the PO class would see its yield reduced.
Generally speaking, if the price of a Certificate is greater than its
principal balance (which is always true for an IO class, since it has no
principal balance), greater than anticipated prepayments will reduce the rate of
return while lesser than anticipated prepayments will increase the rate of
return. The opposite generally holds where the price of a Certificate is less
than its principal balance: greater than anticipated prepayments will increase
the rate of return and lesser than anticipated prepayments will reduce the rate
of return. The extent to which greater or lesser prepayments will affect the
rate of return on a class of Certificates depends on the particular properties
of the class. The supplement describes the extent to which certain classes of
the Series could be affected by changes in the rate of prepayment, based on a
set of assumptions (called a prepayment model) described in the supplement.
o Prepayments can increase or decrease the average interest rate on the
mortgage loans. For example, if (ignoring servicing fees) half of the
mortgage loans (by principal balance) in a pool have an interest rate of 6%,
and half have an interest rate of 8%, the average interest rate for the pool
will be 7%. Suppose the Certificates all carry an interest rate of 7%. If the
mortgage loans with
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an 8% rate prepay faster than the mortgage loans with a 6% rate, then, other
things being equal, the weighted average interest rate on the mortgage loans
will fall below 7%, so that interest received on the mortgage loans may be
less than the interest required to be distributed on the Certificates. (This
problem is often solved by the structuring technique of "ratio stripping,"
which, if used, is described in the supplement.)
Mortgages with higher interest rates have historically prepaid faster than
mortgages with lower rates. The result is that if a pool contains mortgage loans
with significantly different interest rates, the higher interest rate mortgage
loans can be expected to pay off faster, with the result that the weighted
average interest rate on the mortgage loans would decline.
o When a homeowner makes a prepayment, he or she will often not pay any
interest on the prepayment. Since the Trust does not distribute this
prepayment until the following month, the prepayment amount will usually earn
less interest than the mortgage loan rate or the interest rate on any class
of Certificates.
Example: a homeowner prepays $1,000 on January 10, and pays no interest with
this prepayment. The homeowner's February 1 scheduled payment also does not
include any interest on the $1,000 prepayment. The $1,000 prepayment will be
distributed to the Certificate holders on the February 25 distribution day. The
Trust will also be required to distribute interest on the $1,000 for the entire
month of January--interest that was not paid by the homeowner. The prepayment
may have been reinvested for the Trust at short-term rates, but the interest
earned at these short-term rates will probably be less than one month's interest
at the mortgage loan rate.
If there are a substantial number of prepayments in a month, the drop in
interest payments by the homeowners for that month could result in a shortfall
of funds available to distribute principal and interest on the Certificates on
the distribution day. However, CMSI and the other servicers will have to make up
for at least part of such prepayment interest shortfalls out of their servicing
fees, as described in the supplement.
TYPES OF PREPAYMENT
In addition to voluntary prepayments by a homeowner, there are other
circumstances in which part or all of a mortgage loan may be prepaid.
o The homeowner may refinance the mortgage loan by prepaying the mortgage loan
in full and taking out a new mortgage loan, or the homeowner and the lender
may agree to modify the terms of the mortgage loan as an alternative to
refinancing. Refinanced or modified mortgage loans will be treated as fully
prepaid and removed from the Trust. Originators affiliated with CMSI are
permitted to refinance or modify mortgage loans and may offer homeowners
special refinancing or modification incentives.
o CMSI permits participation in "prepayment programs" offered by unaffiliated
service agencies in which homeowners generally make 26 bi-weekly payments
during a calendar year. Each payment equals one-half of the homeowner's
scheduled monthly payment, with the result that the homeowner makes payments
in a calendar year equal to 13 scheduled monthly payments, rather than 12.
The extra amount is applied as a prepayment of the mortgage loan.
o Most fixed rate mortgage loans permit the servicer to demand payment of the
entire principal balance of the loan upon a sale of the mortgaged property (a
due-on-sale clause) rather than allowing the purchaser to assume the mortgage
loan. CMSI will generally exercise a due-on-sale clause if (1) for a fixed
rate mortgage loan, CMSI believes the clause is legally enforceable, and (2)
for an adjustable-rate mortgage loan, the assumption will impair the Trust's
security.
o If a mortgaged property is damaged by fire or other hazard insured under a
hazard insurance policy (described below), insurance payments received by the
Trust may be used to reduce the principal balance of the mortgage loan. (They
may also be used to restore the property, which would not be a prepayment.)
o If the mortgage loan is foreclosed (described below), the foreclosure
proceeds, less the expenses of foreclosure and accrued interest, will
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be used to reduce the principal balance of the mortgage loan.
o When the aggregate principal balance of all the mortgage loans in a Series is
reduced to less than a stated percentage (usually 5%) of the original
principal balance of the mortgage loans in the Series, CMSI or the holders of
the residual Certificate may purchase all the mortgage loans for their
principal balances plus accrued interest. Such a purchase would, in effect,
simultaneously prepay all the mortgage loans. This type of prepayment is
called a clean-up call.
o CMSI will make various warranties about the mortgage loans to the Trust. If a
mortgage loan does not conform to these warranties, CMSI may have to
repurchase the loan. The repurchase will be treated as a full prepayment of
the mortgage loan. See "Defective mortgage loans" below.
o If a homeowner pledges securities or other collateral in addition to the
mortgaged property, and the homeowner defaults under the pledge agreement for
the additional collateral, CMSI may liquidate the additional collateral and
apply it as a prepayment of the principal balance of the mortgage loan.
FORECLOSURES AND THEIR EFFECT
After a mortgage loan has become seriously delinquent, CMSI may take steps to
foreclose. Foreclosure involves seizure and sale of the mortgaged property. The
proceeds of the sale are used first to pay CMSI's expenses of foreclosure and
advances, then to pay accrued interest, and lastly to pay the principal balance
of the mortgage loan. The foreclosure process and some alternatives to
foreclosure are described below in "Servicing--Realizing on defaulted mortgage
loans."
If the net proceeds of foreclosure are insufficient to pay all accrued
interest and the full principal balance of the mortgage loan, the shortfall, or
loss, will be allocated to the Certificates as described in the supplement. When
a loss is allocated to a Certificate, it permanently reduces the principal
balance of the Certificate and may also reduce an interest distribution.
Mortgage loan originators take certain precautions to reduce the risk of
foreclosure and of foreclosure losses. These primarily involve checking the
creditworthiness of potential homeowners and the value of the mortgaged
property. The mortgage loan underwriting policies of the affiliated originators
are described below under "Mortgage loan underwriting."
Certificate holders may also be protected against losses by various types of
insurance and credit support, including the subordination of some classes of
Certificates.
SUBORDINATION
Subordination involves the disproportionate allocation of losses and
distribution shortfalls among Certificates. Subordination thus protects more
senior classes of Certificates against losses and distribution shortfalls at the
expense of more subordinated classes.
As a simple example, suppose that a Series consists of two classes of
Certificates, A and B, which are alike in all respects except that all losses
and shortfalls will be allocated to the subordinated B class until the principal
balance of the B class is reduced, by principal distribution or allocation of
principal losses, to zero.
A more realistic example would involve several levels of subordination. There
might be a senior class A, a subordinated class B, and a middle "mezzanine" or
"senior subordinated" class M. In this structure, all losses would be allocated
to class B as long as it is outstanding (ie, until its principal balance is
reduced to zero). Losses would then be allocated to class M until its principal
balance is reduced to zero. Class M is thus subordinated to class A but senior
to class B. A Series may be structured with even more levels of subordination.
Subordination protects against distribution shortfalls as well as losses. If
on a distribution day, the Trust does not have enough money available to
distribute the required principal and interest to all the Certificates,
subordinated classes may not receive full distribution of principal and
interest.
Cash available for distribution is generally distributed in order of
seniority--that is, first to the most senior class, then to the next most senior
class, and so on until a full distribution has been made or the available cash
is exhausted. Losses are generally allocated in order of subordination--that is,
first to the most subordinated class until its principal balance is reduced to
zero, then to the next most subordinated class until its principal balance is
reduced to zero, and so on until the loss has been fully allocated. Distribution
shortfalls are also
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<PAGE>
generally allocated in order of subordination, but only up to the amount to have
been distributed to the class on that distribution day.
Subordination can be limited in amount or time (e.g., a class is subordinated
only for five years) or to certain types and amounts of losses (e.g., a
subordinated class is allocated a specific type of losses up to a fixed dollar
limit). Losses that are not covered by subordination are allocated among all the
classes proportionately. The supplement describes the subordinated classes and
the precise limits of the subordination.
Once principal or interest is distributed to Certificates in a subordinated
class, the distributions do not have to be refunded even if, on a later
distribution day, full distributions can not be made to a more senior class .
METHOD OF DISTRIBUTION
The Trustee will generally make distributions by wire transfer (if it receives
appropriate instructions) to registered holders of Certificates with an initial
principal balance (or notional balance) of at least $1 million.
DISTRIBUTION REPORTS
On each distribution day, the Trustee will send a report to each person who is a
registered holder of a Certificate on the related record day. Beneficial owners
of Certificates may obtain copies of these reports free of charge from the
Trustee upon request to the address or telephone number given in the supplement.
The report will include information for each class and subclass on
o the amounts of interest and principal distributed on the Certificates in the
class, and the aggregate amounts of principal and interest for all classes,
o the amount of any losses allocated to the Certificates, by class,
o for accrual Certificates, the accrued interest that has been added to the
Certificate's principal balance,
o the principal balances of the Certificates in the class, and the aggregate
principal balances for all classes, both before and after the distribution,
o the aggregate payments received on the mortgage loans from the second day of
the preceding month through the first day of the current month, and the
aggregate principal balance of the mortgage loans after giving effect to the
payments,
o the number and aggregate principal balances of mortgage loans delinquent 30
days and 60 or more days,
o the book value of any real estate acquired by the Trust through foreclosure
or otherwise,
o the amount remaining under any form of credit support,
o CMSI's servicing compensation since the preceding report, and
o other customary information that CMSI believes Certificate holders need to
prepare their tax returns.
CMSI will provide Certificate holders that are federally insured savings and
loan associations, on request, reports and access to information and
documentation on the mortgage loans sufficient to permit the associations to
comply with applicable regulations of the Office of Thrift Supervision.
The Trustee or CMSI will file with the IRS and state and local taxing
authorities, and make available to Certificate holders, information as required
by federal or other tax law.
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<PAGE>
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE
LOSS AND DELINQUENCY CONSIDERATIONS
The following tables show the recent delinquency, foreclosure and loss
experience of CMSI and originators affiliated with CMSI (affiliated
originators). The loans represented in the tables include fixed and adjustable
interest rate loans (ARMs), including buydown loans, loans with stated
maturities of 10 to 30 years and other types of first mortgage loans. Potential
investors should realize that the loan portfolios on which these tables are
based may not be representative of the mortgage loans in the Trust described in
the supplement. There may be important differences in, for example, the types of
loans, their maturities and the geographic location of the mortgaged properties.
Also, prevailing national or local economic conditions or real estate values may
have been quite different at the times the loans were originated. Accordingly,
the future delinquency, foreclosure and loss experience on the mortgage loans
described in the supplement is likely to diverge, and may sharply diverge, from
the historical experience of the mortgage loans shown in the following tables.
DELINQUENCY AND FORECLOSURE EXPERIENCE ON AFFILIATED ORIGINATORS' SERVICED
PORTFOLIO
The following table shows delinquency and foreclosure experience on
one- to four-family conventional residential first mortgage loans (including
cooperative apartment loans) originated or acquired by affiliated originators
and serviced by Citicorp Mortgage, Inc., an affiliate of CMSI. The table also
includes mortgage loans serviced by Citicorp Mortgage that have been sold to
Fannie Mae or Freddie Mac, securitized by CMSI or sold as packages of whole
loans. The table does not include loans purchased strictly for servicing revenue
or loans originated by the Florida branches of Citibank, Federal Savings Bank
(Citi FSB), an affiliate of CMSI, prior to their acquisition by Citicorp in
January 1984. Since June 20, 1997, Citicorp Mortgage has transferred the
servicing of 803 delinquent loans and loans in foreclosure totaling $106.0
million.
<TABLE>
DELINQUENCY AND FORECLOSURE EXPERIENCE ON SERVICED PORTFOLIO
<CAPTION>
At December 31, 1997 At December 31, 1998 At December 31, 1999
----------------------- ----------------------- -----------------------
Principal Principal Principal
balance balance balance
Number ($ millions) Number ($ millions) Number ($ millions)
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Loans ............................................. 303,896 $ 35,955.8 310,628 $ 41,115.1 324,487 $ 47,642.4
Days past due
30-59 ........................................... 9,368 $ 906.9 7,466 $ 766.9 6,049 $ 607.7
60-89 ........................................... 1,947 $ 194.3 1,603 $ 160.1 1,251 $ 121.3
90 or more ...................................... 2,646 $ 286.1 2,074 $ 226.8 1,578 $ 167.2
Delinquent loans .................................. 13,961 $ 1,387.3 11,143 $ 1,153.8 8,878 $ 896.2
Ratio of delinquent loans to all loans ............ 4.59% 3.86% 3.59% 2.81% 2.74% 1.88%
Foreclosures begun ................................ 3,539 $ 406.3 2,726 $ 293.7 1,664 $ 175.9
Ratio of foreclosures begun to all loans .......... 1.16% 1.13% 0.88% 0.71% 0.51% 0.37%
</TABLE>
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE ON AFFILIATED ORIGINATORS'
SECURITIZED PORTFOLIO
The following two tables show the delinquency, foreclosure
and loss experience on one- to four-family conventional residential first
mortgage loans (including cooperative apartment loans) originated or acquired by
affiliated originators and serviced by Citicorp Mortgage that were later
securitized by CMSI (i.e., mortgage loans assembled into pools for which
ownership interests were sold in public offerings registered under the federal
securities laws).
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<TABLE>
DELINQUENCY AND FORECLOSURE EXPERIENCE ON SECURITIZED PORTFOLIO
<CAPTION>
At December 31, 1997 At December 31, 1998 At December 31, 1999
----------------------- ----------------------- ------------------------
Principal Principal Principal
balance balance balance
Number ($ millions) Number ($ millions) Number ($ millions)
------ ------------ ------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Loans ............................................. 37,050 $ 5,738.4 34,350 $ 7,056.0 32,617 $ 7,670.3
Days past due
30-59 ........................................... 1,073 $ 126.0 715 $ 93.9 488 $ 68.9
60-89 ........................................... 237 $ 26.7 152 $ 21.2 77 $ 9.7
90 or more ...................................... 313 $ 45.8 200 $ 28.7 128 $ 17.9
Delinquent loans .................................. 1,623 $ 198.5 1,067 $ 143.8 693 $ 96.5
Ratio of delinquent loans to all loans ............ 4.38% 3.46% 3.11% 2.04% 2.12% 1.26%
Foreclosures begun ................................ 653 $ 90.5 392 $ 53.7 204 $ 26.9
Ratio of foreclosures begun to all loans .......... 1.76% 1.58% 1.14% 0.76% 0.63% 0.35%
<CAPTION>
LOSS EXPERIENCE ON SECURITIZED PORTFOLIO
Cumulative net losses as
Aggregate principal percentage of aggregate
Cumulative net losses balance of securities principal balance of
($ millions)(1) ($ millions)(2) securities
--------------------- --------------------- ------------------------
<S> <C> <C> <C>
At December 31, 1997 .............................. $469.8 $27,214.6 1.73%
At December 31, 1998 .............................. $501.2 $31,040.7 1.61%
At December 31, 1999 .............................. $516.3 $33,216.8 1.55%
</TABLE>
- ----------
(1) Calculated without giving effect to any credit enhancement.
(2) Issued securities that have had at least one distribution day.
DELINQUENCY, FORECLOSURE AND LOSS EXPERIENCE OF THIRD-PARTY ORIGINATORS
The supplement describes the delinquency, foreclosure and loss experience of any
third-party originator who has originated more than 10% (by principal balance on
the cut-off date) of the mortgage loans in the Trust.
THE MORTGAGE LOANS
Each mortgage loan will generally
o have a principal balance of less than $2.5 million at the cut-off date and
an original maturity of 10 to 30 years, and
o have monthly payments due on the first day of each month.
The mortgage loan pool may contain cooperative apartment loans. The
"homeowner" of a cooperative apartment owns shares issued by the private
non-profit housing corporation that owns the apartment building and has a
proprietary lease or occupancy agreement that gives the homeowner the exclusive
right to occupy a designated apartment in the building. In a cooperative
apartment loan, the homeowner's shares and lease or occupancy agreement are the
collateral for the loan.
Each mortgage loan will be selected by CMSI from mortgage loans originated
or acquired by originators in the ordinary course of their businesses. The
originators will often be affiliates of CMSI. A portion of the interest
component of a mortgage loan may be retained by the originator and not
transferred to the Trust.
The interest rate, the principal balance, the maturity date, the
homeowner's identity, the principal amortization schedule or other terms of a
mortgage loan may have been modified before the Trust bought the mortgage loan.
If a mortgage
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<PAGE>
loan has been so modified, the terms "original," "originated" or "origination"
when applied to the mortgage loan mean
o if only the interest rate has been changed (and, as a result, the monthly
payment), the original date of the extension of credit under the mortgage
loan, but with the modified interest rate and monthly payment, and
o for other changes, the mortgage loan as modified at the effective date of
the modification.
WARRANTIES BY CMSI
CMSI will warrant to the Trustee that on the closing date
o the mortgage loans conform in all material respects with their descriptions
in this prospectus and the schedule of mortgage loans CMSI delivered to the
Trustee (including maximum loan-to-value ratios and primary mortgage
insurance coverage, as described below),
o at the cut-off date, no mortgage loan was 30 days or more past due or had
been 30 days or more past due more than once in the preceding 12 months,
o there are no delinquent tax or assessment liens against the mortgaged
properties,
o each mortgaged property is free of material damage and in good repair,
o each mortgage loan (other than a cooperative apartment loan) had at its
origination a lender's title and insurance policy or binder (or other
customary assurance of title), which remains in force,
o any mechanics' lien or claim for work, labor or material on a mortgaged
property is subordinate to the mortgage (except for liens or claims covered
by title insurance),
o CMSI had good title to each mortgage loan immediately before its transfer
to the Trust, and has taken all necessary steps to confer good title on the
Trustee,
o each mortgage is a valid first lien on the mortgaged property, subject only
to (1) liens for current real property taxes and assessments, (2)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the recording of the mortgage that are
generally acceptable to mortgage lending institutions or specifically
reflected in the appraisal of the mortgaged property at origination and (3)
other matters to which similar properties are commonly subject that do not
materially interfere with the benefits of the mortgage, and
o each mortgage loan complied at origination in all material respects with
applicable state and federal laws, including usury, equal credit
opportunity and disclosure laws.
ADJUSTABLE RATE MORTGAGES, BUYDOWN LOANS AND AGENCY CERTIFICATES
The mortgage loans in a Trust will, on the closing date, generally consist
entirely of fixed rate mortgage loans or entirely of ARMs. Most Trusts sponsored
by CMSI in the past few years have consisted of fixed rate loans. Accordingly,
most of the description of the mortgage loans in this core prospectus will
assume that the mortgage loans are fixed rate loans held directly by the Trust
and that they are not "buy-down loans." An appendix to this prospectus describes
the characteristics of arms, buy-down loans and agency certificates. If a Series
does not contain a material amount of ARMs, buy-down loans or agency
certificates, the appendix may be omitted.
FIXED RATE MORTGAGE LOANS
A fixed rate mortgage loan may be
o a fully amortizing mortgage loan with level monthly payments of principal
and interest,
o a balloon mortgage loan that amortizes over a fixed number of years but has
a shorter term to maturity, so that the entire remaining principal balance
of the loan is due at maturity, or
o a fully amortizing graduated-payment mortgage loan that has lower periodic
payments, or payments of interest only, during the early years of the loan,
followed by payments of principal and interest that increase periodically
until the loan is repaid or for a specified number of years, after which
level periodic payments begin.
No fixed rate mortgage loan will have "negative amortization"--i.e.,
scheduled payments will not be less than accrued interest at the mortgage loan
interest rate.
A fixed rate mortgage loan may have originally been an ARM that was
converted, at the homeowner's option, into a fixed rate fully amortizing
mortgage loan providing for level monthly payments over a term not exceeding its
remaining term to maturity. Such a mortgage loan was subject at origination to
the same underwriting guidelines as a comparable ARM and is not underwritten
again at conversion. The fixed interest rate for the converted mortgage loan may
be higher than the interest rate at origination or the adjustable interest rate
that would otherwise be payable
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<PAGE>
currently, which could reduce the homeowner's capacity to repay the loan.
THE MORTGAGED PROPERTIES
The mortgaged properties will usually be detached homes, attached homes (i.e.,
one- to four-family units with a common wall), units located in condominiums or
planned unit developments, or interests in cooperative apartments. The mortgaged
properties will be located in the 50 United States, the District of Columbia or
Puerto Rico.
The mortgaged properties may include investment properties and vacation and
second homes. However, CMSI anticipates that most mortgaged properties will be
the homeowner's primary residence. CMSI will determine whether a mortgaged
property is a homeowner's primary residence based solely on either
o the homeowner's representation at origination that he or she will use the
property for at least six months every year or that the homeowner intends
to use the property as a primary residence, or
o the mortgaged property being the homeowner's mailing address in the
originator's records.
The determination of whether a mortgaged property is a primary residence is
not reexamined if the mortgage loan is assumed by a new homeowner after
origination.
LOAN-TO-VALUE RATIOS
Each mortgage loan will usually have an original principal balance that is not
more than 95% of the value of the mortgaged property (a 95% loan-to-value
ratio). For these purposes, "value" is the lesser of the sale price of the
property or the appraised value at origination, and the "principal balance"
includes any part of an origination fee that is financed. The financed portion
of the origination fee will always be less than 5% of the loan amount. (The
loan-to-value ratio of mortgage loans originated or acquired by the California
and Florida branches of Citi fsb may be reduced by a new appraisal delivered
after origination.)
The affiliated originators offer a program under which homeowners may
reduce or eliminate their down payment by pledging additional collateral,
usually in the form of marketable securities. Under this program, a mortgage
loan could exceed 95% (but not 100%) of the value of the mortgaged property.
Loan-to-value ratios for these mortgage loans are based on the value of both the
mortgaged property and the loanable value of the required additional collateral.
In calculating the loanable value of the additional collateral, the originator
applies a discount (or "haircut") to the market prices of the securities. The
loanable value of the additional collateral will rise and fall with the market
prices of the securities.
The required loanable value of the additional collateral is set at
origination as a percentage of the original principal balance of the mortgage
loan. This amount is often referred to as the gap amount. If the loanable value
of the securities pledged as additional collateral falls below the gap amount,
the homeowner must pledge more collateral.
Example: a homeowner's mortgage loan of $200,000 is secured by a mortgaged
property valued at $200,000. The gap amount of the loan is set at 25% of the
loan, or $50,000. The mortgage loan is also secured by additional collateral
(securities) with a loanable value of at least $50,000, which is less than the
securities' market price. The loan-to-value ratio of the mortgage loan is
therefore $150,000 (loan amount minus gap amount) over $200,000 (value of
mortgaged property), or 75%. If a fall in the market price of the securities
causes the loanable value of the additional collateral to fall to $45,000 while
the gap amount remains at $50,000, the homeowner must pledge more securities to
bring the loanable value of the additional collateral back to $50,000.
The homeowner may have the additional collateral released from the pledge
once the principal balance of the mortgage loan has been reduced by the gap
amount.
PRIMARY MORTGAGE INSURANCE
Affiliated mortgage loans that have original loan-to-value ratios greater than
80% are currently required to be covered by primary mortgage insurance. This
insurance will remain in effect until the loan-to-value ratio is reduced to 80%
through principal payments by the homeowner. Primary mortgage insurance will
cover losses from a homeowner's default of from 12% to 30% of the principal
balance of the mortgage loan.
Prior to 1986, the affiliated originators did not generally make one- to
four-family mortgage loans with loan-to-value ratios above 80% without primary
mortgage insurance coverage. From 1986 through January 1993, affiliated
originators originated mortgage loans with loan-to-value ratios from 80% to 90%
without obtaining primary mort-
14
<PAGE>
gage insurance. Since February 1993, it has been the policy of each affiliated
originator not to make one- to four-family mortgage loans with loan-to-value
ratios above 80% without obtaining primary mortgage insurance.
Affiliated originators offer corporate relocation programs to employees of
approved corporations. These programs permit single family real estate loans,
for the purchase of the borrower's primary residence only, with loan-to-value
ratios above 80% without requiring primary mortgage insurance. For these
relocation loans, however, the corporate employer generally guarantees the
excess of the mortgage loan over the 80% loan-to-value amount. Some other
corporate relocation programs permit the corporate employer to provide
subordinate financing at the origination of the first priority mortgage loan by
an affiliated originator. Generally, the borrower must provide at least 5% of
the purchase price of the property unless the loan-to-value ratio is 80% or
less.
In nine states, homeowners can cancel their primary mortgage insurance (and
thus save the cost of premiums for the insurance) once the loan-to-value ratio
of their mortgage falls below a specified percentage. The states are California,
Connecticut, Illinois, Maryland, Massachusetts, Minnesota, New York, Texas and
Washington.
In addition, recent federal laws permit a homeowner to cancel his or her
primary mortgage insurance if he or she has a good payment history for the
mortgage, the value of the mortgaged property has not declined and the
outstanding balance of the mortgage loan falls below a specified level,
generally 80% of the original property value. These federal laws also provide
for automatic cancellation of primary mortgage insurance once the outstanding
balance of the mortgage loan falls below a specified level, generally 78% of the
original property value.
Cancellation can occur under state or federal law while there is still an
amount of coverage under the insurance policy.
Cancellation of a primary mortgage insurance policy will eliminate a source
of recourse against losses resulting from a borrower default.
SECOND MORTGAGES
A mortgaged property may be encumbered by a subordinated (or second) mortgage
loan. Subordinated loans are not included in loan-to-value calculations.
The subordinated mortgage loan may have been originated by an affiliated
originator, either at the origination of the mortgage loan or later. It is the
policy of the affiliated originators to provide a subordinated loan in
connection with the origination of a first priority mortgage loan only if the
combined amount of the loans would result in a loan-to-value ratio of 90% or
less. Primary mortgage insurance is generally not required for these second
loans.
DEFECTIVE MORTGAGE LOANS
REPURCHASE OR SUBSTITUTION
The Trustee will review the mortgage loan documents (see "Mortgage documents"
below) within 90 days of receipt. If the Trustee discovers that a document
evidencing a mortgage loan or necessary to the effectiveness of the mortgage is
missing or materially defective, CMSI must, within 180 days (90 days for defects
that could affect the Trust's REMIC status), either cure the defect or
repurchase the mortgage loan.
If CMSI or the Trustee discovers at any time that a warranty that CMSI gave
to the Trustee on a mortgage loan is false to an extent that materially and
adversely affects the Certificates, then CMSI will have 60 days to either cure
the false warranty or repurchase the mortgage loan.
The repurchase price for a mortgage loan will be
o the sum of the loan's principal balance and accrued unpaid interest (after
deduction of servicing fees) to the first day of the month following
repurchase, minus
o any unreimbursed payments under guaranties or other credit support or
voluntary advances on the loan.
Repurchase of a mortgage loan will not diminish the amount available under
any credit support.
During the first two years following the closing date, CMSI may, within the
periods required for a repurchase, substitute another mortgage loan instead of
repurchasing a mortgage loan. A substituted mortgage loan must
o be current in payments,
o have a principal balance that is not less than the aggregate principal
balance of the loans for which it is substituted (except that CMSI may make
up any difference in the principal balances with a cash payment to be
distributed to Certificate holders),
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<PAGE>
o have an interest rate that is not less than the highest interest rate of
the loans for which it is substituted,
o have an original term to maturity equal to that of the loans for which it
is substituted,
o have a maturity date that is no later than, and not more than one year
earlier than, any of the loans for which it is substituted, and
o be suitable for a REMIC.
CMSI will indemnify the Trust for any losses not reimbursed by the
repurchase or substitution. If CMSI does not cure a defect in a mortgage loan,
the Trustee's and the Certificate holders' only remedy is to require CMSI to
repurchase the mortgage loan or substitute another satisfactory mortgage loan.
INSURANCE AND OTHER CREDIT SUPPORT
HOMEOWNERS' POLICIES
Most mortgaged properties will be covered by homeowners' insurance policies
that, 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 that, in effect, requires the buildings on the mortgaged
property to be insured for at least a specified percentage (generally 80% to
90%) of their full replacement value. If coverage is less than the specified
percentage, the insurer's liability for a partial loss will not exceed the
proportion of the loss that the amount of insurance bears to the specified
percentage of the full replacement cost of the buildings.
Example: If a residence is only insured for 60% of its value, and sustains
$10,000 of damage covered by the homeowners' policy, the insurer will only pay
$6,000--i.e., 60% of the loss.
Since the amount of hazard insurance required to be maintained on the
buildings may decline, and since residential properties generally have
historically appreciated in value over time, coinsurance may cause hazard
insurance proceeds to be less than needed to restore fully the damaged property.
Part or all of this shortfall may be covered, however, by any credit support.
HAZARD INSURANCE
Mortgaged properties will generally be covered by hazard insurance against fire
and certain other hazards that may not be fully covered by home-owners'
policies.
The amount of hazard insurance coverage will depend on the relationship
between the principal balance of the mortgage loan and the maximum insurable
value of the buildings on the mortgaged property. (Maximum insurable value is
established by the insurer.)
o If the principal balance is greater than the maximum insurable value,
coverage will be limited to the maximum insurable value.
o If the principal balance is between 80% and 100% of maximum insurable
value, coverage will equal the principal balance.
o If the principal balance is less than 80% of maximum insurable value,
coverage will be 80% of the maximum insurable value.
CMSI may maintain a blanket policy insuring all the mortgage loans against
hazard losses rather than maintaining separate policies on each mortgaged
property. If the blanket policy contains a deductible clause, CMSI will pay the
Trust the deductible for each hazard loss.
The standard form of fire and extended coverage policy generally covers
damage caused by fire, lightning, explosion, smoke, windstorm and hail, riot,
strike and civil commotion. The policy typically does not cover damage from 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 some
cases, vandalism. However, flood insurance will be maintained for mortgaged
properties located in federally designated special flood hazard zones.
The hazard insurance policies for the mortgaged properties will be
underwritten by different insurers and therefore will not contain identical
terms and conditions. The preceding paragraph therefore merely indicates certain
kinds of insured and uninsured risks and is not intended to be all-inclusive.
While hazard insurance, and flood insurance if applicable, will be required
for cooperative apartment buildings, no hazard or flood insurance will be
required for individual cooperative apartments.
If a homeowner defaults on his or her payment obligations on a mortgage
loan, the Certificate holders will bear all risk of loss resulting from hazard
losses not covered by hazard insurance or other credit support.
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FIDELITY BOND AND ERRORS AND OMISSIONS POLICY
CMSI will maintain a fidelity bond and an errors and omissions policy or their
equivalent. These cover losses from an officer's or employee's misappropriation
of funds or errors and omissions in failing to maintain insurance, subject to
limitations as to amount of coverage, deductible amounts, conditions, exclusions
and exceptions. The policies will conform to Fannie Mae and Freddie Mac
requirements.
OTHER INSURANCE
The Trust may obtain the following additional insurance coverage:
o Primary mortgage insurance may be supplemented by pool insurance. Pool
insurance covers certain losses from homeowner defaults that are not
covered by primary mortgage insurance.
o Since hazard insurance policies do not cover all possible causes of
physical damage to mortgage properties, the Trust may obtain special hazard
insurance against some additional hazards.
o Some losses from homeowner bankruptcies may be covered under a mortgagor
bankruptcy bond.
The supplement describes any additional insurance maintained for the Series.
OTHER CREDIT SUPPORT
Additional credit support for a Series may be provided by a guaranty, letter of
credit, financial guaranty insurance policy or one or more reserve funds, which
may be issued or provided by an affiliate of CMSI or by a third party. The
supplement describes any additional credit support.
MORTGAGE DOCUMENTS
ASSIGNMENTS TO TRUSTEE
On the closing date, CMSI will assign the mortgage loans to the Trust, together
with any principal and interest on the mortgage loans that belong to the Trust.
In addition, CMSI will deliver to the Trust for each mortgage loan, other
than a cooperative apartment or leasehold loan,
o the endorsed mortgage note,
o any assumption, modification, buydown or conversion to fixed interest rate
agreement,
o any certificate of primary mortgage insurance, and
o the original recorded mortgage (or, temporarily, copies if recorded
documents cannot be immediately delivered due to recording delays).
For a cooperative apartment loan, CMSI will deliver to the Trust
o the endorsed promissory note evidencing the loan,
o the original security agreement,
o the proprietary lease or occupancy agreement,
o the recognition agreement,
o a signed financing statement (if required at origination), and
o the stock certificate with signed stock powers.
RECORDING OF ASSIGNMENTS
CMSI will deliver a mortgage assignment in recordable form or a blanket
assignment, which will not be in recordable form, together with a power of
attorney empowering the Trustee to act for the originator in preparing,
executing, delivering and recording in the Trust's name any instruments for
assigning or recording the mortgages.
CMSI does not expect to record assignments of the mortgage loans to the
Trust after the issuance of the Certificates. Recording is not necessary to make
the assignment to the Trust effective between the Trustee and the originator or
CMSI. However, so long as the Trust is not the mortgagee of record, the Trustee
might not be able to enforce the mortgage directly, but may have to act
indirectly through the record holder of the mortgage (who will be the originator
or an affiliate of the originator). In addition, if any of the originators or
CMSI were to sell, assign, satisfy or discharge a mortgage loan before the
recording of its assignment to the Trust, the other party to the sale,
assignment, satisfaction or discharge might have rights superior to the Trust's.
If the originator or CMSI acted without authority, it would be liable to the
Trust or the Certificate holders. If the originator or CMSI became bankrupt
before the assignment to the Trust was recorded, creditors of the originator or
CMSI might have rights in the mortgage loan superior to the Trust's.
CMSI AND ITS AFFILIATES
CITICORP
Citicorp, a Delaware corporation, is a holding company whose principal
subsidiary is Citibank, N.A. CMSI, Citicorp Mortgage and Citi FSB are all wholly
owned subsidiaries of Citicorp. Citicorp is itself a wholly owned subsidiary of
Citigroup Inc.,
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a publicly owned Delaware corporation. Citicorp's principal offices are at 399
Park Avenue, New York, New York 10043, telephone (212) 559-1000.
Through its subsidiaries and affiliates, 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.
CITICORP MORTGAGE SECURITIES, INC.
CMSI was incorporated in Delaware in 1987. It is not expected that CMSI will
have any business operations other than offering mortgage-backed securities and
related activities. CMSI's principal offices are at 12855 North Outer Forty
Drive, St. Louis, Missouri 63141, telephone (314) 851-1467.
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 domestic deposits are insured by the Federal Deposit Insurance
Corporation (the FDIC). Citibank has been an active one- to four-family
residential real estate mortgage lender since 1960. Citibank has also been an
active cooperative apartment lender. Except for its issuance of mortgage
pass-through certificates, Citibank has not engaged in any significant servicing
activities on behalf of unaffiliated persons for conventional residential
mortgage or cooperative apartment loans. Citibank's residential mortgage lending
is conducted in New York City and four surrounding counties (Westchester,
Nassau, Suffolk and Rockland).
Citibank's principal offices are at 399 Park Avenue, New York, New York
10043, telephone (212) 559-1000.
CITICORP MORTGAGE, INC.
Citicorp Mortgage was incorporated in Delaware in 1979 and began making mortgage
loans in 1980. Citicorp Mortgage derives income primarily from interest on
mortgages that it owns, secondary mortgage market sales, mortgage loan servicing
fees and mortgage origination fees and charges.
Citicorp Mortgage has been approved as a mortgagee and seller/servicer by
the Federal Housing Administration, the Veterans Administration, Fannie Mae,
Ginnie Mae and Freddie Mac. Citicorp Mortgage's origination operations are
subject to operational guidelines and regulations of, as well as audits by, some
of these agencies.
Citicorp Mortgage's principal offices are at 750 Washington Blvd.,
Stamford, Connecticut 06091, telephone (800) 285-3000.
CITIBANK, FEDERAL SAVINGS BANK
Citi FSB is a federal savings bank based in San Francisco, California. It became
a wholly owned subsidiary of Citicorp in 1982. From 1990 to 1993, Citicorp
Savings of Illinois, Citicorp Savings of Washington, D.C. and Citicorp Savings
of Florida, all wholly owned subsidiaries of Citicorp, were merged into Citi
FSB. In 1993, Citi FSB acquired the branches of Citibank (Maryland), N.A., and
in 1994 it acquired the branches of Citibank (Florida), N.A.
Citi FSB has been an active one-to four-family residential mortgage lender
since 1983. Citi FSB's deposits are insured by the FDIC.
Citibank Service Corporation, an affiliate of Citi FSB, acts as trustee for
substantially all deeds of trust for mortgaged property located in California
that secure mortgage loans originated or acquired by Citi FSB. A trustee under a
California deed of trust forecloses on the mortgaged property upon notice from
the beneficiary of a delinquency and executes full and partial reconveyances of
the mortgaged property at the beneficiary's direction.
Citi fsb's principal offices are at 1 Sansome Street, San Francisco,
California 94104, telephone (415) 627-6000.
THIRD-PARTY ORIGINATORS
The supplement identifies any originators of third party loans with an aggregate
principal balance greater than 10% of the aggregate principal balance of all the
mortgage loans in the Trust. Each third party originator will generally 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.
Third party originators must be experienced in originating mortgage loans
of the types in the pool in accordance with accepted practices and prudent
guidelines.
MORTGAGE LOAN UNDERWRITING
Mortgage loan underwriting assesses a prospective borrower's ability to repay,
and the adequacy of the property as collateral for, a requested loan.
PROCEDURES OF AFFILIATED ORIGINATORS
Each affiliated originator's real estate lending process for one- to four-family
residential mortgage
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loans follows a standard procedure, established to comply with federal and state
laws and regulations. For some residential mortgage loans, the affiliated
originators have contracted with or delegated the underwriting process to
unaffiliated third parties.
Since January 1995, each affiliated originator has used a credit scoring
system as part of its underwriting process. The credit scoring system assesses a
prospective borrower's ability to repay a mortgage loan based upon predetermined
mortgage loan characteristics and credit risk factors. Prospective borrowers
remain subject to verification of employment, income, assets and credit history,
as described below. All credit scored loans are rated "strong," "satisfactory"
or "inconclusive." Mortgage loans rated strong or satisfactory that do not
exceed specified risk limits do not undergo the full loan underwriting process
described below. This "streamlined" underwriting process is restricted to loans
secured by single family dwellings, other than investor properties, with a
principal amount not exceeding $700,000. These loans are subject to verification
of property value as described in "Appraisals" below. Additional underwriting
approvals are required for relocation loans with credit scores or loan-to-value
ratios that do not meet the affiliated originator's normal underwriting
policies. All other mortgage loans are underwritten in accordance with the
affiliated originators' normal underwriting policies.
Initially, a prospective borrower must fill out an application that gives
information about the prospective borrower, the property to be financed and the
type of loan desired. The prospective borrower must also provide
o a current balance sheet and a statement of income and expenses,
o proof of income, such as a paycheck stub or W-2 form (except for certain
self-employed prospective borrowers),
o proof of liquid assets (required since April 1991),
o telephone verification of employment (required since April 1991), which may
be verified by a third party national employment verification service, and
o a credit report that summarizes the prospective borrower's credit history
with local merchants and lenders and any record of bankruptcy.
Since July 1993, facsimile copies of some verification documents (such as
bank statements and verification of employment) have been accepted in lieu of
originals.
From February 1991 until May 1997, affiliated originators would obtain at
least two credit reports (which could be in the form of a merged credit bureau
report) on a prospective borrower. Since May 1997, affiliated originators have
obtained the single most comprehensive readily available credit bureau report on
the prospective borrower.
Self-employed prospective borrowers must submit their federal income tax
returns for the most recent two years and a separate statement of income and
expenses.
If a proposed mortgage loan's loan-to-value ratio does not exceed 65%
(before December 1992, 80%), self-employed prospective borrowers may be excused
from providing financial statements, federal income tax returns or proof of
income.
If a proposed mortgage loan does not exceed $700,000 and certain credit
score and other criteria are satisfied,
o prospective borrowers that are employees of Citigroup and its affiliates
are excused from providing proof of income and, if the loan is obtained to
refinance an existing mortgage, proof of liquid assets, and
o for some relocation loans, prospective borrowers are excused from providing
proof of income.
During 1990 and 1991 the affiliated originators implemented telephone
verification of employment. Certain high net worth prospective borrowers with
ongoing banking relationships with Citibank's private banking group may be
exempted from employment verification.
LENDING GUIDELINES
Once the employment verification and credit reports are received, the affiliated
originator decides
o whether the prospective borrower has enough monthly income to meet monthly
obligations on the proposed loan and related expenses as well as the
prospective borrower's other financial obligations and monthly living
expenses, and
o since April 1991, whether the prospective borrower has enough liquid assets
to acquire the mortgaged property and make the initial monthly mortgage
payments, taking into account, among other things, proceeds from the sale
of a prior residence. This decision may be made from evidence
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such as a contract for sale of a prior residence and bank statements supplied by
the prospective borrower.
Each affiliated originator has established as normal 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% for ARMs) of the borrower's gross income, or that all
monthly payments, including those mentioned above and other fixed obligations,
such as car payments (together, the debt burden), should not exceed 38% of gross
income. However, for higher loan-to-value loans, these percentages are reduced
to 28% and 36%. Since May 1997, loans that meet the affiliated originator's
minimum credit score and delinquency requirements may have debt burden ratios up
to 45% (40% for higher loan-to-value loans) and, for some relocation loans, 50%.
Where two individuals co-sign the mortgage note or documents, the income and
debt of both are included in the computation.
For mortgage loans originated by the California branches of Citi fsb before
June 1991, the actual mortgage payments may be higher due to a higher mortgage
rate at the time the loan documents were prepared, but the mortgage rate
generally does not exceed the anticipated rate used in the analysis by more than
one percent.
Often, other credit considerations may cause a loan underwriter to depart
from the guidelines, and a loan underwriter may require additional information
or verification to compensate for the departure.
LEASEHOLD LOANS
Leasehold loans are approved in accordance with the affiliated originator's
standard underwriting criteria.
An ALTA leasehold title insurance policy is required that
o contains no exceptions for any adjustable features of the lease and
o assures that the mortgage is not subordinated to any lien or encumbrance
other than the land lease.
The term of the land lease must extend at least ten years beyond the
scheduled maturity of the mortgage loan and must give the originator the right
to receive notice of and to cure any default by the borrower. The leasehold must
be assignable or transferable if it is subjected to the mortgage lien.
(California branches of Citi fsb may require a consent to assignment of lease
and/or subordination agreement be obtained and recorded.) Payments due pursuant
to the land lease are taken into account in debt ratio calculations.
REFINANCINGS
Since May 1997, affiliated originators have not required income or asset
verification for their current homeowners seeking to refinance their mortgage
loans if the refinancing meets the originator's minimum seasoning, payment
history and credit score requirements. For other homeowners seeking to refinance
their mortgage loans, affiliated originators do not require asset verification
and allow a debt burden ratio of up to 45% for loans that meet the affiliated
originator's minimum seasoning, payment history and credit score requirements.
For arms, the calculation of debt burden is based on the initial mortgage rate,
even though the initial rate may be lower than the rate that would generally
apply under the terms of the ARM.
APPRAISALS
The affiliated originators require the value of the mortgaged property, together
with any other collateral, to support the principal balance of the mortgage
loan, with enough excess value to protect against minor declines in real estate
values.
Each affiliated originator requires an appraisal of each property to be
financed. Two appraisals are required in the normal underwriting process if the
loan amount is greater than $700,000. Each appraisal is conducted by an
independent fee appraiser. The appraiser 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 approved appraisal
software packages.
The independent appraisers do not receive any compensation dependent upon
either the amount of the loan or its consummation. In normal practice, the
affiliated originator's judgment of the appraisal determines the maximum amount
of the mortgage loan.
Where an affiliated mortgage loan is refinanced, a current appraisal of the
property may be omitted if the principal balance of the mortgage loan is only
increased by an amount that is used to pay off junior liens on the property plus
the home-
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owner's out-of-pocket costs for the refinancing. A current appraisal may also be
omitted for modification of the interest rate on an existing mortgage loan.
LIEN RECORDS; TITLE INSURANCE
Each affiliated originator obtains at origination a search of the recorded liens
on the property being financed. Title insurance, or an attorney's opinion of
title in jurisdictions where the practice is acceptable, is required for all
mortgage loans, except that for cooperative apartment loans, an affiliated
originator will not require title insurance or a title search of the cooperative
apartment building.
MORTGAGE LOANS PURCHASED FROM THIRD-PARTY ORIGINATORS
The affiliated originators purchase mortgage loans originated by third parties.
These mortgage loans, other than those acquired in a bulk purchase, are reviewed
for compliance with the affiliated originator's underwriting criteria, and the
affiliated originator may reject loans that fail to conform to its criteria. For
mortgage loans acquired in a bulk purchase of more than $15 million from a
financially sound mortgage loan originator, the affiliated originator will
review the selling originator's underwriting policies and procedures for
compliance with the affiliated originator's or Fannie Mae/Freddie Mac
underwriting standards and will credit score each loan. The affiliated
originator will also conduct a limited mortgage loan file review.
UNDERWRITING STANDARDS OF THIRD-PARTY ORIGINATORS
The underwriting policies and guidelines of third party originators may differ
from those of the affiliated originators. In purchasing third party loans,
Citicorp Mortgage will review a sample of the loans to determine whether they
generally conform to Citicorp Mortgage's underwriting standards. Citicorp
Mortgage will fully or partly credit score or re-underwrite the third party
loans to determine whether the original underwriting process adequately assessed
the borrower's ability to repay and the adequacy of the property as collateral,
based on Citicorp Mortgage's underwriting standards.
SERVICING
THE SERVICER; DELEGATION
CMSI will be responsible for administering and servicing the mortgage loans.
CMSI will act as servicer for affiliated mortgage loans and as master servicer
for third-party mortgage loans.
CMSI may delegate or subcontract servicing or master servicing duties to
affiliated or non-affiliated qualified corporations. CMSI will delegate its
servicing duties for affiliated mortgage loans to Citicorp Mortgage, Inc., a
CMSI affiliate. Citicorp Mortgage may further delegate its servicing duties. In
particular, Citicorp Mortgage may delegate its servicing duties on mortgage
loans that are seriously delinquent to an unaffiliated special servicer that
primarily services delinquent loans for third parties.
CMSI will delegate its master servicing duties for third-party mortgage
loans to an unaffiliated master servicer named in the supplement. The master
servicer will delegate the primary servicing duties on the third-party mortgage
loans to the third-party originators.
CMSI will in all cases remain ultimately responsible for servicing both the
affiliated and the third party mortgage loans. References to the servicer and
the master servicer in this prospectus will refer to CMSI, acting by itself or
through delegated or subcontracted subservicers or master servicers. References
to actions taken by CMSI after the issuance of the Certificates will refer to
CMSI acting in its capacity as servicer and/or master servicer, usually through
other persons to whom it has delegated servicing and/or master servicing duties.
RESIGNATION AND REMOVAL
CMSI may only resign as servicer/master servicer if
o it receives a legal opinion that remaining as servicer would be illegal or
o the Trustee and 2/3 of the registered holders of Certificates (by principal
balance) consent to the resignation.
A resignation will become effective when the Trustee or a successor
servicer assumes CMSI's servicing obligations.
The Trustee may remove CMSI as servicer/master servicer only if CMSI does
not, within 60 days after notice from the Trustee, remedy a failure to perform
its servicing duties.
The remainder of this "Servicing" section will describe servicing
procedures for affiliated mortgage loans.
COLLECTION PROCEDURES FOR AFFILIATED
MORTGAGE LOANS
CMSI will make reasonable efforts to collect all payments on affiliated mortgage
loans, following
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collection procedures it believes advisable. CMSI may
o waive any prepayment charge and
o arrange with a homeowner a schedule for eliminating delinquencies within
180 days, provided that the scheduling will not affect any primary mortgage
insurance coverage. Credit support payments will continue to be governed by
the original payment schedule on the mortgage loan, not the new schedule
for eliminating deficiencies.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
If a homeowner transfers a mortgaged property to a new homeowner, and the
mortgage loan includes a due-on-sale clause, CMSI will usually accelerate the
maturity of the mortgage loan. If CMSI reasonably believes it will not be able
to enforce the due-on-sale clause, and if any primary mortgage insurance
coverage will not be affected, CMSI will enter into an assumption agreement with
the new homeowner making him or her liable under the mortgage loan. The original
homeowner will also, if local law permits, remain secondarily liable under the
agreement (except for mortgage loans originated by Citi fsb). The mortgage rate
on the mortgage loan will not be decreased under the agreement. The interest
rate may be increased, however, under the terms of the mortgage loan. CMSI will
retain as additional servicing compensation any fees it receives for entering
into the assumption agreement.
REAL ESTATE TAXES AND ASSESSMENTS
CMSI will deposit all homeowner payments of taxes, assessments or comparable
items in a special servicing account. CMSI will use the servicing account only
to pay taxes, assessments and comparable items on the mortgaged properties, to
reimburse CMSI for any costs incurred in paying taxes and assessments or for
otherwise preserving or protecting the value of the mortgages, to refund to the
homeowner any overages, and to pay any required interest to homeowners on
balances in the servicing account.
PRIMARY MORTGAGE INSURANCE
CMSI will present claims and take reasonable steps to recover on defaulted
mortgage loans under any primary mortgage insurance policy.
CMSI will exercise its best reasonable efforts to maintain primary mortgage
insurance for as long as required. CMSI will pay premiums for primary mortgage
insurance on a timely basis if the homeowner does not make the payments, and
will be reimbursed by the Trust for such payments.
CMSI may replace primary mortgage insurance by substantially equivalent
insurance if
o each rating agency that initially rated the Series advises CMSI that the
replacement will not adversely affect the current rating of the Series, or
o the rating agencies rate the claims-paying ability of the substitute
primary mortgage insurance company no lower than the Series.
REALIZING ON DEFAULTED MORTGAGE LOANS
Regardless of whether recovery under primary mortgage insurance or other credit
support is available, CMSI will follow those normal practices and procedures it
believes advisable to realize on a defaulted mortgage loan. However, CMSI need
not spend its own money to foreclose on a loan or to restore a damaged property
unless it decides that the expenditure will increase the net proceeds of
liquidation, after reimbursement to CMSI for the expenditure.
Certificate holders will realize a loss to the extent that
o liquidation proceeds and payments under credit support for a mortgaged
property
are less than
o the principal balance and accrued interest on the mortgage loan plus CMSI's
unreimbursed expenses and advances.
If a mortgage loan goes into default, a provider of credit support may have
to purchase the liquidated loan. To avoid draws under credit support, CMSI may
pay the purchase price of the loan on behalf of the credit support provider. The
ultimate net recovery on the loan will be used to replenish the credit support
up to the amount of the unreimbursed payments under the credit support for the
loan, and any excess will be retained by the credit support provider, or by
CMSI. Although Certificate holders will have no right to the excess proceeds,
the reduction in a provider's obligations under credit support will have been
fully restored.
Credit support providers do not have to purchase a defaulted mortgage loan
or cover delinquencies if the remaining obligations under the credit support are
less than the purchase price of the mortgage loan.
If CMSI does not foreclose on a defaulted mortgage loan, CMSI may accept
less than the principal balance and accrued interest on the mortgage loan on a
sale or a retention by the homeowner of the
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mortgaged property. If CMSI does foreclose on a defaulted mortgage loan, CMSI
may sell the property, negotiate with the homeowner for a deed in lieu of
foreclosure or, if a deficiency judgment is available, foreclose on the property
and pursue a deficiency against the homeowner. CMSI does not have to pursue a
deficiency judgment on a mortgage loan, even if legally permitted.
FEES
The Trust will pay CMSI a servicing fee that is generally a fixed annual
percentage of the principal balance of each mortgage loan. Alternatively, the
servicing fee may be based on the excess of the mortgage interest rate over a
specified rate. In addition, CMSI will keep all prepayment and late payment
charges, assumption fees and similar charges as additional servicing
compensation. In CMSI's experience, this additional servicing compensation has
been negligible.
CMSI will pay
o the subservicer's fees,
o the Trustee's and independent accountants fees and expenses,
o expenses for distributing reports to Certificate holders, and
o fees and expenses for realizing on defaulted mortgage loans.
CMSI will be reimbursed for certain expenses in liquidating a defaulted
mortgage loan (including expenditures for the preservation, protection or
restoration of the mortgaged property, as well as legal fees, appraisal costs,
etc.) out of payments by the homeowner, credit support or from foreclosure
proceedings before those payments are distributed to Certificate holders. CMSI
may retain this reimbursement even if the remaining funds are inadequate to
distribute to Certificate holders the full principal balance and accrued
interest on the mortgage loan.
CMSI'S LIABILITY
CMSI, as servicer and/or master servicer, will not be liable to Certificate
holders except for its willful misfeasance, bad faith or gross negligence in the
performance of its servicing duties.
DEFAULT BY CMSI
The following are events of default:
o CMSI, if it is the paying agent, fails to distribute to the registered
Certificate holders the full amount of a required distribution or, if it is
not the paying agent, fails to pay over to the paying agent for
distribution to the registered Certificate holders the full amount of a
required distribution, and does not remedy its failure (1) within 10
business days of receiving notice of the failure if the failure was due to
an error in calculating the required payment or distribution or (2) within
three business days of receiving notice of the failure if the failure was
due to any other cause.
o CMSI fails to (1) repurchase a mortgage loan as required or (2) observe or
perform any other obligation that materially affects the rights of
Certificate holders, and does not remedy the failure for 60 days after
either the Trustee notifies CMSI, or the registered holders of 2/3 of the
principal balance of the Certificates notify CMSI and the Trustee, of the
failure.
o Certain events indicate CMSI's insolvency, reorganization or inability to
pay its obligations.
ACTIONS ON EVENT OF DEFAULT
As long as an event of default remains unremedied, the Trustee or the registered
holders of 2/3 of the principal balance of the Certificates may have the Trustee
take over CMSI's responsibilities, duties and liabilities under similar
compensation arrangements. CMSI will be paid for its prior services
notwithstanding the termination of its activities as servicer and/or master
servicer. Termination of CMSI as servicer and/or master servicer will not affect
the obligations of any credit support provider.
If the Trustee is unwilling or unable to act as servicer or master
servicer, it may appoint, or ask a court to appoint, a housing and home finance
institution with a net worth of at least $5 million to be a successor servicer
or master servicer for a servicing compensation no greater than CMSI's servicing
compensation.
THE TRUSTEE
The Trustee is named in the supplement. The Trustee may appoint agents
(including CMSI and its affiliates) to perform any of its responsibilities, but
the Trustee will continue to be responsible for its duties and obligations.
To meet legal requirements of certain local jurisdictions, CMSI and the
Trustee may jointly appoint co-trustees or separate trustees for some or all of
the mortgage loans. Each separate trustee or co-trustee will have all of the
Trustee's rights and obligations, which they will exercise solely at the
Trustee's direction.
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The Trustee may have normal banking relationships with CMSI or any
originator, or any of their affiliates.
The Trustee may resign at any time. The Trustee may be removed by the
registered holders of 50% of the principal balance of the Certificates and 50%
of the residual Certificates. The Trustee may also be removed by CMSI if
o the Trustee ceases to be eligible to serve as Trustee under the pooling
agreement,
o the Trustee is insolvent,
o the Trustee breaches a duty that materially and adversely affects the
Certificate holders, or
o through the Trustee's performance or non-performance of certain actions, or
because of a downgrade of the Trustee's credit rating, the rating assigned
to the Certificates would be lowered.
If the Trustee resigns or is removed, the resignation or removal will not
be effective until CMSI appoints a successor Trustee.
THE TRUSTEE'S DUTIES; LIMITATION OF LIABILITY
If no event of default has occurred, the Trustee need only perform those duties
specifically required of it under the pooling agreement. However, the Trustee
must examine the various certificates, reports or other instruments required to
be furnished to it to determine if they conform to the requirements of the
pooling agreement.
The Trustee is not responsible for CMSI's deposit to or withdrawal from the
Trust of any funds, the validity or sufficiency of the pooling agreement, the
Certificates or any mortgage loan or related document, and is not accountable
for the use or application by CMSI of funds paid to it on the mortgage loans.
The Trustee will not be liable for any losses incurred as a result of the
Trust's failure to qualify as a REMIC, termination of its REMIC status or any
"prohibited transaction" for a REMIC, unless the losses were caused by the
Trustee's negligence, bad faith or failure to perform its duties.
THE POOLING AGREEMENT
The Certificates of each Series are governed by a separate pooling and servicing
agreement (the pooling agreement) between CMSI and the Trustee, which provides
for the transfer of the mortgage loans to the Trust, the issuance of the
Certificates, repurchase or substitution of mortgage loans by CMSI, the
collection of payments on the mortgage loans and other servicing activities, the
distributions to the Certificate holders, the relative rights of classes of
Certificates to distributions, and otherwise sets forth the specific rights and
obligations of CMSI and the Trustee.
The Certificates are complex instruments, and the pooling agreement is a
lengthy and complex document. This prospectus only discusses those aspects of
the Certificates and the pooling agreement that CMSI believes are likely to be
material to Certificate purchasers. You should read the pooling agreement for
provisions that may be important to you. The Trustee will send a copy of the
pooling agreement (without exhibits) to you on your written request.
The pooling agreement also contains the following provisions:
LEGAL ACTION BY CMSI
Neither CMSI nor Citicorp, if Citicorp has issued a guaranty, will have to
appear in, prosecute or defend any legal action that is not incidental to CMSI's
servicing responsibilities and that it believes may cause it expense or
liability. CMSI may, however, take any legal action it believes desirable to
enforce the pooling agreement or to protect its own rights or the rights of the
Trustee or the Certificate holders under the pooling agreement. The Trust will
pay, or reimburse CMSI or Citicorp for, the expenses of the action and any
resulting liability out of Trust assets.
LEGAL ACTION BY CERTIFICATE HOLDERS
A registered Certificate holder can not institute a legal proceeding to enforce
the pooling agreement unless
o the holder gives the Trustee written notice of default, and
o the registered holders of 2/3 of the principal balances of the Certificates
request the Trustee in writing to institute the proceeding and offer the
Trustee reasonable indemnity, and the Trustee for 60 days neglects or
refuses to institute proceedings.
However, the Trustee is not required to exercise its powers, investigate
matters arising, or institute, conduct or defend a litigation under the pooling
agreement at a registered Certificate holder's request unless the holder offers
the Trustee reasonable security or indemnity against expenses and liabilities.
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LIABILITY OF CMSI AND CITICORP;
INDEMNIFICATION
Neither CMSI nor Citicorp, if Citicorp has issued a guaranty, nor any of their
directors, officers, employees or agents, will be liable to the Trust or the
Certificate holders for taking or not taking any action, or for their errors in
judgment, except for liability caused by their willful misfeasance, bad faith or
gross negligence in the performance of their duties, or reckless disregard of
their obligations and duties, under the pooling agreement.
The Trust will indemnify CMSI and Citicorp, if Citicorp provides credit
support, and their directors, officers, employees or agents, out of Trust assets
against any loss, liability or expense they incur in connection with any legal
proceedings, other than loss, liability or expense caused by their willful
misfeasance, bad faith or gross negligence in the performance of their duties,
or reckless disregard of their obligations, under the pooling agreement.
AMENDMENTS
CMSI, the issuers of credit support and the Trustee may together amend the
pooling agreement and any credit support without the registered Certificate
holders' consent
o to cure ambiguities,
o to resolve inconsistencies,
o to make other changes consistent with the pooling agreement or credit
support, including replacing the credit support in whole or part by other
forms of credit support described in this prospectus,
o to comply with federal tax law, including amendments to maintain the Trust
as a REMIC, or
o to establish a "qualified reserve fund" for a REMIC.
CMSI, the issuers of credit support and the Trustee may also amend the
pooling agreement and any credit support without registered Certificate holder
consent if CMSI delivers an opinion of counsel acceptable to the Trustee that
the amendment will not materially adversely affect the Certificate holders.
CMSI and the Trustee may also amend the pooling agreement and any form of
credit support in any respect with the consent of the registered holders of 2/3
of the principal balances of the Certificates affected by the amendment, except
that
o the amendment may not (1) decrease or delay the collections on mortgage
loans or the distributions to a registered Certificate holder without the
holder's consent or (2) reduce the percentage of principal balances of
Certificates whose registered holders must consent to an amendment without
the consent of the registered holders of all Certificates of each affected
class, and
o if the amendment affects any class of Certificates differently in any
material respect than the other classes, the registered holders of X\c of
the principal balances of the Certificates in the differently affected
class must consent to the amendment.
For purposes of granting or withholding consent, if a class of Certificates
is divided into subclasses, a subclass will not be considered a separate
"affected class." Accordingly, where consent of the registered holders of 2/3 of
the principal balances of the Certificates of a differently affected class is
required, this means the consent of the registered holders of the entire class,
without regard to subclasses. Thus, if a class of Certificates is divided into
subclasses, the consent of the registered holders of 2/3 of the principal
balances of the Certificates of a single subclass will not be sufficient in
itself for any consent, nor will the withholding of consent by the registered
holders of more than 2/3 of the principal balance of the Certificates of the
subclass be sufficient in itself to deny any consent.
COMPLIANCE REPORTS
Beginning three months after the closing date, a firm of independent public
accountants selected by CMSI will provide a compliance report to the Trustee by
March 31 of each year for affiliated mortgage loans and by September 30 of each
year for third-party loans on the servicing of the affiliated or third-party
mortgage loans.
Beginning three months after the closing date, an officer of CMSI will
deliver a certificate to the Trustee and to any registered holder of more than
50% of the Certificates by March 31 of each year for affiliated mortgage loans
and by September 30 of each year for third-party loans stating that CMSI has
fulfilled its servicing obligations throughout the preceding calendar year or
describing each default in the performance of these obligations.
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Certificate holders may obtain copies of these reports or certificates by
written request to the Trustee.
LIST OF REGISTERED HOLDERS
Unless the Trustee is also the certificate registrar, CMSI will provide the
Trustee within 15 days after receipt of the Trustee's written request the names
and addresses of all registered Certificate holders as of the most recent record
date. Upon written request of three or more registered Certificate holders, for
purposes of communicating with other registered Certificate holders about their
rights under the pooling agreement, the Trustee will give the requesting
Certificate holders access during business hours to the most recent list of
registered Certificate holders held by the Trustee. If the list is more than 90
days old on the date of the request, the Trustee will promptly request a current
list from CMSI and will give the requesting Certificate holders access to the
new list promptly after receipt.
NO ANNUAL MEETING
There will not be any annual or other meetings of Certificate holders.
SUCCESSORS
A corporation
o that is a successor to CMSI due to a merger or consolidation, or that
otherwise succeeds to the business of CMSI, or
o any entity that is more than 50% owned by Citicorp that assumes CMSI's
obligations, will be CMSI's successor under the pooling agreement. The
assumption will not, however, release CMSI from any obligation under the
pooling agreement.
TERMINATION OF TRUST
The Trust will terminate upon the distribution to the registered Certificate
holders of all amounts required to be distributed to them. The Trust can not,
however, continue for more than 21 years after the death of the last survivor of
the descendants of a certain person specified in the pooling agreement living at
the date of the pooling agreement.
CMSI will direct the Trustee to notify each registered Certificate holder in
writing in advance of the termination of the Trust. Registered holders must
surrender their Certificates in order to receive their final distribution.
Interest will not accrue on the Certificates after the date specified in the
notice for return of the Certificates.
BOOK-ENTRY AND PHYSICAL CERTIFICATES
Most classes of Certificates offered to the public will be book-entry
securities. That is, a single certificate for each of these classes will be
registered in the name of The Depository Trust Company, a securities depository,
or its nominee (together DTC). DTC will thus be the only registered holder of
these Certificates. Other people will hold their Certificates in these classes
indirectly through securities intermediaries--banks, brokerage houses and other
institutions that maintain securities accounts for their customers. The
securities depository will maintain accounts showing the Certificate holdings of
its participants (all of whom will be securities intermediaries), and these
securities intermediaries will in turn maintain accounts showing the Certificate
holdings of their customers (some of whom may themselves be securities
intermediaries holding Certificates for their customers). Thus, each holder of a
book-entry Certificate will hold that Certificate through a hierarchy of
intermediaries, with DTC at the "top" and the holder's own securities
intermediary at the "bottom." A person holding a book-entry Certificate for its
own account through a securities intermediary will be the beneficial owner of
the Certificate.
The Certificates of each holder of a book-entry security other than DTC
will be evidenced solely by entries on the books of the holder's securities
intermediary. A holder of a book-entry Certificate will not be able to obtain a
physical (paper) certificate evidencing the holder's ownership of the
Certificate. The book-entry system for holding Certificates through accounts
with a hierarchy of securities intermediaries leading up to a securities
depository is the system through which most publicly traded securities are held
in the United States.
In this prospectus, references to "Certificate holders" of book-entry
securities will generally mean the beneficial owners of Certificates. However,
for book-entry Certificates, references to actions taken by Certificate holders
will mean
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actions taken by DTC upon instructions from its participants, and references to
payments and notices of redemption to Certificate holders will mean payments and
notices of redemption to DTC as the registered holder of the Certificates for
distribution to participants in accordance with DTC's procedures.
Beneficial owners of book-entry Certificates should realize that, unless
otherwise stated in this prospectus, the Trust will make all distributions on
their Certificates to DTC, and will send all required reports and notices solely
to DTC. Similarly, the Trustee will accept notices and directions solely from
the registered holders of Certificates, which for book-entry Certificates will
mean DTC. DTC and the securities intermediaries are generally required by law to
deposit the distributions in the appropriate customers' accounts and to transmit
notices and directions from the Trust to their customers and from their
customers to the Trust through the chain of intermediaries. However, beneficial
owners of book-entry Certificates may find it somewhat more difficult to pledge
their Certificates because of the lack of a physical certificate, and may
experience delays in receiving distributions on their Certificates, since
distributions will be initially made to DTC and must then travel down the
hierarchy of intermediaries to the beneficial owner's own account with its
securities intermediary.
Neither the Trustee, CMSI nor any of their affiliates will be responsible
for any action or failure to act of a securities depository or securities
intermediary, including any action or inaction involving a securities
depository's or securities intermediary's
o distributions to its participants or customers,
o transmission of notices, directions and other communications to or from
beneficial owners of Certificates, or
o record keeping,
and will not be liable to beneficial owners of Certificates for any such action
or failure to act. Nor will the Trustee, CMSI or any of their affiliates have
any obligation to beneficial owners to monitor, supervise or review any actions
or procedures of a securities depository or securities intermediary.
DDT 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 New York Uniform Commercial Code and a
"clearing agency" registered under section 17A of the Securities Exchange Act of
1934.
PHYSICAL CERTIFICATES
Physical 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 a payment sufficient to cover any tax
or other governmental charge incurred.
Beneficial owners of book-entry Certificates will receive physical
Certificates representing their ownership interests only if
o CMSI advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as depository for the book-entry
Certificates and CMSI is unable to locate a qualified successor,
o CMSI, at its option, elects to terminate the book-entry system, or
o after CMSI's resignation or dismissal as servicer under the pooling
agreement, beneficial owners of at least 51% of each outstanding class of
book-entry Certificates advise the Trustee, through the securities
depository, in writing that continuation of the book-entry system is no
longer in the beneficial owners' best interest.
The Trustee will notify all beneficial owners, through DTC, of the
availability of physical Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 (ERISA) prohibits some
transactions between those employee benefit plans to which it applies (ERISA
plans) and persons who have specified relationships to the ERISA plan. (For
purposes of this discussion, an individual retirement account established under
the Internal Revenue Code (an IRA) will be an ERISA plan.)
"PLAN ASSET" REGULATIONS
If an ERISA plan purchases Certificates, the underlying assets of the Trust--for
example, mortgage loans--might be considered assets of the ERISA plan, or "plan
assets. "As a consequence, the plan's fiduciary might be considered to have
delegated asset management responsibility to the Trustee. In such circumstances,
some operations of
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the Trust might be considered prohibited transactions under ERISA.
ERISA does not define "plan assets." However, regulations under ERISA state
conditions under which an ERISA plan, in acquiring an "equity interest" in an
entity (e.g., a Certificate in a Trust) would be considered to acquire the
underlying assets of the entity (such as the mortgage loans). These underlying
assets would therefore become "plan assets." Because of the factual nature of
the regulations, CMSI cannot predict whether the Trust's assets would be "plan
assets." For example, the regulations state that the underlying assets of an
entity are not "plan assets" as long as less than 25% of the value of each class
of equity interest is held by ERISA plans and employee benefit plans not subject
to ERISA.
CLASS EXEMPTION
U.S. Department of Labor Prohibited Transaction Class Exemption 83-1 for certain
transactions involving mortgage pool investment trusts (PTE 83-1) exempts the
acquisition and holding of certain residential mortgage pool pass-through
interests by ERISA plans from ERISA's prohibited transaction provisions. PTE
83-1 sets forth "general conditions" and "specific conditions" to its
applicability. CMSI believes that the general conditions would be met for the
purchase and holding of senior classes of Certificates in a Trust that holds
mortgage loans other than cooperative apartment loans. PTE 83-1 might not apply,
however, to the purchase and holding of
o senior classes of Certificates in a Trust that holds cooperative apartment
loans,
o senior classes of Certificates of a PO or IO class,
o subordinated classes of Certificates, or o residual Certificates.
Accordingly, CMSI will not permit the registration of a transfer of a
Certificate of a subordinated or residual class unless the transferee
o executes a representation letter satisfactory to the Trustee stating that
(1) it is not, and is not acting on behalf of an ERISA plan or using an
ERISA plan's assets to effect the purchase or (2) if it is an insurance
company, the source of funds used to purchase subordinated Certificates is
an "insurance company general account" (as defined in Prohibited
Transaction Class Exemption 95-60 (PTE 95-60)), and there is no ERISA plan
for which the general account's reserves and liabilities for the
contract(s) held by or on behalf of the plan and all other ERISA plans
maintained by the same employer (or an affiliate as defined in PTE 95-60)
or by the same employee organization, exceed 10% of the total of all
reserves and liabilities of the general account (as determined under PTE
95-60) at the date of acquisition, or
o delivers (1) an opinion of counsel satisfactory to the Trustee and CMSI
that the purchase or holding of the Certificate by or on behalf of the 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
Internal Revenue Code or any similar law and will not subject CMSI (or its
designee) or the Trustee to any obligation in addition to those undertaken
in the pooling agreement and (2) such other opinions of counsel, officers'
certificates and agreements as the Trustee and CMSI may require in
connection with the transfer.
TRUSTS OF CERTIFICATES
It is not clear whether PTE 83-1 applies to senior class Certificates in a Trust
that itself holds interests in a REMIC or similar entity.
The regulations state that plan assets do not include the mortgages
underlying an agency certificate. Accordingly, even if Certificates in a Trust
were owned largely or entirely by ERISA plans, the mortgages underlying agency
certificates held by the Trust would not be plan assets. Accordingly, if CMSI
sponsors a Series where the Trust holds interests in a REMIC or similar entity,
and if no other ERISA prohibited transaction exemption appears applicable, CMSI
intends to include no such interests in a REMIC except agency certificates or
other interests that would meet the general conditions of PTE 83-1 if purchased
directly by an ERISA plan. CMSI further intends to structure the offering of the
Series and the operations of the Trust and to take other actions that are
reasonable and appropriate to reduce the risk of an ERISA prohibited
transactions should PTE 83-1 be held inapplicable to the acquisition and holding
of such certificates.
UNDERWRITERS' EXEMPTIONS
Most underwriters of mortgage-backed securities have obtained ERISA prohibited
transaction exemptions that are in some respects broader than PTE
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83-1. These exemptions only apply to mortgage-backed securities that are sold in
offerings for which the underwriter is the sole or a managing underwriter, or a
selling or placement agent. The supplement describes any such exemption.
OTHER PROHIBITIONS
An ERISA plan may not purchase Certificates with assets of the ERISA plan if an
affiliate of CMSI (such as Citibank or Salomon Smith Barney Inc.), any
underwriter or the Trustee:
o has discretion to invest such assets,
o has authority or responsibility to give, or regularly gives, investment
advice for such assets for a fee and pursuant to an agreement or
understanding that the advice will serve as a primary basis for investment
decisions for the assets and that such advice will be based on the
particular investment needs of the ERISA plan, or
o is an employer maintaining or contributing to the ERISA plan.
By agreeing to acquire a Certificate for an ERISA plan, an ERISA plan
fiduciary represents and warrants to the underwriter and to CMSI that the assets
of the ERISA plan used in the purchase are not described in the preceding
sentence.
INVESTOR'S RESPONSIBILITY
Due to the complexity of the ERISA rules and the severity of the penalties
imposed upon persons involved in prohibited transactions, it is important that
potential ERISA plan investors consult with their counsel regarding the
consequences under ERISA of their acquisition and ownership of Certificates.
Employee benefit plans that are not subject to ERISA may be subject to
similar federal, state, or local laws. Fiduciaries of such plans should make
their own determinations of the need for and availability of exemptive relief
under any such laws.
LEGAL INVESTMENT CONSIDERATIONS
SMMEA
The senior classes of Certificates will generally be, and the subordinated
classes of Certificates and the residual Certificates may be, "mortgage related
securities" under the Secondary Mortgage Market Enhancement Act of 1984, as
amended (SMMEA). The supplement states which classes of Certificates are
mortgage related securities.
Mortgage related securities under SMMEA are legal investments for an entity
created or existing under state or federal law whose authorized investments are
subject to state regulation to the same extent that obligations issued or
guaranteed by the United States or any of its agencies or instrumentalities are
legal investments for the entity.
A Certificate will be a SMMEA mortgage related security so long as
o it is rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization, and
o it is part of a Series of Certificates in a Trust consisting of mortgage
loans originated by the types of originators specified in SMMEA.
STATE OVERRIDES OF SMMEA
SMMEA permitted states that acted before October 3, 1991 to override some of its
provisions. Some states have overridden parts of SMMEA and limited the ability
of some entities (in particular, insurance companies) to invest in "mortgage
related securities," usually by requiring the investors to rely solely upon
existing state law rather than SMMEA. Investors governed by the laws of these
states may be limited in their ability to invest in Certificates.
FEDERAL DEPOSITORY INSTITUTIONS
SMMEA also permits
o federal savings and loan associations and federal savings banks to invest
in, sell or otherwise deal in mortgage related securities without limit,
o federal credit unions to invest in mortgage related securities, and
o national banks to purchase mortgage related securities for their own
account without regard to the limitations generally applicable to
investment securities, subject in each case to regulations of their federal
regulators.
In this connection,
o the Comptroller of the Currency has authorized national banks to purchase
and sell mortgage related securities for their own account, without
limitation as to a percentage of the bank's capital and surplus (but
subject to compliance with general standards of "safety and soundness" and
retention of credit information),
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o the National Credit Union Administration has authorized federal credit
unions to invest in mortgage related securities (other than stripped
mortgage related securities, residual interests in mortgage related
securities and commercial mortgage related securities) under limited
circumstances, and
o the Office of Thrift Supervision has issued guidelines for thrift
institutions to follow in managing interest rate risk in purchasing
investment securities.
INVESTOR'S RESPONSIBILITY
Depository institutions considering an investment in the Certificates should
also review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" of the Federal Financial Institutions
Examination Council, which has been adoPTEd by the Federal Reserve Board, the
fdic, the Comptroller of the Currency, the Office of Thrift Supervision and the
National Credit Union Administration. The policy statement sets forth guidelines
that 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 of
these authorities before purchasing any Certificates, as some Certificates (in
particular, Certificates that are entitled solely or disproportionately to
distributions of principal or interest) may be considered unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in some instances irrespective of SMMEA).
The foregoing does not consider the applicability of statutes, rules,
regulations, orders, guidelines or agreements generally governing investments
made by particular investors, including "prudent investor" provisions,
percentage-of-assets limits and provisions that restrict or prohibit investment
in securities that are not "interest-bearing" or "income-paying" or are issued
in book-entry form.
Except for the status of some Certificates as "mortgage related
securities," no representation is made as to the proper characterization of any
Certificates for legal investment purposes, financial institution regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under 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, 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 will be
legal investments or be subject to investment, capital or other restrictions,
and whether SMMEA has been overridden in any jurisdiction relevant to the
investor.
TAXATION OF CERTIFICATE HOLDERS
The following taxation sections discuss in general terms the anticipated
material federal income tax consequences to Certificate holders of the purchase,
ownership and disposition of Certificates representing regular interests in the
REMIC. The Trust will consist of one or more REMICs. The discussion does not
address all federal income tax consequences that may be applicable to particular
categories of investors, some of whom may be subject to special rules. Moreover,
the discussion is based on statutes, regulations and other authorities that are
subject to change or differing interpretations, and any change or interpretation
could apply retroactively. INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS IN
DETERMINING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF CERTIFICATES. In this tax discussion,
references to the "Certificate holder" or "holder" generally mean the beneficial
owner of a Certificate. Unless otherwise stated, all section references are to
the Internal Revenue Code.
TAXATION OF CERTIFICATES -- GENERAL
Certificates will generally be taxed as if they were newly originated debt
instruments. In particular, interest, original issue discount (discussed below)
and market discount (discussed below) on a Certificate will be ordinary income
to the holder, and
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distributions of principal on a Certificate will be a return of capital to the
extent of the holder's basis in the Certificate.
ACCRUAL METHOD
Each Certificate holder must use the accrual method of accounting for
Certificates, regardless of the method of accounting it otherwise uses.
ORIGINAL ISSUE DISCOUNT
All accrual Certificates will be issued with original issue discount (or OID),
and others classes of Certificates may be issued with OID. OID for a debt
instrument generally refers to the amount by which the instrument's original
issue price is less than its stated redemption price at maturity.
Holders of Certificates issued with OID must generally include the OID 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. This generally means that a Certificate holder will pay tax on accrued
OID before the holder receives the related cash distribution.
The Internal Revenue Code and implementing regulations for OID (the OID
rules) do not adequately address some issues relevant to securities that, like
the Certificates, may be prepaid. To the extent the OID rules do not address an
issue, CMSI, in calculating OID, will generally apply the methodology described
in the Conference Committee Report to the Internal Revenue Code of 1986 Act (the
Conference Committee Report). Investors should realize, however, that the
Internal Revenue Service (the irs) may take a different position on the issue.
Moreover, the OID rules include an anti-abuse rule that allows the irs to depart
from the OID rules to ensure a reasonable tax result.
CMSI will calculate the accrued OID and will report the OID to registered
holders and beneficial owners of Certificates as described in "Reporting
requirements" below.
CALCULATION OF OID
A Certificate will generally be treated as a single debt instrument on which the
principal is payable in installments for purposes of determining the OID
includible in a Certificate holder's income. (There is an exception for retail
class Certificates, discussed below.)
Unless the OID is de minimis (described below), a Certificate holder must
generally include in gross income for a taxable year the sum of the "daily
portions" of accrued OID for each day on which it holds the Certificate during
an accrual period, including the date of purchase but excluding the date of
disposition. CMSI will treat the monthly period ending on the day before each
distribution day as the accrual period.
Determining the daily portions of OID depends on determining (1) the amount
of OID and (2) when principal is payable on the instrument, which together
determine the rate at which OID accrues. As discussed below, principal on the
Certificates is assumed to be paid at the prepayment rate assumed in structuring
the Series.
Amount of OID. The amount of OID on a Certificate is the excess of its
"stated redemption price at maturity" over its "issue price."
The issue price of a Certificate is generally the first price at which a
substantial amount of Certificates of the same class are sold to the public
(excluding bond houses, brokers and underwriters). Although unclear under the
OID rules, CMSI intends to treat the issue price of Certificates of a class for
which there is no substantial sale as of the issue date or that are retained by
CMSI as the fair market value of the Certificate on the issue date.
The issue price of a Certificate also includes any amount the initial
Certificate holder pays for accrued interest for a period prior to the issue
date of the Certificate, unless the holder elects on its federal income tax
return to exclude that amount from the issue price and to recover it on the
first distribution day.
The stated redemption price at maturity of a Certificate always includes
its principal balance at the cut-off date. The stated redemption price at
maturity may also include distributions of interest unless the distributions are
of "qualified stated interest." Under the OID rules, qualified stated interest
generally means interest payable at a single fixed rate or at a "qualified
variable rate" (described below), provided that the interest distributions are
unconditionally distributable at intervals of one year or less during the entire
term of the Certificate. Because there is no penalty or default remedy for
nonpayment of interest on a Certificate, it is possible that no interest on any
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class of Certificates will be treated as qualified stated interest. However,
except as provided in the next paragraph, because the underlying mortgage loans
provide for remedies in the event of default, CMSI intends to treat interest on
Certificates as qualified stated interest.
Distributions on the following types of Certificates will not be qualified
stated interest:
o Certificates in an accrual class,
o Certificates for which interest distributions may be deferred and added to
the principal balance, or
o Certificates in an interest-only class or a class on which interest is
substantially disproportionate to its principal amount (a so-called
"super-premium" class)
Accordingly, the stated redemption price at maturity of these Certificates
will include both their initial principal balance and all other distributions on
the Certificates. Also, if the interval between the issue date and the first
distribution day on a Certificate is shorter than the interval between
subsequent distribution days, the interest attributable to the additional days
will be included in the stated redemption price at maturity.
Any deferred interest (as defined in the supplement) that accrues on a
class of Certificates will constitute income to the holders of those
Certificates prior to the receipt of cash distributions of deferred interest.
Under the OID rules, all interest payments on Certificates 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 Certificates in
computing OID.
Rate of accrual. The OID accruing in a full accrual period on a Certificate
is generally the increase in the present value of the Certificate over the
period, adjusted for distributions that are not qualified stated interest. This
amount would be the excess of
o the sum of (1) the "present value of the remaining distributions" to be
made on the Certificate as of the end of that accrual period and (2) the
distributions made on the Certificate during the accrual period that are
included in the Certificate's stated redemption price at maturity, over
o the "adjusted issue price" of the Certificate at the beginning of the
accrual period. For these purposes, the adjusted issue price of a
Certificate at the beginning of an accrual period is its issue price,
increased by the aggregate amount of OID accrued in all prior accrual
periods and reduced by any distributions included in the Certificate's
stated redemption price at maturity that were made in those prior periods.
Based on the Conference Committee Report, the present value of the
remaining distributions is calculated using the original yield to maturity of
the Certificate as the discount rate and the schedule of payments on the
Certificate at the prepayment rate assumed in structuring the Series (which is
stated in the supplement), adjusted for events, including actual prepayments,
that occur before the end of the accrual period.
The OID accruing during an accrual period is then divided by the number of
days in the period to determine the daily portion of OID for each day in the
period. For an initial accrual period that is shorter than a full accrual
period, the daily portions of OID must be determined according to an appropriate
allocation under any reasonable method.
Under the method described above, the daily portions of OID will generally
increase if prepayments on the mortgage loans exceed the prepayment rate assumed
in structuring the Series, and will generally decrease (but not below zero for
any period) if prepayments on the mortgage loans are slower than the assumed
prepayment rate. However, for some classes of Certificates, an increase or
decrease in prepayments on the mortgage loans can result in a change in the
priority of principal payments for that class that could increase or decrease
the daily portions of OID for those Certificates.
DE MINIMIS OID
OID on a Certificate will be considered to be zero if the OID is less than 0.25%
of the Certificate's stated redemption price at maturity multiplied by the
weighted average maturity of the Certificate. For this purpose, weighted average
maturity is the sum of the amounts determined by multiplying (1) the number of
full years (ie, rounding down partial years) from the issue date until each
scheduled distribution of principal or OID by (2) the ratio of the amount of the
distribution to the total stated redemption price at maturity. The schedule of
distributions should be determined in accordance
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with the prepayment rate assumed in structuring the Series.
Certificate holders must generally report de minimis OID pro rata as
distributions of stated redemption price at maturity are received. Such income
will be capital gain if the Certificate is held as a capital asset. However,
Certificates holders may elect to accrue all de minimis OID, as well as market
discount and market premium, under the constant yield method. See "--Election to
treat interest under the constant yield method" below.
OID ON RETAIL CLASS CERTIFICATES
For Certificates on which principal distributions are made in a single
installment upon the request of a Certificate holder or by random lot (retail
class Certificates), CMSI intends to determine the yield to maturity based on
the anticipated payment characteristics of the class as a whole under the
prepayment rate assumed in structuring the Series. In general, OID accruing on a
retail class Certificate in a full accrual period would be its allocable share
of the OID for the entire class, as determined above. However, if there is a
distribution in reduction of all or part of the principal balance of a retail
class Certificate,
o the remaining unaccrud OID allocable to the Certificate (or part) will
accrue at the time of the distribution, and
o the accrual of OID allocable to each remaining Certificate of the class (or
the principal balance of a retail class Certificate after a principal
distribution has been received) will be adjusted by reducing the present
value of the remaining payments on the class and the adjusted issue price
of the class by the principal distributed.
CMSI believes that this treatment of retail class Certificates is
consistent with the "pro rata prepayment" rules of the OID rules, but with the
rate of accrual of OID determined based on the prepayment rate assumed in
structuring the Series.
ACQUISITION PREMIUM
A purchaser of a Certificate 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 OID on the Certificate, reduced
pro rata by a fraction, the numerator of which is the excess of its purchase
price over the 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, the purchaser may elect to treat the acquisition premium
under the constant yield method, as described in "--Election to treat interest
under the constant yield method" below.
OID ON VARIABLE RATE CERTIFICATES
Certificates may provide for interest based on a variable rate (variable rate
Certificates). Under the OID rules, interest is generally treated as payable at
a variable rate if
o the issue price does not exceed the original principal balance by more than
a specified amount and
o the interest compounds or is payable at least annually at current values of
(1) one or more "qualified floating rates," (2) a single fixed rate and one
or more qualified floating rates, (3) a single "objective rate," or (4) 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 the rate is subject to a multiple that is greater
than 0.65 but not greater than 1.35. The 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 a 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 that is not within the control, or 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.)
OID for a Certificate 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 the Certificate generally determined by
assuming that
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interest will be payable for the life of the Certificate based on its initial
rate (or, if different, the value of the applicable variable rate on the pricing
date). CMSI intends to treat 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. OID reported for an accrual period will be
adjusted for subsequent changes in the interest rate.
Although unclear under the OID rules, CMSI intends to treat Certificates
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. For arms, 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 OID
reportable to reflect the actual interest rate on the Certificates.
Under the REMIC regulations, a Certificate bearing
o a variable rate under the OID rules 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
o 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. For OID reporting purposes, CMSI intends to treat
Certificates that qualify as regular interests under this rule in the same
manner as obligations bearing a variable rate.
A class of Certificates may not have a variable rate under the preceding
rules--for example, if the class bears different rates at different times so
that it is considered significantly "front-loaded" or "back-loaded" within the
meaning of the OID rules. Such a class might be considered to bear "contingent
interest" under the OID rules. The OID rules for the treatment of contingent
interest do not by their terms apply to Certificates. However, if final
regulations dealing with contingent interest on Certificates apply the same
principles as the OID rules, the regulations may lead to different timing of
income inclusion than would be the case under the OID rules. Furthermore,
application of such principles could lead to the characterization of gain on the
sale of contingent interest Certificates as ordinary income.
MARKET DISCOUNT
A purchaser of a Certificate may also be subject to the "market discount" rules
of sections 1276 through 1278. Under these sections and the principles applied
by the OID rules for OID, market discount is the amount by which the purchaser's
original basis in the Certificate is exceeded (1) by the then-current principal
amount of the Certificate, or (2) for a Certificate having OID, by the adjusted
issue price of the Certificate at the time of purchase.
The purchaser will generally have to recognize ordinary income to the
extent of accrued market discount on the Certificate as distributions includible
in the stated redemption price at maturity are received, in an amount not
exceeding the distribution. Market discount would accrue in a manner to be
provided in Treasury regulations and should take into account the prepayment
rate assumed in structuring the Series. The Conference Committee Report provides
that until regulations are issued, market discount would accrue either (1) on
the basis of a constant interest rate or (2) in the ratio of stated interest
allocable to the relevant period to the sum of the interest for the period plus
the remaining interest as of the end of the period, or in the case of a
Certificate issued with OID, in the ratio of OID accrued for the relevant period
to the sum of the OID accrued for the period plus the remaining OID as of the
end of the period.
The purchaser will also generally be required to treat a portion of any gain
on a sale or exchange of the Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the preceding
methods, less any accrued market discount previously reported as ordinary income
as partial distributions in
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reduction of the stated redemption price at maturity were received.
The purchaser also will be required to defer deduction of a portion of the
interest expense attributable to any indebtedness incurred or continued to
purchase or carry the Certificate. The deferred portion of the interest expense
would not exceed the accrued market discount on the Certificate for the taxable
year. 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 Certificate is disposed of.
As an alternative to the inclusion of market discount in income on the
preceding basis, a holder may elect to include market discount in income
currently as it accrues on all market discount instruments acquired by the
holder in that taxable year or later, in which case the interest deferral rule
will not apply. See "--Election to treat interest under the constant yield
method" below regarding an alternative manner in which the election may be made.
By analogy to the OID rules, market discount for a Certificate will be
considered to be zero if the market discount is less than 0.25% of the remaining
stated redemption price at maturity of the Certificate multiplied by the
weighted average maturity of the Certificate (determined as described above
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 OID. See "--De minimis OID" above. Treasury regulations implementing
the market discount rules have not yet been issued. Investors should 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 Certificate 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 Certificate as a "capital asset" within the meaning of section
1221, the holder may elect under section 171 to amortize the premium under the
constant yield method. Such election will apply to all debt obligations acquired
at a premium by the holder of a Certificate held in that taxable year or
thereafter, unless revoked with the permission of the irs. Final Treasury
regulations issued under section 171 do not by their terms apply to prepayable
debt instruments such as the Certificates. However, the Conference Committee
Report indicates a Congressional intent to apply the rules for the accrual of
market discount on installment obligations in amortizing bond premium under
section 171 on installment obligations such as the Certificates. (It is unclear,
however, 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 Certificate, rather than a separate
deduction item. See "--Election to treat interest under the constant yield
method" below regarding an alternative manner in which the section 171 election
may be deemed to be made.
LOSSES
Certificate holders must report income on the Certificates 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 the losses are uncollectible. Accordingly, the
holder of a Certificate, 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 irs may take the position that OID must continue to accrue 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 section
166.
Under section 166, it appears that
o a Certificate holder that is a corporation or that holds the Certificate in
connection with a trade or business should generally be allowed to deduct
as an ordinary loss, and
o other Certificate holders should generally be allowed to deduct as a short
term capital loss
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any loss of principal sustained during the taxable year on account of the
Certificate's becoming wholly or partially worthless.
Although the matter is not free from doubt, such non-corporate holders
should be allowed a bad debt deduction at the time a loss is allocated to the
Certificate to reflect losses resulting from any liquidated mortgage loans. The
irs, 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 Certificate has been retired.
The irs could also assert that losses on the Certificates are deductible on some
other method that may defer such deductions for all holders, such as reducing
future cash flow for purposes of computing OID. This may create "negative" OID,
which would be deductible only against future positive OID or otherwise upon
termination of the Certificate.
While losses attributable to interest previously reported as income should
be deductible as ordinary losses by both corporate and non-corporate holders,
the irs may take the position that losses attributable to accrued OID 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.
ELECTION TO TREAT INTEREST UNDER THE CONSTANT YIELD METHOD
A Certificate holder 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. In applying the constant yield method, (1)
"interest" includes stated interest, OID, de minimis OID, market discount and de
minimis market discount, as adjusted by any amortizable bond premium or
acquisition premium, and (2) 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 prepayment rate assumed in structuring the Series 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 irs.
SALE OR EXCHANGE OF CERTIFICATES
If a holder sells or exchanges a Certificate, the holder will recognize gain or
loss equal to any difference between the amount received and the holder's
adjusted basis in the Certificate. The adjusted basis of a Certificate will
generally equal the cost of the Certificate to the seller, increased by any OID
or market discount previously included in the seller's gross income for the
Certificate, and reduced by principal distributions on the Certificate
previously received by the seller, by any amortized premium and by any
deductible losses.
Except as described in "--Market discount," above, and except as provided
in the following paragraph, gain or loss on the sale or exchange of a
Certificate realized by an investor who holds the Certificate as a capital asset
(within the meaning of section 1221) will be capital gain or loss and will be
long-term or short-term depending on whether the Certificate has been held for
more than one year.
Gain on the sale or exchange of a Certificate will be treated as ordinary
income
o if the Certificate is held as part of a "conversion transaction" as defined
in 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 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,
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o for a non-corporate taxpayer, to the extent the taxpayer has made an
election under section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates, or o to the extent that the
gain does not exceed the excess, if any, of (1) the amount that would have
been includible in the gross income of the holder if its yield on the
Certificate were 110% of the applicable federal rate as of the date of
purchase, over (2) the amount of income actually includible in the gross
income of the holder for the Certificate.
In addition, gain or loss recognized on the sale of a Certificate by
certain banks or thrift institutions will be treated as ordinary income or loss
pursuant to section 582(c).
SPECIAL TYPES OF HOLDERS
CMSI anticipates that Certificates held by
o a domestic building and loan association will be a "regular interest in a
REMIC" under 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" under section
7701(a)(19)(C)(v) or as other assets described in section 7701(a)(19)(C),
o a real estate investment trust will be "real estate assets" under section
856(c)(4)(A), and interest on the Certificates will be "interest on
obligations secured by mortgages on real property or on interests in real
property" under section 856(c)(3)(B), in their entirety. Treasury
regulations require that information be furnished annually to beneficial
owners of Certificates, and filed annually with the irs, concerning the
percentage of the REMIC's assets meeting the qualified asset tests that
justify such characterization of these Certificates. This information is
furnished in the same manner as described below under "Reporting
requirements."
If the assets of the REMIC include buydown mortgage loans, the percentage
of those assets constituting "loans . . . secured by an interest in real
property" under section 7701(a)(19)(C)(v) might be reduced by the amount of any
related buydown subsidy accounts.
Certificates held by
o a regulated investment company will not be "Government securities" under
section 851(b)(3)(A)(i), and
o certain financial institutions will be "evidence of indebtedness" under
section 582(c)(1).
FOREIGN INVESTORS
A non-U.S. person is a person that is not o a citizen or resident of the United
States,
o a corporation, partnership (with exceptions in Treasury regulations) or
other entity created or organized in or under the laws of the United States
or a political subdivision,
o an estate subject to United States federal income tax regardless of the
source of its income, or
o a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
Interest, including OID, distributable to Certificate holders who are
non-U.S. persons will be considered "portfolio interest" and, therefore,
generally will not be subject to 30% United States withholding tax if the
non-U.S. person
o is not a "10% shareholder" under section 871(h)(3)(B) or a "controlled
foreign corporation" under section 881(c)(3)(C) and
o provides the Trustee, or the person who would otherwise be required to
withhold tax from distributions under 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 Certificate 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 the non-U.S. person.
In the latter case, the non-U.S. person will be subject to United States federal
income tax at regular rates.
The IRS 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, 2001. Current
withholding certificates will remain valid until the earlier of December 31,
2000 or the date of expiration of the certificate under the rules as currently
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in effect. The New Regulations will require, for Certificates held by a foreign
partnership, that (1) the certification described above be provided by the
partners rather than by the foreign partnership and (2) the partnership provide
certain information, including a United States taxpayer identification number. A
look-through rule would apply in the case of tiered partnerships.
BACKUP WITHHOLDING
Distributions made on the Certificates and proceeds from the sale of the
Certificates to or through certain brokers may be subject to a "backup"
withholding tax under section 3406 of 31% of "reportable payments" (including
interest distributions, OID, and, in some circumstances, principal
distributions) unless, in general, the Certificate holder complies with
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 Certificate, or the Certificate holder is otherwise an
exempt recipient under the Internal Revenue Code. Amounts withheld from
distributions on the Certificates would be refunded by the irs or allowed as a
credit against the holder's federal income tax liability. The New Regulations
change some of the presumptions for information reporting and backup
withholding.
REPORTING REQUIREMENTS
Reports of accrued interest, OID and information necessary to compute the
accrual of market discount will be made annually to the irs and to individuals,
estates, non-exempt and non-charitable trusts, and partnerships who are either
holders of record of Certificates or beneficial owners who own Certificates
through a broker or middleman as nominee. All brokers, nominees and all other
non-tax-exempt holders of record of Certificates (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 irs Publication
938 for a particular Series of Certificates. Holders through nominees must
request such information from the nominee.
TAXATION OF THE TRUST
REMIC QUALIFICATION
CMSI will elect to treat the Trust or one or more segregated pools of assets of
the Trust as one or more REMICS. References to the "Trust" or the "REMIC" in
this tax discussion will refer to the Trust or those asset pools. The supplement
states whether CMSI will make more than one REMIC election for the Trust's
assets.
Rona Daniels, vice president and tax counsel of Citibank, has advised CMSI
that in her opinion
o the Trust will qualify as one or more REMICs under current law if CMSI
makes the REMIC election(s), all parties comply with the pooling agreement,
and the Trust complies with any changes to the REMIC rules, and
o the Certificates qualify as regular interests in a REMIC.
For the Trust to remain qualified as one or more REMICs, it must continue
to comply with the REMIC rules. These include a requirement that all but a de
minimis portion of the assets of the Trust must be "qualified mortgages" or
"permitted investments," as defined in the REMIC rules.
If the Trust fails to comply with the REMIC rules during a taxable year,
the Trust may cease to be a REMIC and may become taxed as a corporation for that
and subsequent tax years. Certificates would then be treated as equity interests
in the Trust.
TAXES THAT MAY BE IMPOSED ON THE REMIC
Prohibited transactions. Income from "prohibited transactions" by the REMIC will
be taxed directly to the REMIC at a 100% rate. Prohibited transactions generally
include
o the disposition of mortgage loans other than for (1) substitution within
two years of the closing date for a defective (including a defaulted)
mortgage loan (or the repurchase in lieu of substitution of a defective
(including a defaulted) mortgage loan at any time), or for any mortgage
loan within three months of the closing date, (2) foreclosure, default, or
reasonably foreseeable default of a mortgage loan, (3) bankruptcy or
insolvency of the REMIC, or (4) a qualified (complete) liquidation,
o the receipt of income from assets that are not the type of mortgage loan or
investments that the REMIC is permitted to hold,
o the receipt of compensation for services, or
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o the receipt of gain from disposition of cash flow investments other than
pursuant to a qualified liquidation.
It is not a prohibited transaction, however, to sell REMIC property to
prevent a default on a regular interest as a result of a default on mortgage
loans or to facilitate a clean-up call. 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 lender
pursuant to a convertible ARM.
Contributions to the REMIC after the closing date. 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 closing date. Exceptions are provided for cash
contributions to the REMIC
o during the three months following the closing date,
o made to a qualified reserve fund by a residual interest holder,
o in the nature of a guaranty, and o made to facilitate a qualified
liquidation or clean-up call.
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
under section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which the adoption is deemed to occur, and
sells all of its assets (other than cash) within the 90-day period beginning on
that 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 Certificate holders within the 90-day period.
LEGAL ASPECTS OF MORTGAGE LOANS
MORTGAGES AND DEEDS OF TRUST
The mortgage loans will be secured by either mortgages or deeds of trust,
depending on the prevailing practice in the state in which the mortgaged
property is located. A mortgage or a deed of trust creates a lien upon the
mortgaged property and represents the security for the repayment of an
obligation that is customarily evidenced by a promissory note or a bond. The
lien created by the mortgage or deed of trust is not prior to a lien for real
estate taxes and assessments and certain other liens. Priority over other
mortgages and deeds of trust depends on their terms and generally on the order
in which the mortgages or deeds of trust are recorded 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. In keeping with the terminology used elsewhere in this
prospectus, we shall generally refer to the mortgagor as the "homeowner" or
"borrower" and the mortgagee as the "lender." For 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 involving a land trust, the borrower signs a separate undertaking
to the land trustee 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 signs 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,
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irrevocably until the debt is paid, in trust, generally with a power of sale, to
the trustee to secure payment of the obligation.
The lender'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.
FORECLOSURE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a 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, that 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 lender'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 homeowner is
bound by the terms of the mortgage note and the mortgage as made and cannot be
relieved from his or her default. However, since a foreclosure action is
equitable in nature and is addressed to a court of equity, the court may relieve
a homeowner of a default and deny the lender foreclosure on proof that
o the homeowner's default was neither willful nor in bad faith, and
o the lender's action established a waiver, or fraud, bad faith, oppressive
or unconscionable conduct that warrants a court of equity to refuse
affirmative relief to the lender.
Under certain circumstances a court of equity may relieve the homeowner
from an entirely technical default if the 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 delay and expense may be incurred if the
defaulting homeowner files a petition under the federal bankruptcy laws before
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 homeowner 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 a 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
often happens that no third party purchases 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
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insurance, paying real estate taxes and any special municipal assessments that
have priority over the mortgage and making repairs at its own expense to make
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. A
loss may be reduced by the receipt of any mortgage insurance proceeds.
CMSI is not required to expend its own funds to foreclose on a defaulted
mortgage loan unless it determines that foreclosure would increase the net
proceeds of liquidation available for distribution to Certificate holders and
that 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--that would cause
CMSI 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 Illinois, a judicially approved sale) of
the real property by a court-appointed referee, sales agent or other official
following a judgment of foreclosure. A foreclosure action may enable a lender to
realize upon its security and to bar the homeowner, persons with liens
subordinate to the foreclosing lender, and 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, if a
foreclosure action is pending, all or part of the costs of the 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 time between the entry of the judgment of foreclosure
and the first law day will be set by the court as at least 20 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 that is junior to the
foreclosing lender's interest, in inverse order of their priority. Unless a
party assigned a prior law day redeems by paying the debt due the foreclosing
lender in full, each party will have the right on his law day to redeem the
mortgaged property by paying off the foreclosing lender; after redemption, the
redeeming party will own the mortgaged property subject to any other liens or
interests as to which a law day has not passed. If a party fails to redeem on
his law day, his rights in the mortgaged property will be extinguished. If no
party redeems, the foreclosing lender becomes the owner of the mortgaged
property, subject to other liens or interests that are prior to the mortgage
foreclosed or as to which the holders 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 are then 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 commencement of a foreclosure action on a CONNECTICUT mortgage, a
homeowner 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
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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 a
judicial sale a deficiency judgment may be obtained, while in a non-judicial
foreclosure, no deficiency judgment is allowed. Since California borrowers are
protected by anti-deficiency legislation for most purchase-money deeds of trust,
the lender will, in almost all instances, pursue non-judicial foreclosure. A
second difference between judicial and non-judicial foreclosures is that in the
former, if the lender chooses to maintain its right to a deficiency judgment,
the homeowner may redeem the property by paying the amount bid at the sale plus
statutory fees, costs and interest for a period of three months (if the proceeds
of sale are sufficient to pay the lender in full) or one year (if the sale
proceeds are insufficient to pay the lender in full) after the sale. The
purchaser at the sale, whether it is 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 CALIFORNIA, a borrower has until 5 days before a trustee sale to
reinstate the loan. 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.2
In ILLINOIS, a borrower in a mortgage foreclosure suit is granted the right
to reinstate a mortgage within 90 days after the date the court obtains
jurisdiction over all homeowners for the mortgaged property. If this right is
exercised, the delinquent borrower need only pay the actual delinquency costs
and reasonable attorney fees, but not any amount due as a result of an
acceleration provision in the mortgage note. 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 after the approval of the judicial sale 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 homeowners greater
contractual rights to reinstate a mortgage than are granted under Illinois
statutes.
COOPERATIVES
All cooperative apartments relating to cooperative apartment loans are located
in New York, New Jersey, Illinois, Maryland and the District of Columbia. The
private, non-profit, cooperative apartment corporation owns all the real
property that comprises the project, including the land, separate dwelling units
and all common areas. The cooperative is 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 must meet the
mortgage obligations. A blanket mortgage is ordinarily incurred by the
cooperative in connection with the construction or purchase of the cooperative's
apartment building.
- ----------
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.
2 Citibank Service Corporation, a subsidiary of Citi FSB doing business as
Citibank Insurance Agency, sells such insurance in connection with mortgage
loans originated by Citi FSB.
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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 (cooperative apartment leases) that confer
exclusive rights to occupy specific units. Generally, a tenant-stockholder of a
cooperative must make a monthly payment to the cooperative representing the
tenant-stockholder's share of the cooperative's payments for its blanket
mortgage, real property taxes, maintenance expenses and other capital or
ordinary expenses.
The interest of the occupant under a cooperative apartment lease is
generally subordinate to the interest of the holder of the blanket mortgage;
that is, if the cooperative defaults under the blanket mortgage, the lender
holding the blanket mortgage could foreclose and terminate the cooperative
apartment lease.
A blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one lump sum at final maturity. If the cooperative can not
refinance this mortgage or make the final payment, the lender could foreclose.
A foreclosure by the holder of the blanket mortgage could eliminate or
significantly diminish the value of the collateral securing a cooperative
apartment loan.
A cooperative apartment loan is evidenced by a promissory note and secured
by a security interest in the cooperative apartment lease and the related
cooperative shares. The lender takes possession of the share certificate and a
counterpart of the cooperative apartment lease and, if allowed under state law,
a financing statement covering the cooperative apartment lease 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 the tenant-stockholder's default, 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 cooperative apartment lease and the pledge of cooperative shares.
The cooperative shares owned by the tenant-stockholder and pledged to the
lender are, in almost all cases, subject to restrictions on transfer, and may be
cancelled by the cooperative if the tenant-stockholder fails to pay rent or
other charges owed by the tenant-stockholder, including mechanics' liens against
the cooperative apartment building incurred by the tenant-stockholder. The
cooperative can usually terminate the cooperative apartment lease if the
tenant-stockholder fails to make payments or defaults in the performance of
obligations under the lease.
Typically, the lender and the cooperative enter into a recognition
agreement that establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder under the cooperative apartment
lease. A default by the tenant-stockholder under the lease will usually
constitute a default under the security agreement between the lender and the
tenant-stockholder.
The recognition agreement generally provides that if the tenant-stockholder
defaults under the cooperative apartment lease, the cooperative will take no
action to terminate the lease until the lender has had an opportunity to cure
the default. The recognition agreement typically provides that if the
cooperative apartment lease 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 the cooperative
apartment lease. 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 principal balance of
the cooperative apartment loan and accrued interest.
Recognition agreements also provide that if the cooperative loan is
foreclosed, the lender must obtain the cooperative's consent before transferring
the cooperative shares or assigning the cooperative apartment 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
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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 to receive sums due
under the cooperative apartment lease. 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 laws and other limitations
on lenders" below.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the trustor or homeowner and foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. The
right of redemption should be distinguished from the equity of redemption, which
is a nonstatutory right that must be exercised prior to the foreclosure sale. In
some states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The right of
redemption would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect of
a right of redemption is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states, there
is no right to redeem property after a trustee's sale under a deed of trust or
after a foreclosure action.
ANTI-DEFICIENCY LAWS AND OTHER LIMITATIONS ON LENDERS
In some states, statutes limit the right of a lender 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 lender 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 lender from obtaining
a large deficiency judgment against the former borrower as a result of low or no
bids at the judicial sale.
Although CMSI may elect to pursue deficiency judgments on a mortgage loan,
CMSI does not have to do so, even if permitted by applicable law.
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, any
motion for a deficiency judgment must be made within 90 days of the consummation
of the sale by the delivery of the deed to the purchaser. Section 1301 of the
same law limits the lender'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 in the action, 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 the judgment amount in the foreclosure action, minus the higher of
(1) the fair and reasonable market value of the mortgaged property at the date
of the foreclosure sale or the nearest earlier date as of which the court
determines a market
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value or (2) the sale price of the property at the foreclosure sale.
Section 254-b of the New York Real Property Law also limits lenders'
ability to collect late payment charges. If the mortgage permits the lender to
collect a late payment charge on an installment that has become due and remains
unpaid, the 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 lender. Section
254-b also applies to a note evidencing a cooperative loan.
In New York a lender can foreclose a mortgage on a residential leasehold
property by maintaining a traditional equitable foreclosure action. Any rent or
taxes paid by the lender following default by the leaseholder 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 lender can only recover a
money judgment. In this event, the lender 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.
NEW JERSEY. Under New Jersey law, an action for deficiency judgment must be
commenced within three months from the date of the foreclosure sale of a
mortgaged premises. In a deficiency action, judgment will be rendered only for
the balance due on the debt and interest and costs of the action. The obligor
under the note may file an answer in the action for deficiency, disputing the
amount of the deficiency sued for. The court will determine the amount of the
deficiency by deducting from the debt the amount determined as the fair market
value of the premises.
In New Jersey, the commencement of a deficiency action reopens the
homeowner'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.
CONNECTICUT. If the lender took title to the mortgaged property under
strict foreclosure but the property's value was less than the debt, Connecticut
law permits the lender to move for a deficiency judgment in the amount of the
difference within 30 days after the redemption period expires. If there was a
foreclosure sale and the sale proceeds were insufficient to discharge the
mortgage debt in full, the lender 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. To avOID this outcome, lenders do not generally
seek foreclosure sales.
CALIFORNIA. Under California's "one-action rule," 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 damage to the mortgaged property, it generally is not practical to do
so.
TEXAS. In Texas most foreclosures are non- judicial. However, the lender
must 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 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. A suit for a deficiency judgment must be brought within two years
after foreclosure. During the pendency of the suit, the debtor can request the
court to determine the fair market value of the property foreclosed upon. If the
court determines that the
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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.
ILLINOIS. In Illinois, if the price at the foreclosure sale is less than
the total amount held due in the judgment of foreclosure plus statutory
interest, certain advances and costs incurred at the time of judicial sale, the
lender may obtain a deficiency judgment against the homeowner provided that
there is personal jurisdiction over the homeowner.
FLORIDA. Under Florida law, if the fair market value of the mortgaged
property at the time of the foreclosure sale is less than the debt of the final
judgment, the lender 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.
ALL MORTGAGE LOANS. In addition to anti-deficiency and related legislation,
numerous other federal and state statutory provisions, including the United
States Bankruptcy Code (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 its consequences caused by the
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 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" (ie, bid up to the amount of the
debt) at the sale of the asset. 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. 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 some 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.
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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 the debtor's residence by paying arrearages over
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 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 in 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 statute. If this interpretation 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
homeowner 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 those amounts,
and any loss will be borne by the Certificate holders.
In a bankruptcy or similar proceeding of a homeowner, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the homeowner under the mortgage loan before the 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 may sometimes 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 lender have been unreasonable and
inequitable, the mortgage may be subordinated to the claims of unsecured
creditors.
Bankruptcy reform legislation passed by the Senate in September 1998 would
have amended the Bankruptcy Code 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 proposed, the
provision would apply retroactively to secured debt incurred by a debtor prior
to the date of effectiveness of the legislation, including the mortgage loans.
The House bill and the conference report did not have a similar provision, and
Congress adjourned from its last session without acting on the proposed
legislation. However, such legislation may be introduced in the current session.
If the proposed amendment to the Bankruptcy Code were to become law, a violation
of the Truth in Lending Act in the origination of a mortgage loan could result
in a total loss on the loan in a bankruptcy proceeding. Such a violation would,
however, breach a representation and war-
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ranty of CMSI, which would require CMSI to repurchase the mortgage loan.
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
proposal described above.
The Internal Revenue Code gives priority to some tax liens over the
mortgage or deed of trust. The laws of some states give 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 the origination, servicing, and enforcement of mortgage loans. These
laws include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Debt Collection
Practices Act, Fair Credit Reporting Act, and related statutes and regulations.
These federal laws and state laws impose specific statutory liabilities upon
lenders who originate or service mortgage loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of the
mortgage loans.
DUE-ON-SALE CLAUSES
For Trusts containing only fixed rate mortgage loans, at least 90% of the
scheduled principal balance of the loans on the cut-off date will contain
due-on-sale clauses. Generally, arms in a Trust will contain due-on-sale clauses
permitting the lender 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, for a land trust,
the beneficial interest.
The Garn-St Germain Depository Institutions Act of 1982 (the Garn-St
Germain Act) preempts state law that prohibits the enforcement of due-on-sale
clauses. Exempted from this preemption are some mortgage loans that were
originated
o before October 15, 1982,
o for mortgaged properties in Minnesota, Michigan, New Mexico and Utah,
o by a lender that was not a federal savings and loan associations or a
federal savings bank.
However, the Garn-St Germain Act also provides for nine specific instances
in which a mortgage lender can not exercise a due-on-sale clause on a transfer
of the property. If a lender can not enforce a due-on-sale clause where the
mortgage loan has an interest rate below the current market rate, the loan will
be assumed by a new home buyer rather than being paid off. This may affect the
average life of the mortgage loans underlying a Series and the number of
mortgage loans that may be outstanding until maturity.
OTHER LIMITATIONS ON FORECLOSURE
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. For example, courts have
o required lenders to take 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,
o required lenders to reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial
disability, and
o limited the lender's right to foreclose if the default 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.
Courts have also been faced with the question whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that homeowners receive notices in addition to the statutorily
prescribed minimums. For the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee under a
deed of trust, or under a mortgage having a power of sale, does not involve
sufficient state action to afford constitutional protections to the borrower.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act of
1980 (Title V), provides that state usury limitations will not apply to certain
types of residential first mortgage loans
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originated by certain lenders after March 31, 1980. A similar federal statute
was in effect for mortgage loans made during the first three months of 1980.
Title V authorized the states to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
an application of the federal law. In addition, even where Title V is not so
rejected, a state can limit discount points or other charges on mortgage loans
covered by Title V. Some states have reimposed interest rate limits and/or
limited discount points or other charges.
CMSI will warrant to the Trustee on the closing date that each mortgage
loan was originated in compliance in all material respects with applicable state
law, including usury laws.
ENVIRONMENTAL CONSIDERATIONS
Mortgaged properties will be subject to federal, state, and local environmental
protection laws. These laws may regulate
o emissions of air pollutants,
o discharges of wastewater or storm water,
o generation, transport, storage or disposal of hazardous waste or hazardous
substances,
o operation, closure and removal of underground storage tanks,
o removal and disposal of asbestos-containing materials, and
o management of electrical or other equipment containing polychlorinated
biphenyls (popularly known as "PCBS").
Failure to comply with these laws can 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 the property
are subordinated to such a lien and, in some states, even prior recorded liens
are subordinated to such liens (superliens). The Trustee's security interest in
a property subject to a superlien could be adversely affected.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), a secured party that 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 some circumstances for cleanup
costs if hazardous wastes or hazardous substances have been released or disposed
of on the property. 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, regardless of
whether those owners or operators caused or contributed to contamination on the
property. In addition, owners and operators of properties that generate
hazardous substances that are disposed of at other off-site locations may be
held strictly, jointly and severally liable for environmental remediation and/or
damages at the 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 the 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 the facility or
property, the lender faces potential liability as an "owner or operator" under
CERCLA. Similarly, when a lender forecloses
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and takes title to a contaminated facility or property, the lender may incur
potential CERCLA liability if, for example, 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 (RCRA), contains a similar
secured creditor exemption for 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 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 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 loss of the secured creditor exemption
before foreclosure or during a workout period. The legislation also clarifies
the extent of protection against foreclosure liability under CERCLA. The
legislation also authorizes 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 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 Certificate holders 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 that 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 on a mortgaged
property prior to origination of the mortgage loan or prior to foreclosure or
accepting a deed in lieu of foreclosure. Neither CMSI nor any originator has
made such evaluations prior to the origination of the mortgage loans, and CMSI
does not require that originators who sell mortgage loans to it make such
evaluations. CMSI is not required to undertake any such evaluations prior to
foreclosure or accepting a deed in lieu of foreclosure. CMSI does not make any
representations or warranties or assume any liability with respect to: the
environmental condition of any mortgaged property; the absence or presence of
hazardous wastes or hazardous substances on a 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 performance of the mortgage loans or the compliance of a mortgaged
property with any environmental laws, nor is any agent, person or entity
otherwise affiliated with CMSI authorized or able to make any such
representation, warranty or assumption of liability relating to a mortgaged
property.
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USE OF PROCEEDS
CMSI intends to use net proceeds from the sale of the Certificates to originate
or purchase new residential mortgage loans and for other general corporate
purposes. These other purposes may include 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 the sales will depend upon many factors, including the volume of
mortgage loans CMSI acquires, prevailing interest rates, availability of funds
and general market conditions.
ADDITIONAL INFORMATION
SEC FILINGS
The following documents are incorporated by reference into this prospectus:
o All documents subsequently filed by CMSI on behalf of the Trust with the
Securities and Exchange Commission (the SEC) pursuant to section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 before the
termination of the offering of the Certificates.
o If Citicorp issues a guaranty as part of the credit enhancement for the
Series offered by this prospectus, 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 SEC by Citicorp, and all reports filed by Citicorp pursuant to sections
13(a), 13(c), 14 and 15(d) of the Securities Exchange Act before the
termination of the offering of the Certificates.
CMSI will provide without charge to any person, including a beneficial
owner of Certificates, to whom a copy of this prospectus is delivered, a copy of
any document incorporated by reference in this prospectus (without exhibits,
except for exhibits incorporated by reference in the document). Written or
telephone requests for documents should be made
o for documents filed by CMSI, to Citicorp Mortgage Securities, Inc., 12855
North Outer Forty Drive, St. Louis, Missouri 63141, telephone (314)
851-1467, and
o for documents filed by Citicorp, to Citicorp, 399 Park Avenue, New York, NY
10043, Attention: Investor Relations Department, telephone (212) 559-2718.
You may read and copy any materials CMSI or Citicorp files with the sec at
the sec's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the public reference room
by calling the sec at 1-800-SEC-0330.
The sec also maintains an Internet site at http://www.sec.gov that
contains, reports, proxy and information statements, and other information
regarding issuers that file electronically with the sec, including CMSI and
Citicorp.
Our delivery of this prospectus or any document incorporated by reference
at any time does not imply that information in those documents is correct at any
time after their dates.
MORTGAGE LOAN INFORMATION
You may subscribe for detailed mortgage loan information in machine readable
format updated monthly for each outstanding Series of Certificates. This
information reflects payments made on the individual mortgage loans, including
full and partial prepayments and liquidation proceeds, and identifies various
characteristics of the mortgage loans. Contact Citicorp Mortgage, Inc., 15851
Clayton Road West, Ballwin, Missouri 63011, telephone (636) 256-6406, for
subscription information.
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INDEX
accrual classes, 2
adjusted issue price, 32
affiliated mortgage loans, 2
affiliated originators, 11
agency certificates, 3
annual interest rate, S-3
ARMS, 11
available for distribution, 6
balloon mortgage loan, 13
Bankruptcy Code, 46
bankruptcy losses, S-11
beneficial owner, 26
book-entry securities, 26,
CERCLA, 49
Certificates, 2
Citi FSB, 11
Citicorp Mortgage, 18
class A prepayment percentage, S-14
class percentage, S-4
classes, 2
clean-up call, 9, S-4
closing date, S-5
CMSI, 2
Conference Committee Report, 31
cooperative apartment leases, 43
cooperative apartment loans, 12
csfb, S-25
cut-off date, 4, S-5
debt burden, 20
denominations, S-4
determination day, 5
discount loans, S-8
distribution day, 5, S-4
DTC, 4
due-on-sale clause, 9
ERISA, 4, 27
ERISA plans, 27
events of default, 23
FDIC, 18
Fitch, S-4
fraud losses, S-11
Freddie Mac, 3
fully amortizing mortgage loan, 13
Garn-St Germain Act, 48
Ginnie Mae, 3
graduated-payment mortgage loan, 13
homeowner, 4
hypothetical mortgage loans, S-9
interest-only, 2
interest only loan, S-8
IO, 2
IO loan, S-8
IO strip, S-9
IRA, 27
IRS, 31
issue price, 31
last distribution day, S-4
liquidated loan, S-16
loanable value, 14
loan-to-value ratio, 14
losses, 9
market discount, 34
master servicer, 21
mortgage loans, 2
mortgaged properties,2
mortgagee, 39
mortgagor, 39
NAS, S-15
net loan rate, S-8
non-U.S. person, 37
objective rate, 33
OID, 31, S-26
OID rules, 31
order of seniority, 10
order of subordination, 10
original issue discount, 31, S-26
original subordinated amount, S-14
outstanding, 9
parity, S-23
PO, 2
PO loan, S-9
PO strip, S-9
pool insurance, 17
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pooling agreement, 24
premium loans, S-8
prepayment charge, 7
prepayment interest shortfall, 8, S-10
prepayment model, 8, S-17
principal balance, 4, S-3
principal-only, 2
principal-only loan, S-9
PTE 83-1, 28
PTE 95-60, 28
qualified floating rate, 33
qualified inverse floating rate, 33
RCRA, 50
record date, S-4
realized loss, S-16
registered holder, 26
regular classes, 5
relocation loans, 15
REMIC, 3
residual class, 5
retail class Certificate, 33, S-8
scheduled payment, 4
scheduled principal, S-13
scheduled principal balance, S-13
SDA, S-24
SEC, 51
secured creditor exemption, 49
securities intermediaries, 26
securitized, 11
senior classes, 2, 9
Series, 2
servicer, 5
servicing fee, S-6
SMMEA, 29, S-32
special hazard insurance, 17
special hazard losses, S-10
S&P, S-4
standard default assumption, S-24
structuring assumptions, S-17
subordinated classes, 2, 9
subordination depletion date, S-10
subordination level, S-11
superliens, 49
target interest rate, S-8
target-rate classes, S-9
target-rate loan, S-8
target-rate strip, S-9
third-party mortgage loans, 2
Title V, 48
Trust, 2
Trustee, 2, S-4
UCC, 43
unscheduled principal, S-13
UST, 50
variable rate Certificates, 33
voluntary advance, 6
53
