Registration No. ________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
06-1204982
(I.R.S. Employer Identification Number)
1285 Avenue of the Americas
New York, New York 10019
212-713-2000
(Address and telephone number of Registrant's principal executive offices)
John L. Fearey
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
212-713-2000
(Name, address and telephone number of agent for service)
----------------
Copies to:
Paul D. Tvetenstrand, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
================================================================================
Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. |X|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING TO BE REGISTERED PRICE OFFERING REGISTRATION
REGISTERED (1) PER UNIT (2) PRICE (2) FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset-Backed Certificates, $500,000,000.00 100% $500,000,000.00 $151,515.20
issued in series
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) $144,893,533.66 aggregated principal amount of Mortgage Pass-Through
Certificates registered by the Registrant under Registration Statement
No. 83802 referred to below and not previously sold are consolidated in
this Registration Statement pursuant to Rule 429. All registration fees
in connection with such unsold amount of Mortgage PassThrough
Certificates have been previously paid by the Registrant under the
foregoing Registration Statement. Accordingly, the total amount
registered under the Registration Statement as so consolidated as of
the date of this filing is $644,893,533.66.
(2) Estimated solely for the purpose of calculating the registration fee.
--------------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the prospectus which is part
of this Registration Statement is a combined prospectus and includes all the
information currently required in a prospectus relating to the securities
covered by Registration Statement No. 33-83802 previously filed by the
Registrant. This Registration Statement, which relates to $500,000,000.00
aggregate principal amount of Asset-Backed Certificates, constitutes a
post-effective Amendment to Registration Statement No. 33-83802. Such
post-effective amendment shall hereafter become effective concurrently with the
effectiveness of this Registration Statement in accordance with Section 8(a) of
the Securities Act of 1933.
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes a basic prospectus and
five forms of prospectus supplement. Version 1 shall be used in offering a
series of Certificates with various combinations of Credit Support, Version 2
shall be used in offering a typical "shifting interest" Senior/Subordinate
series, Version 3 shall be used in offering a typical Senior/Subordinate series
without "shifting interests", Version 4 shall be used in offering a typical
multiclass series and Version 5 shall be used in offering a series of
Certificates evidencing ownership interests in a Trust Fund including Agency
Securities. Each basic prospectus used (in either preliminary or final form)
will be accompanied by the applicable prospectus supplement.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses expected to be incurred in connection with the issuance
and distribution of the Certificates being registered, other than underwriting
compensation, are as set forth below. All such expenses except for the
registration and filing fees are estimated:
SEC Registration Fee $ 151,515.20
Legal Fees and Expenses $ 600,000.00
Accounting Fees and Expenses $ 200,000.00
Trustee's Fees and Expenses
(including counsel fees) $ 90,000.00
Printing and Engraving Expenses $ 180,000.00
Rating Agency Fees $ 240,000.00
Miscellaneous $ 100,000.00
Total $ 1,561,515.20
------------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that,
<PAGE>
II-2
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided by, or granted pursuant to,
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
The By-laws of the Depositor provide, in effect, that to the full
extent permitted by law, the Depositor shall indemnify and hold harmless each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether or not by or in the right
of the Depositor, by reason of the fact that he is or was a director or officer,
or his testator or intestate is or was a director or officer of the Depositor,
or by reason of the fact that such person is or was serving at the request of
the Depositor as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise of any type or kind,
domestic or foreign, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred as a
result of such action, suit or proceeding.
Pursuant to Section 145 of the General Corporation Law of Delaware,
liability insurance is maintained covering directors and principal officers of
the Depositor.
Section 8(b) of the proposed form of Underwriting Agreement provides
that each Underwriter severally will indemnify and hold harmless the Depositor,
each of its directors, each of its officers who signs the Registration
Statement, and each person, if any, who controls the Depositor within the
meaning of the Securities Act of 1933, as amended, and the Securities Exchange
of 1934, as amended, against any losses, claims, damages or liabilities to which
any of them may become subject under the Securities Act of 1933, the Securities
Exchange Act of 1934 or other federal or state law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or an
alleged untrue statement of a material fact contained in the registration
statement when it became effective, or in the Registration Statement, any
related preliminary prospectus or the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus supplement, or arise out of or
are based upon the omission or
<PAGE>
II-3
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made therein in reliance upon and
in conformity with written information furnished to the Depositor by such
Underwriter, specifically for use in the preparation thereof, and will reimburse
the Depositor for any legal or other expenses reasonably incurred by the
Depositor in connection with investigating or defending against such loss,
claim, damage, liability or action.
The Pooling and Servicing Agreements and the Trust Agreements will
provide that no director, officer, employee or agent of the Depositor is liable
to the Trust Fund or the Certificateholders, except for such person's own
willful misfeasance, bad faith or gross negligence in the performance of duties
or reckless disregard of obligations and duties. The Pooling and Servicing
Agreements and the Trust Agreements will further provide that, with the
exceptions stated above, a director, officer, employee or agent of the Depositor
is entitled to be indemnified against any loss, liability or expense incurred in
connection with legal action relating to such Pooling and Servicing Agreements,
Trust Agreements and related Certificates other than such expenses related to
particular Mortgage Loans.
ITEM 16. EXHIBITS.
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 By-Laws of the Registrant.
*4.1 Form of Pooling and Servicing Agreement (Version 1, relating to
Certificates with various combinations of Credit Support).
*4.2 Form of Pooling and Servicing Agreement (Version 2, relating to a
typical "shifting interest" Senior/Subordinated Series).
*4.3 Form of Pooling and Servicing Agreement (Version 3, relating to a
typical Senior/Subordinated Series without "shifting interests").
*4.4 Form of Pooling and Servicing Agreement (Version 4, relating to a
typical multi-class series).
*4.5 Form of Trust Agreement (relating to Certificates evidencing
ownership interests in a Trust Fund including Agency Securities).
*4.6 Form of Unaffiliated Seller's Agreement (Version 1, for a series
using a multi-class, "shifting interest" or reserve fund
structure).
*4.7 Form of Unaffiliated Seller's Agreement (Version 2, for a series
using various forms of insurance policies and surety bonds as
credit support).
*4.8 Form of Custodial Agreement.
5.1 Opinion of Thacher Proffitt & Wood.
8.1 Opinion of Thacher Proffitt & Wood with respect to certain tax
matters.
23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibits
5.1 and 8.1).
*99.1 Form of FHA Mortgage Insurance Certificate (28.1**).
*99.2 Form of VA Loan Guaranty (28.2**).
*99.3 Form of Pool Insurance Policy (28.3**).
*99.4 Form of Special Hazard Credit Insurance Policy (28.4**).
<PAGE>
II-4
*99.5 Form of Bankruptcy Bond (28.5**).
*99.6 Form of Letter of Credit (28.6**).
*Incorporated by reference from the Registration Statement on Form S-11 (File
No. 33-14827).
**Exhibit number in Registration Statement on Form S-11 (File No. 33-14827).
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or in the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(iii) to include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, as amended, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
<PAGE>
II-5
The Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, director or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, PaineWebber Mortgage Acceptance Corporation IV certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3, reasonably believes that the security rating requirement contained
in Transaction Requirement B.5 of Form S-3 will be met by the time of the sale
of the securities registered hereunder, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 2nd day of
October, 1996.
PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV
By: /s/ John A. Taylor
------------------
Name: John A. Taylor
Title: President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities indicated.
SIGNATURE TITLE DATE
/s/ John A. Taylor President October 2, 1996
- --------------------------- (Principal Executive Officer)
John A. Taylor
/s/ Michael T. Sullivan Director and Treasurer October 2, 1996
- --------------------------- (Principal Financial Officer)
Michael T. Sullivan
/s/ Daniel Leyden Vice President October 2, 1996
- --------------------------- (Principal Accounting
Daniel Leyden Officer)
/s/ Ramesh Singh Director October 1, 1996
- ---------------------------
Ramesh Singh
/s/ Joseph A. Piscina Director October 2, 1996
- ---------------------------
Joseph A. Piscina
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER, 1996
PROSPECTUS SUPPLEMENT [Version 1]
(To Prospectus dated ____________, 199__)
$___________________ (Approximate)
Asset-Backed Certificates, Series 199__-______
____% Pass-Through Rate
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Depositor
- -----------------------------------
Master Servicer
The Series 199__-____ Certificates offered hereby will consist of a single class
of Certificates and will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund") consisting primarily of a
segregated pool of conventional one- to four-family [30- year, fixed interest
rate] first mortgage loans (the "Mortgage Loans") having an aggregate principal
balance as of __________, 199__ of approximately $__________ (subject to a
permitted variance as described herein under "Additional Information") to be
sold by PaineWebber Mortgage Acceptance Corporation IV (the "Depositor").
Principal and interest are payable on the 25th day of each month or, if such day
is not a business day, then on the next succeeding business day, beginning in
_____________ (each, a "Distribution Date"). There is currently no secondary
market for the Certificates offered hereby and there can be no assurance that a
secondary market for the Certificates will develop. PaineWebber Incorporated
expects to establish a market in the Certificates offered hereby, but is not
obligated to do so. There is no assurance that any such market, if established,
will continue.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORM UNDER "RISK
FACTORS" ON PAGE S-___ OF THIS PROSPECTUS SUPPLEMENT AND PAGE ___ OF THE
ACCOMPANYING PROSPECTUS.
THESE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE
DEPOSITOR, THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES EXCEPT AS
SET FORTH HEREIN. NEITHER THESE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS
WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
<PAGE>
S-2
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
[_________________________________________________________________________________________________________________
Aggregate
Initial
Certificate Underwriting Proceeds to
Principal Price to Discounts and the Depositor
Balance Public(1) Commissions (1)(2)
----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Series 199__-__ Certificates.................. $ % % %
__________________________________________________________________________________________________________________
(1) Plus accrued interest from ______________, 199__.
(2) Before deducting expenses payable by the Depositor estimated to be $_____________.]
</TABLE>
[The Series 199__-___ Certificates offered hereby will be purchased by
PaineWebber Incorporated (the "Underwriter") from the Depositor and will be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor, before deducting expenses payable by the
Depositor, estimated to be $___________, will be ____% of the aggregate of the
initial Certificate Principal Balance of the Certificates, plus accrued interest
at the Pass-Through Rate from ______________, 199__.]
The Series 199__-__ Certificates offered hereby [are] [will be purchased by
PaineWebber Incorporated (the "Underwriter") from the Depositor and will be]
offered subject to receipt and acceptance by the Underwriter, to prior sale and
to the Underwriter's right to reject any order in whole or in part and to
withdraw, cancel or modify the offer without notice. It is expected that
delivery of the Series 199__-__ Certificates offered hereby will be made at the
office of PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New
York 10019 [or through the facilities of The Depository Trust Company] on or
about ___________________, 199__.
-------------------
PaineWebber Incorporated
____________, 199__
<PAGE>
S-3
The Certificates offered by this Prospectus Supplement will be part of a
separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated ___________, 199__, of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
TABLE OF CONTENTS
Page
SUMMARY OF PROSPECTUS SUPPLEMENT........................................S-6
RISK FACTORS...........................................................S-12
THE MORTGAGE POOL......................................................S-12
ADDITIONAL INFORMATION.................................................S-17
Distributions.................................................S-17
Advances .....................................................S-19
Example of Distributions......................................S-19
DESCRIPTION OF CREDIT SUPPORT..........................................S-21
Pool Insurance Policy.........................................S-21
Special Hazard Insurance Policy...............................S-21
Bankruptcy Bond...............................................S-22
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS................................................S-22
Delay in Payment of Interest..................................S-22
Prepayment Considerations and Risks...........................S-22
POOLING AND SERVICING AGREEMENT........................................S-23
General .....................................................S-23
The Master Servicer...........................................S-24
The Trustee...................................................S-26
Servicing and Other Compensation and Payment of Expenses......S-26
Voting Rights.................................................S-26
Termination...................................................S-26
FEDERAL INCOME TAX CONSEQUENCES........................................S-27
PLAN OF DISTRIBUTION...................................................S-27
LEGAL MATTERS..........................................................S-28
RATING ..............................................................S-28
<PAGE>
S-4
Until __________________, all dealers effecting transactions in the
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus Supplement and the Prospectus to which it relates. This
is in addition to the obligation of dealers to deliver a Prospectus Supplement
and Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
S-5
SUMMARY OF PROSPECTUS SUPPLEMENT
--------------------------------
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Prospectus. An Index of Significant Definitions is included at
the end of the Prospectus.
Title of Series.......................Asset-Backed Certificates, Series 199__-__
____% Pass-Through Rate (the
"Certificates").
Description of Certificates...........$___________ initial Certificate Principal
Balance (approximate) evidencing 100% of
the aggregate principal balance of the
Mortgage Loans. The aggregate principal
balance of the Mortgage Loans as of
__________ 1, 199__ (the "Cut-off Date")
will be $____________ [(approximate,
subject to a permitted variance of plus or
minus ____%)].
Depositor.............................PaineWebber Mortgage Acceptance
Corporation IV, a wholly-owned limited
purpose finance subsi- diary of
PaineWebber Group Inc., and an affiliate
of the Underwriter. See "The Depositor" in
the Prospectus.
Trustee..............................._________________________________________.
See "Pooling and Servicing Agreement - The
Trustee" herein.
Master Servicer......................._____________________________________. See
"Pooling and Servicing Agreement - The
Master Servicer" herein.
Principal (including
prepayments)........................All principal payments (including
principal prepayments) with respect to the
Mortgage Loans will be passed through on
each Distribution Date, commencing
________________, 199__. Princi- pal
prepayments will not be passed through
until the month following the month of
receipt. Holders of Certificates will be
entitled to receive such principal
payments and prepayments on each
Distribution Date on a pro rata basis in
accordance with the Percentage Interest
evidenced by their respective
Certificates. The Percentage Interest
evidenced by any Certificate is equal to
the initial Certificate Principal Balance
thereof divided by the
<PAGE>
S-6
aggregate initial Certificate Principal
Balance of all of the Certificates. See
"Description of the Certificates -
Distributions" herein and in the
Prospectus.
Interest..............................Holders of Certificates will be entitled
to distribu- tions of interest payments on
the Mortgage Loans on each Distribution
Date based on the Pass- Through Rate and
the then outstanding Certificate Principal
Balance thereof.
Shortfalls in collections of interest
resulting from principal prepayments in
full on Mortgage Loans[, to the extent not
covered by the application of concurrent
servicing compensation of the Master
Servicer] will be allocated pro rata among
all Certificates then outstanding. See
"Description of the Certificates -
Distributions" herein and in the
Prospectus [and "Yield on the Certificates
and Prepayments of the Mortgage Loans"
herein].
The Mortgage Pool.....................The Mortgage Pool will consist of 30-year,
fixed interest rate, level monthly
payment, fully amor- tizing Mortgage Loans
with an aggregate principal balance as of
the Cut-off Date of approximately
$_____________ (subject to a permitted
variance of plus or minus ___%). [Include
appropriate information, with
corresponding changes, for different types
of loans.] See "The Mortgage Pool" herein.
Denominations.........................The Certificates offered hereby will be
offered in registered form, in
denominations evidencing initial
Certificate Principal Balances of
$___________ and multiples of $_______ in
excess thereof, with one Certificate
evidencing the remainder of the aggregate
initial Certificate Principal Balance.
Record Date...........................All distributions will be made by or on
behalf of the Trustee to the persons in
whose names the Certificates are
registered at the close of business on the
last business day of the month preceding
the month in which the related
Distribution Date occurs. See "Description
of the Certificates - Distributions"
herein.
<PAGE>
S-7
Credit Support:
A. Pool Insurance Policy............The Master Servicer will obtain and
exercise its best reasonable efforts to
cause to be kept in full force and effect
a Pool Insurance Policy issued by
------------------------------------------
__________, in an initial amount equal to
______% of the aggregate principal balance
of the Mortgage Loans as of the Cut- off
Date. See "Description of Credit Support -
Pool Insurance Policy" herein and
"Description of Credit Support - Pool
Insurance Policies" in the Prospectus.
B. Special Hazard
Insurance Policy................The Master Servicer will obtain and
exercise its best reasonable efforts to
cause to be kept in full force and effect
a Special Hazard Insurance Policy issued
by __________________________, in an
initial amount equal to _______% of the
aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. See
"Description of Credit Support - Special
Hazard Insurance Policy" herein and
"Description of Credit Support - Special
Hazard Insurance Policies" in the
Prospectus.
C. Bankruptcy Bond...................The Master Servicer will obtain and
exercise its best reasonable efforts to
cause to be kept in full force and effect
a Bankruptcy Bond issued by
__________________________________, in an
initial amount equal to _______% of the
aggregate principal balance of the
Mortgage Loans as of the Cut-off Date. See
"Description of Credit Support -
Bankruptcy Bond" herein and "Description
of Credit Support - Bankruptcy Bonds" in
the Prospectus.
Advances..............................The Master Servicer will be obligated to
make Advances to Certificateholders with
respect to delinquent payments of
principal and interest on the Mortgage
Loans, to the extent described herein. See
"Description of the Certificates - Ad-
vances" herein and in the Prospectus.
Optional Termination..................At its option, the [Depositor] [Master
Servicer] may repurchase all of the
Mortgage Loans in the
<PAGE>
S-8
Trust Fund and thereby effect early
retirement of the Certificates on any
Distribution Date on which the aggregate
principal balance of the Mortgage Loans
remaining in the Trust Fund is less than
__% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date.
See "Pooling and Servicing Agreement -
Termination" herein and "Description of
the Certificates Termination" in the
Prospectus.
Special Prepayment
Considerations.....................The rate of principal payments on the
Certificates collectively will depend on
the rate and timing of principal payments
(including prepayments, defaults and
liquidations ) on the Mortgage Loans. As
is the case with mortgage-backed
securities generally, the Certificates are
subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans
may be prepaid at any time. Generally,
when prevailing interest rates are
increasing, prepayment rates on mortgage
loans tent to decrease, resulting in a
reduced return of principal to investors
at a time when reinvestment at such higher
prevailing rates would be desirable.
Conversely, when prevailing interest rates
are declining, prepayment rates on
mortgage loans tend to increase, resulting
in a greater return of principal to
investors at a time when reinvestment at
comparable yields may not be possible. See
"Yield on the Certificates and Prepayments
of the Mortgage Loans" herein, and
"Maturity and Prepayment Considerations"
in the Prospectus.
Special Yield
Considerations.....................The yield to maturity on the Certificates
will depend on the rate and timing of
principal payments (including prepayments,
defaults, liquidations) on the Mortgage
Loans, as well as other factors as
described herein. The yield to investors
on the Certificates will be adversely
affected by any allocation thereto of
prepayment interest shortfalls on the
Mortgage Loans, which are expected to
result from the distribution of interest
only to the date of prepayment (rather
than a full month's interest) in
connection with prepayments in full, and
the lack of any
<PAGE>
S-9
distribution of interest on the amount of
any partial prepayments.
See "Yield on the Certificates and
Prepayments of the Mortgage Loans" herein,
and "Maturity and Prepayment
Considerations" in the Prospectus.
Certain Federal Income Tax
Consequences.........................Upon the issuance of the Offered
Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the
following opinion: [Assuming compliance
with the provisions of the Pooling and
Servicing Agreement, for federal income
tax purposes, the Trust Fund will qualify
as a "real estate mortgage investment
conduit" (a "REMIC") within the meaning of
Sections 860A through 860G (the "REMIC
Provisions") of the Internal Revenue Code
of 1986 (the "Code"), and (i) the Class A,
Class B and Class C Certificates will
evidence "regular interests" in such REMIC
and (ii) the Class R Certificates will be
the sole class of "residual interests" in
such REMIC, each within the meaning of the
REMIC Provisions in effect on the date
hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for
federal income tax purposes, the Trust
Fund will be classified as a grantor trust
under Subpart E, part I of subchapter J of
the Code, and not as an association
taxable as a corporation or as a
partnership.]
Under the REMIC Regulations, the Class R
Certificates will not be regarded as
having "significant value" for purposes of
applying the rules relating to "excess
inclusions." In addition, the Class R
Certificates may constitute "noneconomic"
residual interests for purposes of the
REMIC Regulations. Transfers of the Class
R Certificates will be restricted under
the Pooling and Servicing Agreement to
United States Persons in a manner designed
to prevent a transfer of a noneconomic
residual interest from being disregarded
under the REMIC Regulations. See "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein
<PAGE>
S-10
and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of
REMIC Residual Certificates-Excess
Inclusions" and "-Noneconomic REMIC
Residual Certificates" in the Prospectus.
The Class R Certificateholders may be
required to report an amount of taxable
income with respect to the early years of
the Trust Fund's term that significantly
exceeds distributions on the Class R
Certificates during such years, with
corresponding tax deductions or losses
deferred until the later years of the
Trust Fund's term. Accordingly, on a
present value basis, the tax detriments
occurring in the earlier years may
substantially exceed the sum of any tax
benefits in the later years. As a result,
the Class R Certificateholders' after-tax
rate of return may be zero or negative,
even if their pre-tax rate of return is
positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield
Considerations Applicable Solely to the
Class R Certificates", and "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein.
For further information regarding the
Federal income tax consequences of
investing in the Offered Certificates, see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
Rating................................It is a condition to the issuance of the
Certificates offered hereby that the
Certificates be rated ________________ by
_______________ ___________________. A
security rating is not a recommendation to
buy, sell or hold securities and may be
subject to revision or withdrawal at any
time by the assigning rating organization.
Each security rating should be evaluated
independently of any other security
rating. A security rating does not address
the frequency of prepayments of Mortgage
Loans, nor the corresponding effect on
yield to investors. See "Yield on the
Certificates" and "Rating" herein.
<PAGE>
S-11
Legal Investment......................The Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") so long as they are
rated as described herein, and, as such,
are legal investments for cer- tain
entities to the extent provided in SMMEA.
See "Legal Investment" in the Prospectus
and "Rating" herein.
<PAGE>
S-12
RISK FACTORS
[To Be Provided]
THE MORTGAGE POOL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after deducting payments
of principal due on such date, of [approximately] $_________________ [(subject
to a permitted variance of plus or minus __%)]. The Mortgage Loans to be
included in the Mortgage Pool will be acquired by the Depositor from
________________________, in its capacity as Unaffiliated Seller. In addition,
the [Unaffiliated Seller] will be the Master Servicer for the Certificates.
[All of the Mortgage Loans have monthly payments due on the first day
of each month. None of the Mortgage Loans are Buydown Mortgage Loans. At
origination each Mortgage Loan had a term to maturity of up to 30 years. The
mortgagor with respect to each Mortgage Loan represented in its loan application
that the Mortgaged Property initially would be owner-occupied as its primary
residence.]
[All Mortgage Loans will have Net Mortgage Rates of ____%.] [As to any
Mortgage Loan, the "Net Mortgage Rate" is equal to the Mortgage Rate minus the
Servicing Fee Rate.] The Mortgage Loans will have Mortgage Rates ranging from
___% to ___%, with a weighted average Mortgage Rate as of the Cut-off Date of
___%. The Mortgage Loans will have Servicing Fee Rates ranging from ___% to
___%, with a weighted average Servicing Fee Rate as of the Cut-off Date of ___%.
The weighted average maturity of the Mortgage Loans as of the Cut-off Date will
be approximately ___ years and ___ months. None of the Mortgage Loans will have
been originated prior to _____________ or will have an unexpired term at the
Cut-off Date of less than approximately ___ years and ___ months or more than
approximately ___ years and __ months. The Mortgage Loans will each have a
principal balance at origination of not less than $___________ or more than
$________.
The Mortgage Loans will also have the following characteristics as of
the Cut-off Date (expressed as a percentage of the aggregate principal balance
of the Mortgage Loans having such characteristics relative to the aggregate
principal balance of all Mortgage Loans):
No more than ____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80%. Mortgage
Loans with Loan-to-Value Ratios at origination exceeding 80%
will be covered by policies of primary mortgage guaranty
insurance (each, a "Primary Credit Insurance Policy") insuring
against default as to the principal amount of the Mortgage
Loans exceeding 75% (or a lesser percentage) of the Collateral
Values of the Mortgaged Properties at origination and such
insurance will be maintained until the Loan-to-Value Ratios
are reduced to 80% or less. [insert information as to FHA
insurance or VA guarantee if applicable.]
<PAGE>
S-13
At least ___% of the Mortgage Loans will be secured by
detached one-family dwelling units.
No more than ___% of the Mortgage Loans will be secured by
Mortgaged Properties located in ___________ and no more than ______% of
the Mortgage Loans will be secured by Mortgaged Properties located in
_______. [Except as indicated in the preceding sentence, no more than
___% of the Mortgage Loans will be secured by Mortgaged Properties
located in any one state.]
No more than ___% of the Mortgage Loans will be secured by
Mortgaged Properties located in any one zip code area or housing
development, and no more than ___% will be secured by Mortgaged
Properties located in any one zip code area or housing development in
California.
No more than _____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ___% of the Mortgage Loans will
be secured by condominium units.
[The foregoing type of description will be used if precise information
on the Mortgage Loans is not available on the date of the Prospectus Supplement;
a description similar to the following description will be used if precise
information is available.]
[Set forth below is a description of certain additional characteristics
of the Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
MORTGAGE RATES
Aggregate Percentage
Unpaid of Aggregate
Mortgage Number of Principal Unpaid Principal
Rates Loans Balance Balance
- -------- --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ----------------
Total $ 100%
========= ========== ================
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate was ______% per
annum.
<PAGE>
S-14
<TABLE>
<CAPTION>
REMAINING TERMS TO STATED MATURITY
Aggregate Percentage
Remaining Terms to Unpaid of Aggregate
Stated Maturity Number of Principal Unpaid Principal
(in Months) Loans Balance Balance
- ------------------ --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ----------------
--------- --------- ----------------
Total $ 100%
========= ========= ================
</TABLE>
As of the Cut-off Date, the weighted average remaining term to stated maturity
was approximately _______ months.
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Original Loan-To-Value Ratios Loans Balance Balance
- ----------------------------- --------- --------- ----------------
<S> <C> <C> <C>
Up to 70.00%..................................... $ %
70.01% - 80.00%..................................
80.01% - 90.00% ................................. _________ _________ ________________
More than 90.00%................................. _________ _________ ________________
Total................................... $ 100%
========= ========= ================
</TABLE>
As of the Cut-off Date, the weighted average loan-to-value ratio at origination
of the Mortgage Loans was _____% per annum.
<PAGE>
S-15
<TABLE>
<CAPTION>
ORIGINAL LOAN AMOUNTS
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Original Loan Amounts Loans Balance Balance
- --------------------- --------- --------- ----------------
<S> <C> <C> <C>
Up to $50,000.00................................. $ %
$ 50,000 - $ 99,999.99...........................
$100,000 - $149,999.99...........................
$150,000 - $199,999.99...........................
$200,000 - $249,999.99...........................
$250,000 - $299,999.99...........................
$300,000 - $349,999.99...........................
$350,000 - $399,999.99...........................
$400,000 - $449,999.99...........................
$450,000 - $500,000.............................. _________ _________ ________________
Total................................... $ 100%
========= ========= ================
</TABLE>
As of the Cut-off Date, the average unpaid balance of the Mortgage Loans was
$______________ and the unpaid principal balances of the largest and smallest
Mortgage Loans were $___________ and $________________, respectively.
<TABLE>
<CAPTION>
TYPES OF LOANS
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Types Loans Balance Balance
- ----- --------- --------- ----------------
<S> <C> <C> <C>
Conventional Loans secured by:
One-family detached........................... $ %
Low-rise condominiums/2 family................
High-rise condominiums/3-4 family............. ________ _________ ________________
Total................................... $ 100%
======== ========= ================
</TABLE>
<PAGE>
S-16
<TABLE>
<CAPTION>
YEARS OF ORIGINATION OF MORTGAGE LOANS
Aggregate Percentage
Unpaid of Aggregate
Years of Number of Principal Unpaid Principal
Origination Loans Balance Balance
- ----------- --------- --------- ----------------
<S> <C> <C> <C>
199_ ........................................ $ %
199_ ........................................
199_ ........................................
199_ ........................................
199_ ........................................ --------- --------- ----------------
Total................................... $ 100%
========= ========= ================
</TABLE>
<TABLE>
<CAPTION>
OCCUPANTS OF MORTGAGED PROPERTIES
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Loans Balance Balance
--------- --------- ----------------
<S> <C> <C> <C>
Owner
Primary residence ............................ $ %
Vacation/second home .........................
Non-owner occupied investment
property..................................... _________ _________ ________________
Total.................................... $ 100%
========== ========= ================
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
States Loans Balance Balance
- ------ --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ----------------
Total.................................... $ 100%
========= ========= ================
</TABLE>
[The foregoing information will be modified to the extent necessary to
describe different types of mortgage loans.]
<PAGE>
S-17
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Certificates unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range of Mortgage Rates and maturities and
certain other characteristics of the Mortgage Loans in the Mortgage Pool may
vary.
A report on Form 8-K containing a detailed description of the Mortgage
Loans will be available to purchasers of the Certificates at or before initial
issuance and will be filed with the Securities and Exchange Commission within
fifteen days after such initial issuance. The report on Form 8-K will specify
the precise aggregate principal balance of the Mortgage Loans outstanding as of
the Cut-off Date and will set forth on a precise basis the other information
presented in this Prospectus Supplement on an approximate basis.
DESCRIPTION OF THE CERTIFICATES
The Series 199__-__ Certificates will consist of a single class of
Certificates. The Certificates have an initial Certificate Principal Balance of
$____________, evidencing 100% of the aggregate principal balance of the
Mortgage Loans in the Trust Fund as of the Cut-off Date.
DISTRIBUTIONS
On each Distribution Date, the Available Distribution Amount will be
distributed to the holders of the Certificates, in each case to the extent of
available funds:
(i) the Accrued Certificate Interest thereon for such
Distribution Date (plus any Accrued Certificate Interest remaining
unpaid from a previous Distribution Date); and
(ii) an amount equal to the sum of the following, to be
applied to reduce the Certificate Principal Balance thereof:
(A) the principal portion of all scheduled monthly
payments on the related Mortgage Loans due during the related
Due Period, whether or not received;
<PAGE>
S-18
(B) the sum of the following amounts: (a) all full
and partial principal prepayments made by the respective
mortgagors during the related Prepayment Period, (b) all other
unscheduled collections, including Insurance Proceeds and
Liquidation Proceeds, representing or allocable to recoveries
of principal on the Mortgage Loans received during the related
Prepayment Period, and (c) all proceeds of the repurchase
[(or, in the case of a substitution, certain amounts
representing a principal adjustment)] of any Mortgage Loan as
required by the Agreement since the preceding Distribution
Date; and
(C) any amounts described in this clause (ii) for any
previous Distribution Date which remain unpaid.
For any Distribution Date, the Accrued Certificate Interest on the
Certificates will be an amount equal to one month's interest at the Pass-Through
Rate on the outstanding Certificate Principal Balance of such Certificates
immediately prior to such Distribution Date, based on a year of twelve 30-day
months, subject to reduction as follows.
[The Master Servicer will be obligated to apply amounts otherwise
payable to it as servicing compensation to cover any shortfalls in collections
of a full month's interest resulting from principal prepayments in full of
Mortgage Loans, to the extent of an aggregate amount equal to its total
servicing compensation for the concurrent period.] For any Distribution Date,
Accrued Certificate Interest on each Certificate will be reduced in the event of
shortfalls in collections of interest resulting from principal prepayments in
full of Mortgage Loans during the Prepayment Period [, to the extent not covered
by the application of servicing compensation of the Master Servicer, as
described above]. The aggregate amount of any such shortfalls will be allocated
among all of the outstanding Certificates, in proportion to the respective
amounts of Accrued Certificate Interest that would otherwise have been payable
thereon absent such reductions and absent any delinquencies or losses.
With respect to any Distribution Date, the Available Distribution
Amount will equal the total amount of all cash on deposit in the Certificate
Account as of the corresponding Determination Date, together with Advances made
by the Master Servicer in respect of such Distribution Date, exclusive of:
(a) all monthly payments collected but due on a date
subsequent to the related Due Period,
(b) all prepayments and other unscheduled recoveries of
principal, and related payments of interest thereon, received
subsequent to the related Prepayment Period, and
(c) any amounts in the Certificate Account which are payable
or reimbursable to the Master Servicer.
All distributions will be made by the [Trustee] [Master Servicer] to
the persons in whose names the Certificates are registered at the close of
business on each Record Date, which will be the last business day of the month
preceding the month in which the related Distribution Date
<PAGE>
S-19
occurs. Such distributions shall be made [either (i) by check mailed to the
address of each Certificateholder as it appears in the Certificate Register or
(ii) at the request to the [Trustee] [Master Servicer] in writing by the Record
Date immediately prior to such Distribution Date of any holder of Certificates
having an initial Certificate Principal Balance in excess of $_______________,
by wire transfer in immediately available funds to the account of such
Certificateholder specified in the request]. Distributions to holders of
Certificates will be allocated among such holders in proportion to their
respective Percentage Interests.
ADVANCES
Subject to the following limitations, the Master Servicer will be
obligated to advance on or before each Distribution Date its own funds, or funds
in the Certificate Account which are in excess of those included in the
Available Distribution Amount for such Distribution Date, in an aggregate amount
sufficient to assure payment to the holders of the Certificates of the total of
all amounts required to be distributed thereon on such Distribution Date as
described above under "Distributions" (after first applying towards such payment
the entire Available Distribution Amount), but not more than the aggregate of
payments of principal and interest (adjusted to the Net Mortgage Rate) which
were due during the related Due Period and delinquent on the related
Determination Date, plus certain amounts representing interest not covered by
any current net income on Mortgaged Properties acquired on behalf of
Certificateholders by foreclosure or deed in lieu of foreclosure. The obligation
of the Master Servicer to make any such Advance is subject to the good faith
determination by the Master Servicer that the Advance will be recoverable from
late collections, Insurance Proceeds or Liquidation Proceeds. By operation of
the foregoing provision, to the extent of remaining coverage under the Credit
Support described below, the Master Servicer will generally be obligated to make
Advances without regard to recoverability from the related mortgagor or
Mortgaged Property. All Advances will be reimbursable to the Master Servicer
from related late collections, Insurance Proceeds, Liquidation Proceeds from the
Mortgage Loan or, if the Master Servicer determines that an Advance is not so
recoverable, from cash otherwise distributable to the Certificateholders.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates, based upon the assumption that the Certificates were issued in
_________ 199__ and that distributions are made on the 25th of each month.
<PAGE>
S-20
_________ 1......................... Cut-off Date. The initial principal
balance of the Mortgage Loans will be the
aggregate principal balance of the
Mortgage Loans as of _________ 1, 199__,
after deducting any principal payments due
on or before such date. Any principal and
interest payments due on or before
_________ 1, as well as any Retained
Interest, will not be part of the Trust
Fund, and the Depositor will retain such
amounts when they are received.
_________ 2 through
_________ 30................... Prepayment Period. Principal payments, and
interest thereon to the date of prepayment
in the case of principal prepayments in
full, received at any time during this
period will be deposited into the
Certificate Account for distribution to
Certificateholders on ___________ 25.
_________ 30........................ Record Date. Distributions on ___________
25 will be made to Certificateholders of
record at the close of business on the
last business day of the month immediately
preceding the month of distribution.
_________ 2 to
___________ 20................. Collection Period. Payments due during the
related Due Period (_________ 2 -
___________ 1) from mortgagors will be
deposited in the Certificate Account or
Sub-Servicing account as received, and
will include scheduled principal payments
plus interest on the _________ balances,
less interest from the date of prepayment
of any Mortgage Loan prepaid in full in
_________.
___________ 20...................... Determination Date. The amounts of
principal and interest that will be
distributed on ___________ 25 will be
determined by or on behalf of the Master
Servicer.
___________ 25...................... Distribution Date. On ___________ 25, the
Master Servicer will distribute or cause
to be distributed to the
Certificateholders the amounts determined
on ___________ 20. If a monthly payment
due during the related Due Period is
received from a mortgagor after
___________ 20 and funds have been
distributed with respect to
<PAGE>
S-21
such payment from the Certificate Account,
such payment will be deposited into the
Certificate Account as reimbursement
therefor. If an Advance has been made, the
Master Servicer will reimburse itself to
the extent permitted by the Agreement by
withdrawing the amount of such payment
from the Certificate Account. If no such
Advance has been made, such late payment
will be distributed to the
Certificateholders in October.
Succeeding months follow the above
pattern, except for the Cut-off Date.
DESCRIPTION OF CREDIT SUPPORT
[POOL INSURANCE POLICY
Subject to the limitations described under "Description of Credit
Support - Pool Insurance Policies" in the Prospectus, the Master Servicer will
obtain and exercise its best reasonable efforts to keep in full force and effect
a Pool Insurance Policy. The initial amount available under the Pool Insurance
Policy will be [equal to __%] [in a range from __% to __%] of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date. [The precise
amount of coverage will be determined by the exact Mortgage Pool
characteristics, and will be included in the report on Form 8-K referred to in
"The Mortgage Pool" herein.]
The Pool Insurance Policy will be issued by ___________________________
(the "Pool Insurer"). [Include information regarding the Pool Insurer.] The
information set forth above concerning the Pool Insurer has been obtained by the
Depositor from the financial statements of the Pool Insurer.]
[SPECIAL HAZARD INSURANCE POLICY
Subject to the limitations described under "Description of Credit
Support - Special Hazard Insurance Policies" in the Prospectus, the Master
Servicer will obtain and exercise its best reasonable efforts to obtain and keep
in full force and effect a Special Hazard Insurance Policy. The initial amount
available under the Special Hazard Insurance Policy will equal [not less than]
_________% of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date.
The Special Hazard Insurance Policy will be issued by _________________
(the "Special Hazard Insurer"). [Include information regarding the Special
Hazard Insurer.] The information set forth above concerning the Special Hazard
Insurer has been obtained by the Depositor from the financial statements of the
Special Hazard Insurer.]
<PAGE>
S-22
[BANKRUPTCY BOND
Subject to the limitations described under "Description of Credit
Support - Bankruptcy Bonds" in the Prospectus, the Master Servicer will obtain
and exercise its best reasonable efforts to keep in full force and effect a
Bankruptcy Bond. The initial amount available under the Bankruptcy Bond will be
$____________.
The Bankruptcy Bond will be issued by _____________________ (the
"Bankruptcy Bond Issuer"). [Include information regarding the Bankruptcy Bond
Issuer.] The information set forth above concerning the Bankruptcy Bond Issuer
has been obtained by the Depositor from the financial statements of the
Bankruptcy Bond Issuer.]
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS
DELAY IN PAYMENT OF INTEREST
The effective yield to the holders of the Certificates will be lower than the
yield otherwise produced by the applicable Pass-Through Rate and purchase price
because monthly interest will not be payable to such holders until the 25th day
(or if such day is not a business day, then on the next succeeding business day)
of the month following the month of accrual (without any additional distribution
of interest or earnings thereon in respect of such delay). See "Yield
Considerations" and "Description of the Certificates - Retained Interest,
Servicing Compensation and Payment of Expenses" in the Prospectus.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Certificates, the aggregate
amount of distributions on the Certificates and the yield to maturity of the
Certificates will be directly related to the rate of payments of principal on
the Mortgage Loans. The rate of principal payments on the Mortgage Loans will in
turn be affected by the amortization schedules of the Mortgage Loans and by the
rate of principal prepayments thereon (including for this purpose payments
resulting from refinancings, liquidations of the Mortgage Loans due to defaults,
casualties, condemnations and repurchases by the Unaffiliated Seller, the Master
Servicer and Depositor). The Mortgage Loans may be prepaid by the mortgagors at
any time without payment of any prepayment fee or penalty. Prepayments,
liquidations and purchases of the Mortgage Loans will result in distributions to
Certificateholders of amounts which would otherwise be distributed over the
remaining terms of the Mortgage Loans. See "Maturity and Prepayment
Considerations" in the Prospectus. Since the rate of payment of principal on the
Mortgage Loans will depend on future events and a variety of factors (as
described more fully herein and in the Prospectus under "Yield Considerations"
and "Maturity and Prepayment Considerations"), no assurance can be given as to
such rate or the rate of principal prepayments.
In general, if prevailing mortgage rates fell significantly below the
Mortgage Rates on the Mortgage Loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing mortgage rates rose
significantly above the Mortgage Rates on the
<PAGE>
S-23
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease. The rate of payments (including prepayments) on pools of mortgage
loans is also influenced by a variety of economic, geographic, social and other
factors, including changes in mortgagors' housing needs, job transfers,
unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. Accordingly, there can be no certainty as to the rate of prepayments
on the Mortgage Loans during any period or over the life of the Certificates.
See "Yield Considerations" and "Maturity and Prepayment Considerations" in the
Prospectus.
The Mortgage Loans are subject to assumption under circumstances
described under "Description of the Certificates - Collection and other
Servicing Procedures" and "Certain Legal Aspects of Residential Loans -
Enforceability of Certain Provisions; Prepayment Charges and Prepayments" in the
Prospectus. The extent to which the Mortgage Loans are assumed by purchasers of
the Mortgaged Properties rather than prepaid by the related mortgagors in
connection with the sales of the Mortgaged Properties will affect the weighted
average life of the Certificates. See "Maturity and Prepayment Considerations"
in the Prospectus.
Since the rate of principal payments (including prepayments) on the
Mortgage Loans will significantly affect the yield to maturity on the
Certificates, prospective investors are urged to consult their investment
advisors as to both the rate of future principal payments (including
prepayments) on the Mortgage Loans and the suitability of the Certificates to
their investment objectives.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates offered hereby will be issued pursuant to a Pooling
and Servicing Agreement (the "Agreement") to be dated as of _____________ 1,
199__, among the Depositor, the Master Servicer and the Trustee, a form of which
is filed as an exhibit to the Registration Statement. Reference is made to the
Prospectus for important information additional to that set forth herein
regarding the terms and conditions of the Agreement and the Certificates. [The
Trustee will appoint ________________________ (the "Custodian"), to serve as
Custodian in connection with the Certificates.] The Certificates will be
transferable and exchangeable at the corporate trust office of
______________________________________________________, located in
________________________________, which will serve as Certificate Registrar.
____________________ [__________ will act as paying agent and authenticating
agent.] No service charge will be made for any transfer or exchange of
Certificates but the [Trustee] [Certificate Registrar] may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with the transfer or exchange of Certificates. The Depositor will
provide to a prospective or actual Certificateholder without charge, on written
request, a copy (without exhibits) of the Agreement. Requests should be
addressed to PaineWebber Mortgage Acceptance Corp. IV, 1285 Avenue of the
Americas, New York, New York 10019, Attention: ________________.
<PAGE>
S-24
THE MASTER SERVICER
_____________________________, a _____________________ (the "Master
Servicer"), will act as Master Servicer for the 199__-___ Certificates pursuant
to the Agreement. The Master Servicer's principal executive offices are located
at _________ ___________________________, and its telephone number is ________
___________. [Describe other locations and general operations of the Master
Servicer.]
The following table summarized the foreclosure experience on
conventional residential first trust deeds or mortgage loans serviced by the
Master Servicer during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
199_ 199_ 199_ 199_
----------------------------------------------------------------------------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C>
Principal Balance
(end of period)..................... $ $ $ $
------------------- ------------------ ------------------ ------------------
Total Number of Loans.................. -------------------- ------------------- ------------------- -------------------
Total Number of
Foreclosures........................ -------------------- ------------------- ------------------- -------------------
Percent Foreclosed
by Number of Loans.................. % % % %
------------------- ------------------ ------------------ -------------------
</TABLE>
The following table summarizes the delinquency experience on
conventional residential first trust deeds or mortgage loans serviced by the
Master Servicer during the periods indicated:
<PAGE>
S-25
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
199_ 199_ 199_ 199_
----------------------------------------------------------------------------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C>
Period of Delinquency:
30-59 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
60-89 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
90 days or more $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
In foreclosure
Principal Balance $ $ $ $
Number of Loans
Percent Delinquent by
Number of Loans
% % % %
Total Delinquent and in
Foreclosure $ $ $ $
Principal Balance
Number of Loans
Percent Delinquent by
Number of Loans % % % %
</TABLE>
While the above foreclosure and delinquency experience is typical of
the Master Servicer's recent experience, there can be no assurance that the
future experience on the Mortgage Loans will be the same. In addition, the
foregoing is based on all of the conventional loans in the Master Servicer's
servicing portfolio. The Mortgage Loans may be more recently originated than and
may have certain other characteristics unlike the majority of the loans in the
Master Servicer's conventional servicing portfolio.
<PAGE>
S-26
THE TRUSTEE
______________________________________________________________________,
a ___________________________________ (the "Trustee"), will act as Trustee for
the Series 199__-____ Certificates pursuant to the Agreement. The Trustee's
principal executive offices are located at _________________, and its telephone
number is _____________.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities for the Certificates will be equal to the
product of the Servicing Fee Rate times the Scheduled Principal Balance of each
Mortgage Loan in the Mortgage Pool. As to any Mortgage Loan, the Servicing Fee
Rate is equal to ___% per annum. The Master Servicer is obligated to pay certain
ongoing expenses associated with the Mortgage Pool and incurred by the Master
Servicer in connection with its responsibilities under the Agreement, including
compensation of any Sub-Servicers. The Master Servicer is also obligated to
include in each distribution on the Certificates that portion of its servicing
compensation equal to interest at the Net Mortgage Rate on the principal balance
of any Mortgage Loan as to which a prepayment or liquidation occurs, such
interest commencing on the date of the prepayment or liquidation and ending on
the due date of the Mortgage Loan immediately following the date of the
prepayment or other liquidation. See "Description of the Certificates - Retained
Interest, Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Servicer and for
information regarding expenses payable by the Master Servicer.
VOTING RIGHTS
At all times, the Voting Rights will be allocated among the holders of
the Certificates in proportion to the Percentage Interests evidenced thereby.
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of the Certificates are described in "Description of
the Certificates - Termination" in the Prospectus. The [Depositor] [Master
Servicer] will have the right to repurchase all remaining Mortgage Loans in the
Mortgage Pool and thereby effect early retirement of the Certificates, subject
to the aggregate principal balance of the Mortgage Loans at the time of
repurchase being less than ___% of the aggregate principal balance of such
Mortgage Loans as of the Cut-off Date. In the event the [Depositor] [Master
Servicer] exercises such option, the repurchase price distributed with respect
to each Certificate will be 100% of its then outstanding Certificate Principal
Balance plus interest thereon at the Pass-Through Rate. In no event will the
trust created by the Agreement for a series of Certificates continue beyond the
expiration of 21 years from the death of the survivor of the person or persons
named in the Agreement.
<PAGE>
S-27
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the following opinion: [Assuming
compliance with the provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a "real estate
mortgage investment conduit" (a "REMIC") within the meaning of Sections 860A
through 860G (the "REMIC Provisions") of the Internal Revenue Code of 1986 (the
"Code"), and (i) the Class A, Class B and Class C Certificates will evidence
"regular interests" in such REMIC and (ii) the Class R Certificates will be the
sole class of "residual interests" in such REMIC, each within the meaning of the
REMIC Provisions in effect on the date hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust Fund
will be classified as a grantor trust under Subpart E, part I of subchapter J of
the Code, and not as an association taxable as a corporation or as a
partnership.]
The __________ Certificates [may] [will] [will not] be treated as
having been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of __%]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the Prospectus.
The ___________________ Certificates may be treated for Federal income
tax purposes as having been issued at a premium. Whether any holder of [either]
such Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code, and interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860(A)(3) of the Code. See
"Certain Federal Income Tax Consequences-REMICs-Characterization of Investments
in REMIC Certificates" in the Prospectus.
________________________, a _______________, will act as REMIC
Administrator for the Trust Fund. [The Master Servicer will be responsible for
the fees and normal disbursements of the REMIC Administrator.] See "Certain
Federal Income Tax Consequences-REMICs-Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements-Certain Matters Regarding the
Master Servicer, the Special Servicer, the
<PAGE>
S-28
REMIC Administrator and the Depositor", "-Events of Default" and "-Rights Upon
Event of Default" in the Prospectus.
For further information regarding the Federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO REMIC RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders
of REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to: (i) thrift institutions holding residual interests having
"significant value" and (ii) the transfer of "noneconomic" residual interests to
United States persons. Pursuant to the Pooling and Servicing Agreement, the
Class R Certificates may not be transferred to non-United States persons. See
"Certain Federal Income Tax Consequences--REMICS--Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Class R Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Class R Certificates, which will be in an amount equal to
all or virtually all of the taxable income includable by holders of the Class R
Certificates. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, if "a significant purpose of the transfer was
to impede the assessment or collection of tax." Based on the REMIC Regulations,
the Class R Certificates may constitute noneconomic residual interests during
some or all of their terms for purposes of the REMIC Regulations and,
accordingly, if a significant purpose of a transfer is to impede the assessment
or collection of tax, transfers of the Class R Certificates may be disregarded
and purported transferors may remain liable for any taxes due with respect to
the income on the Class R Certificates. All transfers of the Class R
Certificates will be subject to certain restrictions under the terms of the
Pooling and Servicing Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Class R Certificates
constitute noneconomic residual interests. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual
Certificates-Noneconomic REMIC Residual Certificates" in the Prospectus.
<PAGE>
S-29
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under
the Pooling and Servicing Agreement, the holder of the largest Percentage
Interest in the Class R Certificates shall, by its acceptance of such
Certificates, agree to irrevocably appoint the Master Servicer as its agent to
perform all of the duties of the tax matters person for the REMIC.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences
of investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations Applicable Solely to the Class R
Certificates" herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the Underwriting
Agreement dated ____________, 199__ (the "Underwriting Agreement"), the
Depositor has agreed to sell and PaineWebber Incorporated (the "Underwriter")
has agreed to purchase the Certificates. The Underwriter is obligated to
purchase all Certificates offered hereby if any are purchased.]
[The Depositor has been advised by the Underwriter that it proposes
initially to offer all of the Certificates to the public at the public offering
prices set forth on the cover page of this Prospectus Supplement and to certain
dealers at such prices less a concession not in excess of ___% of the initial
Certificate Principal Balance of the Certificates. The Underwriter may allow and
such dealers may reallow concessions not in excess of ___% of the initial
aggregate Certificate Principal Balance of the Certificates. After the initial
public offering, the public offering price and such concessions may be changed.]
<PAGE>
S-30
[Distribution of the Certificates will be made [by _________] from time
to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Certificates will be _____% of the aggregate of the Certificate Principal
Balances initially represented by the Certificates, plus accrued interest at the
Pass-Through Rate from the Cut-off Date but before deducting expenses payable by
the Depositor. In connection with the purchase and sale of the Certificates, the
Underwriter may be deemed to have received compensation from the Depositor in
the form of underwriting discounts.]
The Underwriting Agreement provides that the Depositor and its parent
corporation will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act of 1933, or will contribute to
payments the Underwriter may be required to make in respect thereof.
There can be no assurance that a secondary market for the Certificates
will develop or, if it does develop, that it will continue. The primary source
of information available to investors concerning the Certificates will be the
monthly statements discussed in the Prospectus under "Description of the
Certificates -- Statements to Certificateholders," which will include
information as to the outstanding principal balance of the Certificates and the
status of the applicable form of credit enhancement. There can be no assurance
that any additional information regarding the Certificates will be available
through any other source. In addition, the Depositor is not aware of any source
through which price information about the Certificates will be generally
available on an ongoing basis. The limited nature of such information regarding
the Certificates may adversely affect the liquidity of the Certificates, even if
a secondary market for the Certificates become available.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Depositor and for the Underwriter by Thacher Proffitt & Wood, New York,
New York.
RATING
[It is a condition to issuance that the Certificates offered hereby be
rated in the second highest rating category by such nationally recognized
statistical rating organization as the Depositor may designate]. [rating agency
language] See "Yield on the Certificates and Prepayments of the Mortgage Loans"
herein.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1996
PROSPECTUS SUPPLEMENT [Version 2]
(To Prospectus dated ____________, 199__)
$___________________ initial Senior Certificate
Principal Balance (Approximate)
Senior Asset-Backed Certificates, Series 199__-______
_______% Pass-Through Rate
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Depositor
- -----------------------------------
Master Servicer
The Series 199__-__ Certificates will consist of a single class of Senior
Certificates and [a single class] [two classes] of Subordinate Certificates. The
Senior Certificates are designated as the Class A Certificates and the
Subordinate Certificates are designated as the Class B[-1 and Class B-2]
Certificates. Only the Senior Certificates are offered hereby.
The Series 199__-__ Certificates will represent in the aggregate the entire
beneficial ownership in a trust fund (the "Trust Fund") consisting primarily of
a segregated pool of conventional [oneto four-family [30-year, fixed interest
rate] first mortgage loans (the "Mortgage Loans") having an aggregate principal
balance as of __________, 199_ of approximately $__________ (subject to a
permitted variance as described herein under "Additional Information") to be
sold by PaineWebber Mortgage Acceptance Corporation IV (the "Depositor").
Principal and interest are payable on the 25th day of each month or, if such day
is not a business day, then on the next succeeding business day, beginning in
_____________ (each, a "Distribution Date").
Except under certain circumstances described herein, shortfalls in collections
on the Mortgage Loans will be allocated first to the Subordinate Certificates.
As further described herein, until the Distribution Date occurring in
___________________, or on any Distribution Date thereafter on which the Senior
Percentage (as described herein) is greater than the initial Senior Percentage,
all principal prepayments on the Mortgage Loans will be distributed solely to
holders of the Senior Certificates.
There is currently no secondary market for the Certificates offered hereby and
there can be no assurance that a secondary market for the Certificates will
develop. PaineWebber Incorporated expects to establish a market in the
Certificates offered hereby, but is not obligated to do so. There is no
assurance that any such market, if established, will continue.
<PAGE>
S-2
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-____ OF THIS PROSPECTUS SUPPLEMENT AND PAGE ____ OF THE
ACCOMPANYING PROSPECTUS.
[An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit" ("REMIC") for federal income tax purposes. As described more
fully herein and in the Prospectus, the Class A Certificates will constitute
"regular interests" in the REMIC. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.]
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH
HEREIN. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
[________________________________________________________________________________________________
Aggregate
Initial
Certificate Underwriting Proceeds to
Principal Price to Discounts and the Depositor
Balance Public(1) Commissions (1)(2)
----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Series 199__-__ Certificates...... $ % %
%
_________________________________________________________________________________________________
(1) Plus accrued interest from ______________, 199__.
(2) Before deducting expenses payable by the Depositor estimated to be $_____________.]
</TABLE>
[The Senior Certificates offered hereby will be [purchased by PaineWebber
Incorporated (the "Underwriter") from the Depositor and will be] offered by [the
Underwriter] from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Senior Certificates, before deducting
expenses payable by the Depositor estimated to be $___________, will be ____% of
the aggregate of the initial Certificate Principal Balance of the Senior
Certificates, plus accrued interest at the Pass-Through Rate from
______________, 199__.]
<PAGE>
S-3
The Senior Certificates offered hereby [are] [will be purchased by PaineWebber
Incorporated (the "Underwriter") from the Depositor and will be] offered subject
to receipt and acceptance by the Under- writer, to prior sale and to the
Underwriter's right to reject any order in whole or in part and to withdraw,
cancel or modify the offer without notice. It is expected that delivery of the
Senior Certificates offered hereby will be made at the office of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York, 10019 [or through
the facilities of The Depository Trust Company] on or about ___________________,
199__.
__________________________
PaineWebber Incorporated
____________, 199__
<PAGE>
S-4
The Senior Certificates offered by this Prospectus Supplement will be part of a
separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated ___________, 199__, of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
TABLE OF CONTENTS
Page
----
SUMMARY OF PROSPECTUS SUPPLEMENT ............................................S-6
RISK FACTORS ...............................................................S-14
THE MORTGAGE POOL ..........................................................S-14
ADDITIONAL INFORMATION .....................................................S-18
DESCRIPTION OF THE CERTIFICATES ............................................S-19
Advances ..........................................................S-24
Allocation of Losses; Subordination ...............................S-24
[Reserve Fund .....................................................S-25
Example of Distributions ..........................................S-25
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS ......................................................S-27
Delay in Payment of Interest ......................................S-27
Prepayment Considerations and Risks ...............................S-27
POOLING AND SERVICING AGREEMENT ............................................S-28
General ...........................................................S-28
The Master Servicer ...............................................S-28
The Trustee .......................................................S-31
Servicing and Other Compensation and Payment of Expenses ..........S-31
Voting Rights .....................................................S-31
Termination .......................................................S-31
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ....................................S-32
PLAN OF DISTRIBUTION .......................................................S-32
LEGAL MATTERS ..............................................................S-33
RATING .....................................................................S-33
<PAGE>
S-5
Until _______________, all dealers effecting transactions in the Senior
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus Supplement and the Prospectus to which it relates. This
is in addition to the obligation of dealers to deliver a Prospectus Supplement
and Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
S-6
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Prospectus. An Index of Significant Definitions is included at
the end of the Prospectus.
Title of Series..................... Asset-Backed Certificates, Series 199__-__
___% Pass- Through Rate (the
"Certificates").
Senior Certificates................. $_____________ initial Certificate
Principal Balance (approximate), ___%
Pass-Through Rate, evidencing
approximately _____% (the initial "Senior
Percentage") of the aggregate principal
balance of the Mortgage Loans as of
____________ 1, 199__ (the "Cut-off
Date").
Subordinate Certificates............ As to Class B[-1], $______________ initial
Certificate Principal Balance
(approximate), ____% Pass-Through Rate,
evidencing approximately ____% of the
aggre- gate principal balance of the
Mortgage Loans as of the Cut-off Date.
[The Class B-2 Certificates, which have no
Certificate Principal Balance and no
Pass-Through Rate, represent the right to
receive the amount, if any, remaining in
the Trust Fund after the Senior Cer-
tificates and the Class B-1 Certificates
have been retired.] See "Description of
the Certificates - Distributions" herein.
The Subordinate Certificates are not being
offered hereby, and may be sold at any
time to one or more institutional
investors in accordance with the terms of
the Pooling and Servicing Agreement, dated
as of ___________ 1, 199__, pursuant to
which the Series 199__-__ Certificates
will be issued (the "Agreement").
Depositor........................... PaineWebber Mortgage Acceptance
Corporation IV, a wholly-owned limited
purpose finance subsidiary of PaineWebber
Group Inc., and an affiliate of the
Underwriter. See "The Depositor" in the
Prospectus.
Trustee............................. ________________________________________.
See "Pooling and Servicing Agreement - The
Trustee" herein.
<PAGE>
S-7
Master Servicer..................... _____________________________. See
"Pooling and Servicing Agreement - The
Master Servicer" herein.
Principal (including
prepayments)...................... Principal on the Certificates is payable
on the 25th day of each month or, if such
day is not a business day, then on the
next succeeding business day, beginning in
____________ 199_ (each, a "Distribution
Date") Holders of the Senior Certificates
and holders of the [Class B-1[Subordinate]
Certificates will be entitled to receive
on each Distribution Date principal
payments on the Mortgage Loans (including
principal prepay- ments) in the respective
amounts and order of priority as described
herein and in the Prospectus.
To the extent of available funds, holders
of the Senior Certificates will be
entitled to receive on each Distribution
Date (i) the then applicable Senior
Percentage of all scheduled principal
payments due on the Mortgage Loans during
the period commencing on the second day of
the month prior to the month of
distribution and ending on the first day
of the month of distribution (the "Due
Period"), (ii) the then applicable Senior
[Prepayment] Percentage of all prepayments
and certain other unscheduled principal
recoveries received with respect to the
Mortgage Loans in the month prior to the
month of distribution (the "Prepayment
Period"), and (iii) as to any defaulted
Mortgage Loan which is finally liquidated
in the Prepayment Period, an amount
representing the net amount of principal
recovered (plus an additional amount
representing the Unrecovered Senior
Portion as defined herein), but not more
than the then applicable Senior Percentage
of the Scheduled Principal Balance thereof
(as defined herein).
The "Senior Percentage" initially will be
approximately ____%, and on each
Distribution Date will be adjusted to
reflect the then current ownership
interest in the Trust Fund evidenced by
the Senior Certificates. [The Senior
Prepayment Percentage initially will be
100%; starting on the Distribution Date
occurring in _________________, it will
decline annually in accor- dance with a
schedule described herein until it equals
the then applicable Senior Percentage;
however, the Senior Prepayment Percentage
will be 100% for any
<PAGE>
S-8
Distribution Date on which the then
applicable Senior Percentage is greater
than the initial Senior Percentage. This
will have the effect of accelerating the
amortization of the Senior Certificates
while increasing the proportionate
interest in the Trust Fund evidenced by
the Subordinate Certificates. Increasing
the proportionate interest of the
Subordinate Certificates relative to that
of the Senior Certificates is intended to
preserve the availability of the
subordination provided by the Subordinate
Certificates. See "Description of the
Certificates - Distributions" herein and
in the Prospectus.] Holders of the Senior
Certificates and [Class B-1] [Subordinate]
Certificates will be entitled to receive
such principal payments and prepayments
allocated to that class on each
Distribution Date on a pro rata basis in
accordance with the Percentage Interest
evidenced by their respective
Certificates. The Percentage Interest
evidenced by any Certificate is equal to
the initial Certificate Principal Balance
thereof divided by the aggregate initial
Certificate Principal Balance of all of
the Certificates of the respective class.
Interest............................ To the extent of available funds, holders
of the Senior Certificates and the [Class
B-1][Subordinate] Certifi- cates will be
entitled to distributions of interest pay-
ments on the Mortgage Loans on each
Distribution Date based on the applicable
Pass-Through Rate and the then outstanding
Certificate Principal Balance there- of.
Shortfalls in collections of interest
resulting from principal prepayments in
full on Mortgage Loans [, to the extent
not covered by the application of
concurrent servicing compensation of the
Master Servicer] will be allocated pro
rata among all classes of Certificates
then outstanding. Shortfalls in
collections of interest result- ing from
delinquencies will be borne by the
Subordinate Certificates so long as they
remain outstanding. See "Description of
the Certificates - Dis- tributions" herein
and in the Prospectus [and "Yield on the
Certificates and Prepayments of the
Mortgage Loans" herein].
Allocation of Losses................ Subject to the limitations described
herein [(including the limitation relating
to allocation of Special Hazard Realized
Losses)], losses of principal realized on
the
<PAGE>
S-9
Mortgage Loans will be allocated to the
Subordinate Certificates prior to
allocation to the Senior Certificates. See
"Description of the Certificates -
Allocation of Losses; Subordination"
herein.
[Reserve Fund....................... In order to preserve the availability of
the subordination provisions described
herein the [Master Servicer] shall
establish and maintain a Reserve Fund. See
"Description of the Certificates - Reserve
Fund" herein and "Description of Credit
Support - Reserve Funds" in the
Prospectus.]
The Mortgage Pool................... The Mortgage Pool will consist of 30-year,
fixed interest rate, level monthly
payment, fully amortizing Mortgage Loans,
with an aggregate principal balance as of
the Cut-off Date of approximately
$___________ (subject to a permitted
variance of plus or minus _____%).
[Include appropriate information, with
corresponding changes, for different types
of loans.] See "The Mortgage Pool" herein.
Denominations....................... The Senior Certificates offered hereby
will be offered in registered form, in
denominations evidencing initial
Certificate Principal Balances of
$___________ and multiples of $_______ in
excess thereof, with one Cer- tificate
evidencing an additional amount equal to
the re- mainder of the aggregate initial
Certificate Principal Balance.
Record Date......................... All distributions will be made by or on
behalf of the Trustee to the persons in
whose names the Certificates are
registered at the close of business on the
last business day of the month preceding
the month in which the related
Distribution Date occurs. See "Description
of the Certificates - Distributions"
herein.
Advances............................ The Master Servicer will be obligated to
make Advances to holders of the Senior
Certificates in respect of delinquent
payments of principal and interest on the
Mortgage Loans, to the extent described
herein. See "Description of the
Certificates-Advances" herein and in the
Prospectus.
Optional Termination................ At its option, the [Depositor][Master
Servicer] may repurchase all of the
Mortgage Loans in the Trust Fund
<PAGE>
S-10
and thereby effect early retirement of the
Certificates on any Distribution Date on
which the aggregate principal balance of
the Mortgage Loans remaining in the Trust
Fund is less than __% of the aggregate
principal balance of the Mortgage Loans as
of the Cutoff Date. See "Pooling and
Servicing Agreement Termination" herein
and "Description of the Certificates -
Termination" in the Prospectus.
Special Prepayment
Considerations................... The rate of principal payments on the
Senior Certificates collectively will
depend on the rate and timing of principal
payments (including prepayments, defaults
and liquidations ) on the Mortgage Loans.
As is the case with mortgage-backed
securities generally, the Senior
Certificates are subject to substantial
inherent cash-flow uncertainties because
the Mortgage Loans may be prepaid at any
time. Generally, when prevailing interest
rates are increasing, prepayment rates on
mortgage loans tent to decrease, resulting
in a reduced return of principal to
investors at a time when reinvestment at
such higher prevailing rates would be
desirable. Conversely, when prevailing
interest rates are declining, prepayment
rates on mortgage loans tend to increase,
resulting in a greater return of principal
to investors at a time when reinvestment
at comparable yields may not be possible.
See "Yield on the Certificates and
Prepayments of the Mortgage Loans" herein,
and "Maturity and Prepayment
Considerations" in the Prospectus.
Special Yield
Considerations................... The yield to maturity on the Senior
Certificates will depend on the rate and
timing of principal payments (including
prepayments, defaults, liquidations) on
the Mortgage Loans, as well as other
factors as described herein. The yield to
investors on the Certificates will be
adversely affected by any allocation
thereto of prepayment interest shortfalls
on the Mortgage Loans, which are expected
to result from the distribution of
interest only to the date of prepayment
(rather than a full month's interest) in
connection with prepayments in full, and
the lack of any distribution of interest
on the amount of any partial prepayments.
<PAGE>
S-11
See "Yield on the Certificates and
Prepayments of the Mortgage Loans" herein,
and "Maturity and Prepayment
Considerations" in the Prospectus.
[Certain Federal Income Tax
Consequences ...................... Upon the issuance of the Offered
Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the
following opinion: [Assuming compliance
with the provisions of the Pooling and
Servicing Agreement, for federal income
tax purposes, the Trust Fund will qualify
as a "real estate mortgage investment
conduit" (a "REMIC") within the meaning of
Sections 860A through 860G (the "REMIC
Provisions") of the Internal Revenue Code
of 1986 (the "Code"), and (i) the Class A,
Class B and Class C Certificates will
evidence "regular interests" in such REMIC
and (ii) the Class R Certificates will be
the sole class of "residual interests" in
such REMIC, each within the meaning of the
REMIC Provisions in effect on the date
hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for
federal income tax purposes, the Trust
Fund will be classified as a grantor trust
under Subpart E, part I of subchapter J of
the Code, and not as an association
taxable as a corporation or as a
partnership.]
Under the REMIC Regulations, the Class R
Certificates will not be regarded as
having "significant value" for purposes of
applying the rules relating to "excess
inclusions." In addition, the Class R
Certificates may constitute "noneconomic"
residual interests for purposes of the
REMIC Regulations. Transfers of the Class
R Certificates will be restricted under
the Pooling and Servicing Agreement to
United States Persons in a manner designed
to prevent a transfer of a noneconomic
residual interest from being disregarded
under the REMIC Regulations. See "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein and "Certain
Federal Income Tax
Consequences-REMICs-Taxation of Owners of
REMIC Residual Certificates-Excess
Inclusions" and "-Noneconomic REMIC
Residual Certificates" in the Prospectus.
<PAGE>
S-12
The Class R Certificateholders may be
required to report an amount of taxable
income with respect to the early years of
the Trust Fund's term that significantly
exceeds distributions on the Class R
Certificates during such years, with
corresponding tax deductions or losses
deferred until the later years of the
Trust Fund's term. Accordingly, on a
present value basis, the tax detriments
occurring in the earlier years may
substantially exceed the sum of any tax
benefits in the later years. As a result,
the Class R Certificateholders' after-tax
rate of return may be zero or negative,
even if their pre-tax rate of return is
positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield
Considerations Applicable Solely to the
Class R Certificates", and "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein.
For further information regarding the
Federal income tax consequences of
investing in the Offered Certificates, see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
Rating.............................. It is a condition to the issuance of the
Certificates offered hereby that the
Senior Certificates be rated ____ by
___________. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization. Each security rating
should be evaluated independently of any
other security rating. A security rating
does not address the fre- quency of
prepayments of Mortgage Loans, or the
corresponding effect on yield to
investors. See "Yield on the Certificates"
and "Rating" herein.
Legal Investment.................... The Senior Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long
as they are rated as described herein,
and, as such, are legal investments for
certain entities to the extent provided in
SMMEA. See "Legal Investment" in the
Prospectus and "Rating" herein.
<PAGE>
S-13
RISK FACTORS
[To Be Provided]
THE MORTGAGE POOL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after deducting payments
of principal due on such date, of [approximately] $_________________ [(subject
to a permitted variance of plus or minus __%)]. The Mortgage Loans to be
included in the Mortgage Pool will be acquired by the Depositor from
________________________, in its capacity as Unaffiliated Seller. In addition,
the [Unaffiliated Seller] will be the Master Servicer for the Certificates.
[All of the Mortgage Loans have monthly payments due on the first day
of each month. None of the Mortgage Loans are Buydown Mortgage Loans. At
origination each Mortgage Loan had a term to maturity of up to 30 years. The
mortgagor with respect to each Mortgage Loan represented in its loan application
that the Mortgaged Property initially would be owner-occupied as its primary
residence.]
All Mortgage Loans will have Net Mortgage Rates of ____%. As to any
Mortgage Loan, the "Net Mortgage Rate" is equal to the Mortgage Rate minus the
Servicing Fee Rate. The Mortgage Loans will have Mortgage Rates ranging from
___% to ___%, with a weighted average Mortgage Rate as of the Cut-off Date of
___%. The Mortgage Loans will have Retained Interest Rates ranging from ___% to
___%, with a weighted average Retained Interest Rate as of the Cut-off Date of
___%. The weighted average maturity of the Mortgage Loans as of the Cut-off Date
will be approximately ___ years and ___ months. None of the Mortgage Loans will
have been originated prior to _____________ or will have an unexpired term at
the Cut-off Date of less than approximately ___ years and ___ months or more
than approximately ___ years and __ months. The Mortgage Loans will each have a
principal balance at origination of not less than $___________ or more than
$________.
The Mortgage Loans will also have the following characteristics as of
the Cut-off Date (expressed as a percentage of the aggregate principal balance
of the Mortgage Loans having such characteristics relative to the aggregate
principal balance of all Mortgage Loans):
No more than ____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80%. Mortgage Loans with
Loan-to-Value Ratios at origination exceeding 80% will be covered by
policies of primary mortgage guaranty insurance (each, a "Primary
Credit Insurance Policy") insuring against default as to the principal
amount of the Mortgage Loans exceeding 75% (or a lesser percentage) of
the Collateral Values of the Mortgaged Properties at origination and
such insurance will be maintained until the Loan-to-Value Ratios are
reduced to 80% or less. [insert information as to FHA insurance or VA
guarantee if applicable.]
At least ___% of the Mortgage Loans will be secured by
detached one-family dwelling units.
<PAGE>
S-14
No more than ___% of the Mortgage Loans will be secured by
Mortgaged Properties located in ___________ and no more than ______% of
the Mortgage Loans will be secured by Mortgaged Properties located in
_______. Except as indicated in the preceding sentence, no more than
___% of the Mortgage Loans will be secured by Mortgaged Properties
located in any one state.
No more than ___% of the Mortgage Loans will be secured by
Mortgaged Properties located in any one zip code area or housing
development, and no more than ___% will be secured by Mortgaged
Properties located in any one zip code area or housing development in
California.
No more than _____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ___% of the Mortgage Loans will
be secured by condominium units.
The foregoing type of description will be used if precise information
on the Mortgage Loans is not available on the date of the Prospectus Supplement;
a description similar to the following description will be used if precise
information is available.
Set forth below is a description of certain additional characteristics
of the Mortgage Loans as of the Cut-off Date:
<TABLE>
MORTGAGE RATES
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Mortgage Number of Principal Unpaid Principal
Rates Loans Balance Balance
- ------- --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ---------------
Total $ 100%
============= ============= ===============
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate was _____% per annum.
<PAGE>
S-15
<TABLE>
REMAINING TERMS TO STATED MATURITY
<CAPTION>
Aggregate Percentage
Remaining Terms to Unpaid of Aggregate
Stated Maturity Number of Principal Unpaid Principal
(In Months) Loans Balance Balance
- --------------- --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ------------
Total...................................... $ 100%
============= ============= ============
</TABLE>
As of the Cut-off Date, the weighted average remaining term to stated maturity
was approximately _______ months.
<TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Original Loan-to-value Ratios Loans Balance Balance
- ----------------------------- ----------- ---------- ----------------
<S> <C> <C> <C>
Up to 70.00%..................................... $ %
70.01% - 80.00%..................................
80.01% - 90.00% ................................. ____________ ____________ _______________
More than 90.00%................................. ____________ ____________ _______________
Total................................... $ 100%
============ ============ ===============
</TABLE>
As of the Cut-off Date, the weighted average loan-to-value ratio at origination
of the Mortgage Loans was ______% per annum.
<PAGE>
S-16
<TABLE>
ORIGINAL LOAN AMOUNTS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Original Loan Amounts Loans Balance Balance
- --------------------- --------- --------- ----------------
<S> <C> <C> <C>
Up to $50,000.00................................. $ %
$ 50,000 - $ 99,999.99...........................
$100,000 - $149,999.99...........................
$150,000 - $199,999.99...........................
$200,000 - $249,999.99...........................
$250,000 - $299,999.99...........................
$300,000 - $349,999.99...........................
$350,000 - $399,999.99...........................
$400,000 - $449,999.99...........................
$450,000 - $500,000.............................. _____________ _____________ _______________
Total................................... $ 100%
============= ============= ===============
</TABLE>
As of the Cut-off Date, the average unpaid balance of the Mortgage Loans was
$____________ and the unpaid principal balances of the largest and smallest
Mortgage Loans were $____________ and $___________, respectively.
<TABLE>
TYPES OF LOANS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Types Loans Balance Balance
- ----- --------- --------- ----------------
Conventional Loans secured by:
<S> <C> <C> <C>
One-family detached........................... $ %
Low-rise condominiums/2 family................
High-rise condominiums/3-4 family............. _____________ _____________ ______________
Total................................... $ 100%
============= ============= ==============
</TABLE>
<TABLE>
YEARS OF ORIGINATION OF MORTGAGE LOANS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Years of Number of Principal Unpaid Principal
Origination Loans Balance Balance
- ----------- --------- --------- ----------------
<PAGE>
S-17
<S> <C> <C> <C>
199_ ........................................ $ %
199_ ........................................
199_ ........................................
199_ ........................................
199_ ........................................ ____________ ______________ _______________
Total................................... $ 100%
============= ============== ===============
</TABLE>
<TABLE>
OCCUPANTS OF MORTGAGED PROPERTIES
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
States Loans Balance Balance
- ------ --------- --------- ----------------
Owner
<S> <C> <C> <C>
Primary residence ............................ $ %
Vacation/second home .........................
Non-owner occupied investment
property..................................... _____________ _____________ ______________
Total.................................... $ 100%
============= ============= ==============
</TABLE>
<TABLE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
States Loans Balance Balance
- ------ --------- --------- ----------------
<S> <C> <C> <C>
$ %
___________ ___________ ____________
Total.................................... $ 100%
=========== ============= ============
</TABLE>
[The foregoing information will be modified to the extent necessary to
describe different types of mortgage loans.]
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off
<PAGE>
S-18
Date, as adjusted for the scheduled principal payments due on or before such
date. Prior to the issuance of the Certificates, Mortgage Loans may be removed
from the Mortgage Pool as a result of incomplete documentation or otherwise, if
the Depositor deems such removal necessary or desirable, and may be prepaid at
any time. A limited number of other mortgage loans may be included in the
Mortgage Pool prior to the issuance of the Certificates unless including such
mortgage loans would materially alter the characteristics of the Mortgage Pool
as described herein. The Depositor believes that the information set forth
herein will be representative of the characteristics of the Mortgage Pool as it
will be constituted at the time the Certificates are issued, although the range
of Mortgage Rates and maturities and certain other characteristics of the
Mortgage Loans in the Mortgage Pool may vary.
A report on Form 8-K containing a detailed description of the Mortgage
Loans will be available to purchasers of the Certificates at or before initial
issuance and will be filed with the Securities and Exchange Commission within
fifteen days after such initial issuance. The report on Form 8-K will specify
the precise aggregate principal balance of the Mortgage Loans outstanding as of
the Cut-off Date and will set forth on a precise basis the other information
presented in this Prospectus Supplement on an approximate basis.
DESCRIPTION OF THE CERTIFICATES
The Series 199__-__ Certificates will consist of a single class of
Senior Certificates and [a single class] [two classes] of Subordinate
Certificates (the "Class B[-1" and "Class B-2]" Certificates). The Senior
Certificates have an initial Certificate Principal Balance of $_______________
(approximate), evidencing approximately ____% (the initial Senior Percentage) of
the aggregate principal balance of the Mortgage Loans in the Trust Fund as of
the Cut-off Date. The Class B[-1] Certificates have an initial Certificate
Principal Balance of $______________ evidencing ___% (the initial Subordinate
Percentage) of the aggregate principal balance of the Mortgage Loans in the
Trust Fund as of the Cut-off Date. [The Class B-2 Certificates, which have no
Certificate Principal Balance and no Pass-Through Rate, represent the right to
receive the balance of the Trust Fund after retirement of the Senior
Certificates and the Class B-1 Certificates, as described herein.] The Class
B[-1 and Class B-2] Certificates are not being offered hereby, and may be sold
at any time to one or more institutional investors in accordance with the terms
of the Agreement.
DISTRIBUTIONS
On each Distribution Date, the Available Distribution Amount will be
distributed in the following order of priority, in each case to the extent of
available funds:
(i) to the holders of the Senior Certificates, the Accrued
Certificate Interest thereon for such Distribution Date (plus any
Accrued Certificate Interest remaining unpaid from a previous
Distribution Date);
<PAGE>
S-19
(ii) to the holders of the Senior Certificates, an amount
equal to the sum of the following, to be applied to reduce the
Certificate Principal Balance thereof, but in no event greater than the
outstanding Certificate Principal Balance of such Senior Certificates:
(A) the then applicable Senior Percentage times the
principal portion of all scheduled monthly payments on the
related Mortgage Loans due during the related Due Period,
whether or not received;
(B) the product of (1) the then applicable Senior
[Prepayment] Percentage times (2) the aggregate of the
following amounts: (a) the principal portion of all full and
partial prepayments made by the respective mortgagors during
the related Prepayment Period, (b) all other unscheduled
collections, including Insurance Proceeds and Liquidation
Proceeds (other than with respect to any Mortgage Loan which
was finally liquidated during the related Prepayment Period),
representing or allocable to recoveries of principal of the
Mortgage Loans received during the related Prepayment Period,
and (c) all proceeds of the repurchase [(or, in the case of a
substitution, certain amounts representing a principal
adjustment)] of any Mortgage Loan as required by the Agreement
since the preceding Distribution Date;
(C) with respect to unscheduled recoveries allocable
to principal of any Mortgage Loan which was finally liquidated
during the related Prepayment Period, [other than Special
Hazard Realized Losses in excess of the Special Hazard
Subordination Amount,] the lesser of (1) the full amount of
such recovery and (2) the then applicable Senior Percentage
times the Scheduled Principal Balance of the related Mortgage
Loan immediately prior to such Distribution Date;
[(D) with respect to any Special Hazard Realized Loss
incurred during the related Prepayment Period in excess of the
Special Hazard Subordination Amount, the then applicable
Senior Percentage times the amount of the related recovery
allocable to principal;] and
(E) any amounts described in this clause (ii) for any
previous Distribution Date which remain unpaid;
(iii) to the Master Servicer, in reimbursement of any Advances
which have been outstanding for [three] months or more;
(iv) in the event of one or more Realized Losses incurred
during the related Prepayment Period, [other than Special Hazard
Realized Losses in excess of the Special
<PAGE>
S-20
Hazard Subordination Amount,] to the holders of the Senior
Certificates, the amount equal to the aggregate of the related
Unrecovered Senior Portions (as defined below), to be applied to reduce
the Certificate Principal Balance of the Senior Certificates, but in no
event greater than the outstanding Certificate Principal Balance of
such Senior Certificates;
[(v) to the Reserve Fund, up to an amount equal to the then
applicable Subordinate Percentage times the aggregate amount described
in clause (ii)(B)(2) above, but not more than the amount necessary to
bring the balance on deposit in the Reserve Fund up to the then
applicable Specified Reserve Fund Balance;]
[(vi)] to the holders of the Class B[-1] Certificates, the
Accrued Certificate Interest thereon for such Distribution Date (plus
any Accrued Certificate Interest remaining unpaid from a previous
Distribution Date);
[(vii)] to the holders of the Class B[-1] Certificates, the
balance, if any, of the Available Distribution Amount, applied to
reduce the Certificate Principal Balance thereof, but in no event
greater than the outstanding Certificate Principal Balance of such
Class B[-1] Certificates; and
[(viii)] to the holders of the Senior Certificates, on any
Distribution Date after the Certificate Principal Balance of the Class
B[-1] Certificates has been reduced to zero, the balance, if any, of
the Available Distribution Amount, applied to reduce the Certificate
Principal Balance thereof, but in no event greater than the outstanding
Certificate Principal Balance of such Senior Certificates.
For any Distribution Date, the Accrued Certificate Interest on the
Senior Certificates and the [Subordinate] [Class B-1] Certificates will be an
amount equal to one month's interest at the applicable Pass-Through Rate on the
outstanding Certificate Principal Balance of such Certificates immediately prior
to such Distribution Date, based on a year of twelve 30-day months, subject to
reduction as described herein.
[The Master Servicer will be obligated to apply amounts otherwise
payable to it as servicing compensation to cover any shortfalls in collections
of a full month's interest resulting from principal prepayments in full of
Mortgage Loans, to the extent of an aggregate amount equal to its total
servicing compensation for the concurrent period.] For any Distribution Date,
Accrued Certificate Interest on each Certificate will be reduced in the event of
shortfalls in collections of interest resulting from principal prepayments in
full of Mortgage Loans during the Prepayment Period [, to the extent not covered
by the application of servicing compensation of the Master Servicer, as
described above]. The aggregate amount of any such shortfalls will be allocated
among all of the outstanding Certificates, in proportion to the respective
amounts of
<PAGE>
S-21
Accrued Certificate Interest that would otherwise have been payable thereon
absent such reductions and absent any delinquencies or losses.
With respect to any Distribution Date, the Available Distribution
Amount will equal the total amount of all cash on deposit in the Certificate
Account as of the corresponding Determination Date, together with Advances made
by the Master Servicer in respect of each Distribution Date, exclusive of:
(a) all monthly payments collected but due on a date
subsequent to the related Due Period,
(b) all prepayments and other unscheduled recoveries of
principal, and related payments of interest thereon, received
subsequent to the related Prepayment Period, and
(c) all amounts in the Certificate Account which are payable
or reimbursable to the Master Servicer.
All distributions will be made by the [Trustee] [Master Servicer] to
the persons in whose names the Certificates are registered at the close of
business on each Record Date, which will be the last business day of the month
preceding the month in which the related Distribution Date occurs. Such
distributions shall be made [either (i) by check mailed to the address of each
Certificateholder as it appears in the Certificate Register or (ii) at the
request to the Trustee in writing by the Record Date immediately prior to such
Distribution Date of any holder of Certificates having an initial Certificate
Principal Balance in excess of $_____________, by wire transfer in immediately
available funds to the account of such Certificateholder specified in the
request.] Distributions to holders of each respective class of Certificates will
be allocated among such holders in proportion to their respective Percentage
Interest in that class.
[The Senior Prepayment Percentage for each Distribution Date is the
percentage indicated below:
<PAGE>
S-22
<TABLE>
<CAPTION>
Distribution Date Senior Prepayment Percentage
----------------- ----------------------------
<S> <C>
________199__ through ___________....... 100%
_____________ through ___________....... Senior Percentage, plus 70% of the difference
between the Senior Percentage and 100%
_____________ through ___________....... Senior Percentage, plus 60% of the difference
between the Senior Percentage and 100%
_____________ through ___________....... Senior Percentage, plus 40% of the difference
between the Senior Percentage and 100%
_____________ through ___________....... Senior Percentage, plus 20% of the difference
between the Senior Percentage and 100%
_____________ and thereafter............ Senior Percentage
</TABLE>
provided, however, that if the Senior Percentage as of any Distribution Date is
greater than the initial Senior Percentage, the Senior Prepayment Percentage for
such Distribution Date shall be 100%.]
The "Senior Percentage" initially will be _____% and on each
Distribution Date will be adjusted to reflect the then current ownership
interest in the Trust Fund evidenced by the Senior Certificates, based on the
aggregate Certificate Principal Balance of the Senior Certificates and the
aggregate Scheduled Principal Balance of the Mortgage Loans in the Trust Fund.
The "Scheduled Principal Balance" of any Mortgage Loan as of any
date of determination is equal to the principal balance thereof as of the
Cut-off Date, after application of all scheduled principal payments due on or
before the Cut-off Date, whether or not received, reduced by the principal
portion of all monthly payments due on or before the date of determination,
whether or not received, and by all amounts allocable to unscheduled principal
that were distributed to Certificateholders on or before the date of
determination, and as further reduced to the extent that any Realized Loss
thereon has been allocated to one or more classes of Certificates on or before
the date of determination. See "Allocation of Losses; Subordination" herein.
For purposes of the foregoing, the "Unrecovered Senior Portion"
with respect to a Realized Loss is the amount, if any, by which (i) the product
of the then applicable Senior Percentage and the Scheduled Principal Balance of
the related Mortgage Loan exceeds (ii) the total amount of the related
unscheduled recovery which is allocable to principal. Payments to the holders of
the Senior Certificates as described above on any Distribution Date in respect
of any Unrecovered Senior Portion will be made only with respect to Realized
Losses incurred in connection with Mortgage Loans that were finally liquidated
during the related Prepayment Period.
<PAGE>
S-23
ADVANCES
Subject to the following limitations, the Master Servicer will be
obligated to advance on or before each Distribution Date its own funds, or funds
in the Certificate Account which are in excess of the Available Distribution
Amount for such Distribution Date, in an aggregate amount sufficient to assure
payment to the holders of the Senior Certificates of the total of all amounts
required to be distributed thereon on such Distribution Date as described above
in clauses (i) and (ii) under "Distributions" (after first applying towards such
payment the entire Available Distribution Amount, including funds otherwise
payable to the Subordinate Certificateholders), but not more than the aggregate
of payments of principal and interest (adjusted to the Net Mortgage Rate) which
were due during the related Due Period and delinquent on the related
Determination Date, plus certain amounts representing interest not covered by
any current net income on Mortgaged Properties acquired on behalf of
Certificateholders by foreclosure or deed in lieu of foreclosure.
The Master Servicer will be obligated to make Advances regardless
of whether such Advances are deemed to be recoverable from the related Mortgage
Loans, to the extent that the Class B[- 1] Certificates remain outstanding.
Thereafter, such Advances are required to be made only to the extent they are
deemed by the Master Servicer to be recoverable from related late collections,
Insurance Proceeds or Liquidation Proceeds.
All Advances will be reimbursable to the Master Servicer either
(a) from late collections, Insurance Proceeds and Liquidation Proceeds from the
Mortgage Loan as to which such unreimbursed Advance was made or (b) as to any
Advance which has been outstanding for [three] months or more, from any portion
of the Available Distribution Amount remaining on any Distribution Date after
payment to the Senior Certificateholders of the amounts described above in
clauses (i) and (ii) under "Distributions". For purposes of the foregoing, all
Advances when made shall be allocated to specific delinquent monthly payments,
all reimbursements of Advances in the manner described in (b) above shall be
allocated, to the extent practicable, to specific monthly payments which have
been delinquent for the longest period of time, which allocations shall be
conclusive for purposes of future reimbursements of Advances. In addition, if
the Class B[-1] Certificates are no longer outstanding, any Advances previously
made which are deemed by the Master Servicer to be nonrecoverable from related
late collections, Insurance Proceeds or Liquidation Proceeds may be reimbursed
to the Master Servicer out of any funds in the Certificate Account prior to
distributions on the Senior Certificates.
ALLOCATION OF LOSSES; SUBORDINATION
Any Realized Loss on a Mortgage Loan [(including any Special
Hazard Realized Loss)] will be allocated first to the Class B[-1] Certificates,
until the Certificate Principal Balance of the Class B[-1] Certificates has been
reduced to zero; any additional Realized Losses will be allocated to the Senior
Certificates. [However, as to Special Hazard Realized Losses, the total amount
thereof that may be allocated in full to the Class B[-1] Certificates is limited
to the Special Hazard Subordination Amount, which will be approximately
$_________. Any Special Hazard Realized Losses in excess of the Special Hazard
Subordination Amount will be allocated among the Senior Certificates and Class
B[-1] Certificates in proportion to their outstanding Certificate Principal
Balances.] Any allocation of a Realized Loss to a Senior Certificate or a Class
B[-1] Certificate will be made by reducing the Certificate Principal Balance
thereof by the amount so allocated as of the Distribution Date following the
Prepayment Period in which
<PAGE>
S-24
the Realized Loss was incurred. In addition, the Senior Percentage will be
recalculated after each Distribution Date and will equal the then aggregate
Certificate Principal Balance of the Senior Certificates divided by the then
aggregate Scheduled Principal Balance of all of the Mortgage Loans which remain
outstanding (but not more than 100%); and the corresponding percentage for the
Class B[-1] Certificates (the "Subordinate Percentage") will equal 100% minus
the Senior Percentage. Any allocation of Realized Losses to the Class B[-1]
Certificates will have the effect of increasing the Senior Percentage and,
accordingly, the portion of future distributions payable to the Senior
Certificateholders relative to that payable to the Class B[-1]
Certificateholders. Conversely, payments to the Senior Certificateholders of
[(i) prepayments when the Senior Prepayment Percentage exceeds the Senior
Percentage and (ii)] payments with respect to Unrecovered Senior Portions, as
described above in clause[s (ii)(B) and] (iv)[, respectively,] under
"Distributions", will have the effect of accelerating the amortization of the
Senior Certificates and therefore decreasing the Senior Percentage. In addition,
[such payment to the Senior Certificateholders of prepayments when the Senior
Prepayment Percentage exceeds the Senior Percentage] [deposits in the Reserve
Fund as described herein] will have the effect of preserving the availability of
the subordination provided by the Subordinate Certificates.
[RESERVE FUND
In order to further effect the subordination provisions described
herein, the [Master Servicer] shall establish and maintain for the benefit of
the holders of the Senior Certificates a separate account (the "Reserve Fund").
The [Master Servicer] shall retain in the Reserve Fund the amounts described
above in clause (v) under "Distributions" until the amount in the Reserve Fund
equals $_____ (the "Specified Reserve Fund Balance"). [Insert Specified Reserve
Fund Balance reduction formula.] Amounts held in the Reserve Fund on any
Distribution Date will be available for distributions to the Senior
Certificateholders of amounts described in clauses (i) and (ii) under
"Distributions", for reimbursement to the Master Servicer of any Advance which
has been outstanding for [___ month[s]] or more and for distribution to the
holders of the Senior Certificates on such Distribution Date to the extent of
the aggregate amount of any Unrecovered Senior Portions remaining after
application of the Available Distribution Amount thereto. On each Distribution
Date, any reinvestment income on amounts in the Reserve Fund, together with
amounts in the Reserve Fund in excess of the Specified Reserve Fund Balance,
will be released and distributed to the holders of the Class B Certificates.
[Insert allocation provisions for multiple Subordinate classes, and modify to
the extent funds otherwise distributable on Subordinate Certificates will be
retained in Reserve Fund.]]
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates, based upon the assumption that the Certificates were issued in
_________ 199__ and that distributions are made on the 25th of each month.
_________ 1......................... Cut-off Date. The initial principal
balance of the Mortgage Loans will be the
aggregate principal balance of the
Mortgage Loans as of _________ 1, 199__,
after deducting any principal payments due
on or before such date. Any principal and
interest payments due on or before
_________ 1[, as well as any Retained
Inter-
<PAGE>
S-25
est,] will not be part of the Trust Fund,
and the Depositor will retain such amounts
when they are received.
_________ 2 through
_________ 31................... Prepayment Period. Principal payments, and
interest thereon to the date of prepayment
in the case of principal prepayments in
full, received at any time dur- ing this
period will be deposited into the
Certificate Ac- count for distribution to
Certificateholders on ___________ 25.
_________ 31........................ Record Date. Distributions on ___________
25 will be made to Certificateholders of
record at the close of business on the
last business day of the month immedi-
ately preceding the month of distribution.
_________ 2 to
___________ 20................. Collection Period. Payments due during the
related Due Period (_________ 2 -
___________ 1) from mortgagors will be
deposited in the Certificate Account or
Sub-Servicing account as received, and
will include scheduled principal payments
plus interest on the _________ balances,
less interest from the date of prepayment
of any Mortgage Loan prepaid in full in
---------.
___________ 20...................... Determination Date. The amounts of
principal and interest that will be
distributed on ___________ 25 will be
determined by or on behalf of the Master
Servicer.
___________ 25...................... Distribution Date. On ___________ 25, the
Master Servicer will distribute or cause
to be distributed to the
Certificateholders the amounts determined
on ___________ 20. If a monthly payment
due during the related Due Period is
received from a mortgagor after
___________ 20 and funds have been
distributed with respect to such payment
from the Certificate Account, such payment
will be deposited into the Certificate
Account as reimbursement therefor. If an
Advance has been made, the Master Servicer
will reimburse itself to the extent
permitted by the Agreement by withdrawing
the amount of such payment from the
Certificate Ac- count. If no such Advance
has been made, such late payment will be
distributed to the Certificateholders in
October.
<PAGE>
S-26
Succeeding months follow the above pattern, except for the Cut-off Date.
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS
DELAY IN PAYMENT OF INTEREST
The effective yield to the holders of the Certificates will be lower than
the yield otherwise produced by the Pass-Through Rate and purchase price because
monthly interest will not be payable to such holders until the 25th day (or if
such day is not a business day, then on the next succeeding business day) of the
month following the month of accrual (without any additional distribution of
interest or earnings thereon in respect of such delay). See "Yield
Considerations" and "Description of the Certificates - Retained Interest,
Servicing Compensation and Payment of Expenses" in the Prospectus.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Senior Certificates, the aggregate
amount of distributions on the Senior Certificates and the yield to maturity of
the Senior Certificates will be directly related to the rate of payments of
principal on the Mortgage Loans. The rate of principal payments on the Mortgage
Loans will in turn be affected by the amortization schedules of the Mortgage
Loans and by the rate of principal prepayments thereon (including for this
purpose payments resulting from refinancings, liquidations of the Mortgage Loans
due to defaults, casualties, condemnations and repurchases by the Unaffiliated
Seller, the Master Servicer and Depositor). The Mortgage Loans may be prepaid by
the mortgagors at any time without payment of any prepayment fee or penalty.
Prepayments, liquidations and purchases of the Mortgage Loans will result in
distributions to Certificateholders of amounts which would otherwise be
distributed over the remaining terms of the Mortgage Loans. See "Maturity and
Prepayment Considerations" in the Prospectus. [As described under "Description
of the Certificates Distributions" herein, all or a disproportionately large
percentage of principal prepayments on the Mortgage Loans will be distributed on
the Senior Certificates during the first _________ years after the Cut-off
Date.] Since the rate of payment of principal on the Mortgage Loans will depend
on future events and a variety of factors (as described more fully herein and in
the Prospectus under "Yield Considerations" and "Maturity and Prepayment
Considerations"), no assurance can be given as to such rate or the rate of
principal prepayments.
In general, if prevailing mortgage rates fell significantly below the
Mortgage Rates on the Mortgage Loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing mortgage rates rose
significantly above the Mortgage Rates on the Mortgage Loans, the rate of
prepayment on the Mortgage Loans would be expected to decrease. The rate of
payments (including prepayments) on pools of mortgage loans is also influenced
by a variety of economic, geographic, social and other factors, including
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Accordingly,
there can be no certainty as to the rate of prepayments on the Mortgage Loans
during any period or over the life of the Certificates. See "Yield
Considerations" and "Maturity and Prepayment Considerations" in the Prospectus.
<PAGE>
S-27
The Mortgage Loans are subject to assumption under circumstances described
under "Description of the Certificates - Collection and Other Servicing
Procedures" and "Certain Legal Aspects of Residential Loans - Enforceability of
Certain Provisions; Prepayment Charges and Prepayments" in the Prospectus. The
extent to which the Mortgage Loans are assumed by purchasers of the Mortgaged
Properties rather than prepaid by the related mortgagors in connection with the
sales of the Mortgage Properties will affect the weighted average life of the
Senior Certificates. See "Maturity and Prepayment Considerations" in the
Prospectus.
Since the rate of principal payments (including prepayments) on the
Mortgage Loans will significantly affect the yield to maturity on the
Certificates, prospective investors are urged to consult their investment
advisors as to both the rate of future principal payments (including
prepayments) on the Mortgage Loans and the suitability of the Certificates to
their investment objectives.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates offered hereby will be issued pursuant to a Pooling and
Servicing Agreement (the "Agreement") to be dated as of _____________ 1, 199__,
among the Depositor, the Master Servicer and the Trustee, a form of which is
filed as an exhibit to the Registration Statement. Reference is made to the
Prospectus for important information additional to that set forth herein
regarding the terms and conditions of the Agreement and the Certificates. [The
Trustee will appoint _________________________________________ (the
"Custodian"), to serve as Custodian in connection with the Certificates.] The
Certificates will be transferable and exchangeable at the corporate trust office
of
______________________________________________________________________________,
located in __________________________________________________, which will serve
as Certificate Registrar. ____________________ [__________ will act as paying
agent and authenticating agent.] No service charge will be made for any transfer
or exchange of Certificates but the [Trustee] [Certificate Registrar] may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with the transfer or exchange of Certificates. The
Depositor will provide to a prospective or actual Certificateholder without
charge, on written request, a copy (without exhibits) of the Agreement. Requests
should be addressed to PaineWebber Mortgage Acceptance Corporation IV, 1285
Avenue of the Americas, New York, New York 10019, Attention: ________________.
THE MASTER SERVICER
_____________________________, a _____________________ (the "Master
Servicer"), will act as Master Servicer for the 199__-___ Certificates pursuant
to the Agreement. The Master Servicer's principal executive offices are located
at _________ ___________________________, and its telephone number is ________
___________. [Describe other locations and general operations of the Master
Servicer.]
The following table summarizes the foreclosure experience on conventional
residential first trust deeds or mortgage loans serviced by the Master Servicer
during the periods indicated:
<PAGE>
S-28
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
199__ 199__ 199__ 199__
-------------------------------------------------------------
(Dollar Amounts in Thousands)
Principal Balance
<S> <C> <C> <C> <C>
(end of period)........ $ $ $ $
---------- ----------- ----------- ------------
Total Number of Loans.....
Total Number of
Foreclosures...........
Percent Foreclosed
by Number of Loans..... % % % %
---------- ----------- ----------- -----------
</TABLE>
The following table summarizes the delinquency experience on conventional
residential first trust deeds or mortgage loans serviced by the Master Servicer
during the periods indicated:
<PAGE>
S-29
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
199__ 199__ 199__ 199__
-----------------------------------------------------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C>
Period of Delinquency:
30-59 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
60-89 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
90 days or more $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
In foreclosure
Principal Balance $ $ $ $
Number of Loans
Percent Delinquent by
Number of Loans
% % % %
Total Delinquent and in
Foreclosure $ $ $ $
Principal Balance
Number of Loans
Percent Delinquent by
Number of Loans % % % %
</TABLE>
While the above foreclosure and delinquency experience is typical of the
Master Servicer's recent experience, there can be no assurance that the future
experience on the Mortgage Loans will be the same. In addition, the foregoing is
based on all of the conventional loans in the Master Servicer's servicing
portfolio. The Mortgage Loans may be more recently originated
<PAGE>
S-30
than and may have certain other characteristics unlike the majority of the loans
in the Master Servicer's conventional servicing portfolio.
THE TRUSTEE
_________________________________________________________________________,
a ___________________________________ (the "Trustee"), will act as Trustee for
the Series 199__-____ Certificates pursuant to the Agreement. The Trustee's
principal executive offices are located at _________________, and its telephone
number is _____________.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect of
its master servicing activities for the Certificates will be equal to the
product of the Servicing Fee Rate times the Scheduled Principal Balance of each
Mortgage Loan in the Mortgage Pool. As to any Mortgage Loan, the Servicing Fee
Rate is equal to ___% per annum. The Master Servicer is obligated to pay certain
ongoing expenses associated with the Mortgage Pool and incurred by the Master
Servicer in connection with its responsibilities under the Agreement, including
compensation of any Sub-Servicers. The Master Servicer is also obligated to
include in each distribution on the Certificates that portion of its servicing
compensation equal to interest at the Net Mortgage Rate on the principal balance
of any Mortgage Loan as to which a prepayment or liquidation occurs, such
interest commencing on the date of the prepayment or liquidation and ending on
the due date of the Mortgage Loan immediately following the date of the
prepayment or other liquidation. See "Description of the Certificates - Retained
Interest, Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Servicer and for
information regarding expenses payable by the Master Servicer.
VOTING RIGHTS
At all times, [__]% of all Voting Rights will be allocated among all
holders of the [Senior] Certificates [and the Class B-1 Certificates] in
proportion to the then outstanding Certificate Principal Balances of their
respective Certificates [, and [__]% of all Voting Rights will be allocated
among holders of the Class B-2 Certificates in proportion to the percentage
interests evidenced by their respective Certificates].
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of a series of Certificates are described in
"Description of the Certificates - Termination" in the Prospectus. The
[Depositor] [Master Servicer] will have the right to repurchase all remaining
Mortgage Loans in the Mortgage Pool and thereby effect early retirement of the
<PAGE>
S-31
Certificates, subject to the aggregate principal balance of the Mortgage Loans
at the time of repurchase being less than ___% of the aggregate principal
balance of such Mortgage Loans as of the Cut-off Date. In the event the
[Depositor] [Master Servicer] exercises such option, the purchase price
distributed with respect to each Senior Certificate will be 100% of its then
outstanding Certificate Principal Balance plus interest thereon at the
Pass-Through Rate. In no event will the trust created by the Agreement for a
series of Certificates continue beyond the expiration of 21 years from the death
of the survivor of the person or persons named in the Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the following opinion: [Assuming
compliance with the provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a "real estate
mortgage investment conduit" (a "REMIC") within the meaning of Sections 860A
through 860G (the "REMIC Provisions") of the Internal Revenue Code of 1986 (the
"Code"), and (i) the Class A, Class B and Class C Certificates will evidence
"regular interests" in such REMIC and (ii) the Class R Certificates will be the
sole class of "residual interests" in such REMIC, each within the meaning of the
REMIC Provisions in effect on the date hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust Fund
will be classified as a grantor trust under Subpart E, part I of subchapter J of
the Code, and not as an association taxable as a corporation or as a
partnership.]
The __________ Certificates [may] [will] [will not] be treated as having
been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of __%]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the Prospectus.
The ___________________ Certificates may be treated for Federal income tax
purposes as having been issued at a premium. Whether any holder of [either] such
Class of Certificates will be treated as holding a Certificate with amortizable
bond premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
<PAGE>
S-32
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code, and interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860(A)(3) of the Code. See
"Certain Federal Income Tax Consequences-REMICs-Characterization of Investments
in REMIC Certificates" in the Prospectus.
________________________, a _______________, will act as REMIC
Administrator for the Trust Fund. [The Master Servicer will be responsible for
the fees and normal disbursements of the REMIC Administrator.] See "Certain
Federal Income Tax Consequences-REMICs-Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements-Certain Matters Regarding the
Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor", "-Events of Default" and "-Rights Upon Event of Default" in the
Prospectus.
For further information regarding the Federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO REMIC RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders of
REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to: (i) thrift institutions holding residual interests having
"significant value" and (ii) the transfer of "noneconomic" residual interests to
United States persons. Pursuant to the Pooling and Servicing Agreement, the
Class R Certificates may not be transferred to non-United States persons. See
"Certain Federal Income Tax Consequences--REMICS--Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
The REMIC Regulations provide for the determination of whether a residual
interest has "significant value" for purposes of applying the rules relating to
"excess inclusions" with respect to residual interests. Based on the REMIC
Regulations, the Class R Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Class R Certificates, which will be in an amount equal to
all or virtually all of the taxable income includable by holders of the Class R
Certificates. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions" in the Prospectus.
<PAGE>
S-33
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, if "a significant purpose of the transfer was
to impede the assessment or collection of tax." Based on the REMIC Regulations,
the Class R Certificates may constitute noneconomic residual interests during
some or all of their terms for purposes of the REMIC Regulations and,
accordingly, if a significant purpose of a transfer is to impede the assessment
or collection of tax, transfers of the Class R Certificates may be disregarded
and purported transferors may remain liable for any taxes due with respect to
the income on the Class R Certificates. All transfers of the Class R
Certificates will be subject to certain restrictions under the terms of the
Pooling and Servicing Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Class R Certificates
constitute noneconomic residual interests. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual
Certificates-Noneconomic REMIC Residual Certificates" in the Prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under the
Pooling and Servicing Agreement, the holder of the largest Percentage Interest
in the Class R Certificates shall, by its acceptance of such Certificates, agree
to irrevocably appoint the Master Servicer as its agent to perform all of the
duties of the tax matters person for the REMIC.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences of
investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations
<PAGE>
S-34
Applicable Solely to the Class R Certificates" herein and "Certain Federal
Income Tax Consequences-REMICs-Taxation of Owners of REMIC Residual
Certificates" in the Prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the Underwriting
Agreement dated ____________, 199__ (the "Underwriting Agreement"), the
Depositor has agreed to sell and PaineWebber Incorporated (the "Underwriter")
has agreed to purchase the Senior Certificates. The Underwriter is obligated to
purchase all Senior Certificates offered hereby if any are purchased.]
[The Depositor has been advised by the Underwriter that it proposes
initially to offer all of the Senior Certificates to the public at the public
offering prices set forth on the cover page of this Prospectus Supplement and to
certain dealers at such prices less a concession not in excess of ___% of the
initial Certificate Principal Balance of the Senior Certificates. The
Underwriter may allow and such dealers may reallow concessions not in excess of
___% of the initial aggregate Certificate Principal Balance of the Senior
Certificates. After the initial public offering, the public offering price and
such concessions may be changed.]
[Distribution of the Senior Certificates will be made [by _________] from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Senior Certificates will be _____% of the aggregate of the Certificate Principal
Balances initially represented by the Senior Certificates, plus accrued interest
at the Pass-Through Rate from the Cut-off Date but before deducting expenses
payable by the Depositor. In connection with the purchase and sale of the Senior
Certificates, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting discounts.]
The Underwriting Agreement provides that the Depositor and its parent
corporation will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act of 1933, or will contribute to
payments the Underwriter may be required to make in respect thereof.
There can be no assurance that a secondary market for the Certificates
will develop or, if it does develop, that it will continue. The primary source
of information available to investors concerning the Certificates will be the
monthly statements discussed in the Prospectus under "Description of the
Certificates -- Statements to Certificateholders," which will include
information as to the outstanding principal balance of the Certificates and the
status of the applicable form of credit enhancement. There can be no assurance
that any additional information regarding the Certificates will be available
through any other source. In addition,
<PAGE>
S-35
the Depositor is not aware of any source through which price information about
the Certificates will be generally available on an ongoing basis. The limited
nature of such information regarding the Certificates may adversely affect the
liquidity of the Certificates, even if a secondary market for the Certificates
become available.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Depositor and for the Underwriter by Thacher Proffitt & Wood, New York, New
York.
RATING
It is a condition to issuance that the Senior Certificates offered hereby
be rated in the second highest rating category by such nationally recognized
statistical rating organization as the Depositor may designate. [rating agency
language] See "Yield on the Certificates and Prepayments of the Mortgage Loans"
herein.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1996
PROSPECTUS SUPPLEMENT [Version 3]
(To Prospectus dated ____________, 199__)
$___________________ initial Senior Certificate
Principal Balance (Approximate)
Senior Asset-Backed Certificates, Series 199__-______
_______% Pass-Through Rate
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Depositor
- -----------------------------------
Master Servicer
The Series 199__-__ Certificates will consist of a single class of Senior
Certificates and [a single class] [two classes] of Subordinate Certificates. The
Senior Certificates are designated as the Class A Certificates and the
Subordinate Certificates are designated as the Class B[-1 and Class B-2]
Certificates. Only the Senior Certificates are offered hereby.
The Series 199__-__ Certificates will represent in the aggregate the entire
beneficial ownership in a trust fund (the "Trust Fund") consisting primarily of
a segregated pool of conventional one- to four-family [30 year, fixed interest
rate] first mortgage loans (the "Mortgage Loans") having an aggregate principal
balance as of __________, 199_ of approximately $__________ (subject to a
permitted variance as described herein under "Additional Information") to be
sold by PaineWebber Mortgage Acceptance Corporation IV (the "Depositor").
Principal and interest are payable on the 25th day of each month or, if such day
is not a business day, then on the next succeeding business day, beginning in
_____________ (each, a "Distribution Date").
The Class A Certificates evidence beneficial ownership of ____% (the "Senior
Percentage") of the Trust Fund, and are entitled to receive distributions equal
to the Senior Distribution Amount (as defined herein). The Class B Certificates
evidence in the aggregate a ____% beneficial ownership interest in the Trust
Fund. The rights of the Class B Certificateholders to receive distributions with
respect to the Mortgage Loans are subordinate to the rights of the Class A
Certificateholders to the extent described herein. See "Description of the
Certificates - General".
There is currently no secondary market for the Certificates offered hereby and
there can be no assurance that a secondary market for the Certificates will
develop. PaineWebber Incorporated expects to establish a market in the
Certificates offered hereby, but is not obligated to do so. There is no
assurance that any such market, if established, will continue.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-____ OF THIS PROSPECTUS SUPPLEMENT AND PAGE ____ OF THE
ACCOMPANYING PROSPECTUS.
[An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit" ("REMIC") for federal income tax purposes. As described more
fully herein and in the Prospectus, the Class A Certificates will constitute
"regular interests" in the REMIC. See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.]
<PAGE>
S-2
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH
HEREIN. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
S-3
<TABLE>
<CAPTION>
[___________________________________________________________________________________________________
Aggregate
Initial
Certificate Underwriting Proceeds to
Principal Price to Discounts and the Depositor
Balance Public(1) Commissions (1)(2)
------- --------- ----------- ------
<S> <C> <C> <C> <C>
Class A Certificates.......... $ % % %
____________________________________________________________________________________________________
(1) Plus accrued interest from ______________, 199__.
(2) Before deducting expenses payable by the Depositor estimated to be $_____________.]
</TABLE>
[The Senior Certificates offered hereby will be [purchased by PaineWebber
Incorporated (the "Underwriter") from the Depositor and will be] offered by [the
Underwriter] from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Senior Certificates, before deducting
expenses payable by the Depositor estimated to be $___________, will be ____% of
the aggregate of the initial Certificate Principal Balance of the Senior
Certificates, plus accrued interest at the Pass-Through Rate from
______________, 199__.]
The Senior Certificates offered hereby [are] [will be purchased by PaineWebber
Incorporated (the "Underwriter") from the Depositor and will be] offered subject
to receipt and acceptance by the Underwriter, to prior sale and to the
Underwriter's right to reject any order in whole or in part and to withdraw,
cancel or modify the offer without notice. It is expected that delivery of the
Senior Certificates offered hereby will be made at the office of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York, 10019 [or through
the facilities of The Depository Trust Company] on or about ___________________,
199__.
--------------------------
PaineWebber Incorporated
____________, 199__
<PAGE>
S-4
The Senior Certificates offered by this Prospectus Supplement will be part of a
separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated ___________, 199__, of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
TABLE OF CONTENTS
Page
----
SUMMARY OF PROSPECTUS SUPPLEMENT............................................S-5
RISK FACTORS...............................................................S-13
THE MORTGAGE POOL..........................................................S-13
ADDITIONAL INFORMATION.....................................................S-18
DESCRIPTION OF THE CERTIFICATES............................................S-18
General......................................................S-19
Subordinate Certificates and Reserve Fund....................S-19
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS....................................................S-21
Delay in Payment of Interest.................................S-21
Prepayment Considerations and Risks..........................S-21
POOLING AND SERVICING AGREEMENT............................................S-22
General ....................................................S-22
The Master Servicer..........................................S-22
The Trustee..................................................S-25
Servicing and Other Compensation and Payment of Expenses.....S-25
Voting Rights................................................S-25
Termination..................................................S-25
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................S-26
PLAN OF DISTRIBUTION.......................................................S-26
LEGAL MATTERS..............................................................S-28
RATING.....................................................................S-28
Until _______________, all dealers effecting transactions in the Senior
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus Supplement and the Prospectus to which it relates. This
is in addition to the obligation of dealers to deliver a Prospectus Supplement
and Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
S-5
SUMMARY OF PROSPECTUS SUPPLEMENT
--------------------------------
The following summary is qualified in its entirety by reference to
the detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Prospectus. An Index of Significant Definitions is included at
the end of the Prospectus.
Title of Series .................... Asset-Backed Certificates, Series
199__-__, ___% Pass- Through Rate (the
"Certificates").
Senior Certificates................. $_____________ initial Certificate
Principal Balance (approximate), ___%
Pass-Through Rate, evidencing
approximately _____% (the "Senior
Percentage") of the aggregate principal
balance of the Mortgage Loans as of
____________ 1, 199__ (the "Cut-off
Date"), and which are entitled to receive
distributions equal to the Senior
Distribution Amount (as defined herein).
Subordinate Certificates............ [As to Class B-1], $___________ initial
Certificate Principal Balance
(approximate), ____% Pass-Through Rate,
evidencing approximately ____% (the
"Subordinate Percentage") of the aggregate
principal balance of the Mortgage Loans as
of the Cut-off Date, and which are
subordinate to the Senior Certificates to
the extent of the Available Subordination
Amount (as defined herein). [The Class B-2
Certificates, which have no Certificate
Principal Balance and no Pass- Through
Rate, represent the right to receive the
amount, if any, remaining in the Trust
Fund after the Senior Certificates and the
Class B-1 Certificates have been retired.]
See "Description of the Certificates -
Distributions" herein.
The Subordinate Certificates are not being
offered hereby, and may be sold at any
time in accordance with the terms of the
Pooling and Servicing Agree- ment, dated
as of ___________ 1, 199__, pursuant to
which the Series 199__-__ Certificates
will be issued (the "Agreement").
Depositor........................... PaineWebber Mortgage Acceptance
Corporation IV, a wholly-owned limited
purpose finance subsidiary of PaineWebber
Group Inc., and an affiliate of the Under-
writer. See "The Depositor" in the
Prospectus.
<PAGE>
S-6
Trustee............................. _________________________________________.
See "Pooling and Servicing Agreement - The
Trustee" herein.
Master Servicer..................... _____________________________. See
"Pooling and Servicing Agreement - The
Master Servicer" herein.
Interest............................ Passed through monthly on each
Distribution Date, commencing on
__________ 25, 199__.
Principal (including
prepayments)...................... Passed through monthly on each
Distribution Date, commencing on
__________ 25, 199__.
Senior Distribution
Amount............................ On each Distribution Date, to the extent
of available funds and subject to the
limits of the subordination provisions
described below, the holders of Class A
Certificates will be entitled to receive
an amount equal to the Senior Percentage
times the sum of (i) all scheduled
payments on the Mortgage Loans, with
interest at the Net Mortgage Rate, due
during the related Due Period whether or
not received, (ii) all mortgagor
prepayments received during the preceding
calendar month, and (iii) the unpaid
principal balance of each defaulted
Mortgage Loan finally liquidated during
the preceding calendar month.
Subordinate Certificates
and Reserve Fund.................... The rights of the Class B
Certificateholders to receive
distributions with respect to the Mortgage
Loans will be subordinate to such rights
of the Class A Certificateholders to the
extent of the Available Subordination
Amount, as described herein. This
subordination is intended to enhance the
likelihood of regular receipt in full by
the Class A Certificateholders of the
Senior Distribution Amount and to protect
them against losses. The Maximum
Subordination Amount initially will equal
approximately $__________ (__% of
aggregate principal balance of the
Mortgage Loans as of the Cut-off Date).
Commencing __________, 19__, the Maximum
Subordination Amount will gradually
decline annually in accordance with a
schedule set forth in the Agreement, and
on __________, 19__ and each __________
thereafter will be reduced to equal the
greater of __% of the aggregate
<PAGE>
S-7
principal balance of the Mortgage Loans
then outstanding and the sum of the
principal balances of the ____ largest
Mortgage Loans outstanding.
The protection afforded to the Class A
Certificateholders from the subordination
provisions will be effected both by the
preferential right (limited to the portion
of the Maximum Subordination Amount
remaining at any time (the "Available
Subordination Amount")) of the Class A
Certificateholders to receive current
distributions from the Mortgage Pool equal
to the Senior Distribution Amount, and by
the establishment of a reserve fund (the
"Reserve Fund"). [The Reserve Fund is not
part of the Trust Fund.] The Reserve Fund
will be established with an initial cash
deposit by the Master Servicer of
$__________ (the "Initial Deposit"), and
will be augmented by the retention of
distributions of principal and interest
otherwise payable to the Class B
Certificateholders until the Reserve Fund
reaches the balance required pursuant to
the Agreement (the "Specified Reserve Fund
Balance"). Thereafter, distributions of
principal otherwise payable to the Class B
Certificateholders will be retained to the
extent necessary to maintain the Reserve
Fund at the Specified Reserve Fund
Balance, as described herein. See
"Description of the Certificates -
Subordinate Certificates and Reserve Fund"
herein.
The subordination provisions and the
Reserve Fund are intended to enhance the
likelihood of timely payment of principal
and interest and to protect the Class A
Cer- tificateholders against losses;
however, in certain circumstances the
Reserve Fund could be depleted and
shortfalls could result. If on any
Distribution Date, the aggregate amount of
collections on the Mortgage Loans,
Advances by the Master Servicer (as
described below), and amounts available in
the Reserve Fund do not provide sufficient
funds to pay the Senior Distribution
Amount, the amount of the shortfall, plus
interest at the Net Mortgage Rate, will be
added to the amount the Class A
Certificateholders are entitled to receive
on the next Distribution Date. In the
event the Reserve Fund is depleted before
the Available Subordination Amount is
reduced to zero, the Class A
Certificateholders will nevertheless have
a preferential right to receive current
distributions from the Mortgage Pool,
limited by the then Available
Subordination Amount. The Class A Certifi-
<PAGE>
S-8
cateholders will bear their proportionate
share of any losses realized on the
Mortgage Loans following the depletion of
the Reserve Fund and the reduction of the
Available Subordination Amount to zero.
Advances............................ In the event that the amount eligible for
distribution to the Class A
Certificateholders on any Distribution
Date is less than the Senior Distribution
Amount, the Master Servicer may, but is
not obligated to, make voluntary advances
of cash (the "Advances") to the Class A
Certificateholders in respect of
delinquent scheduled payments to the
extent that the Master Servicer determines
such advances will be recoverable from
future payments and collections on the
Mortgage Loans or otherwise. See
"Description of the Certificates -
Advances" in the Prospectus.
The Mortgage Pool................... The Mortgage Pool will consist of 30-year,
fixed rate, level monthly payment, fully
amortizing Mortgage Loans, with an
aggregate principal balance as of the
Cut-off Date of approximately $___________
(subject to a permitted variance of plus
or minus _____%). [Include appropriate
information, with corresponding changes,
for different types of loans.] See "The
Mort- gage Pool" herein.
Denominations....................... The Senior Certificates offered hereby
will be offered in registered form, in
denominations evidencing initial
Certificate Principal Balances of
$___________ and multiples of $_______ in
excess thereof, with one Cer- tificate
evidencing an additional amount equal to
the re- mainder of the aggregate initial
Certificate Principal Balance.
Record Date......................... All distributions will be made by or on
behalf of the Trustee to the persons in
whose names the Certificates are
registered at the close of business on the
last business day of the month preceding
the month in which the related
Distribution Date occurs. See "Description
of the Certificates - Distributions"
herein.
Optional Termination................ At its option, the [Depositor][Master
Servicer] may repurchase all of the
Mortgage Loans in the Trust Fund and
thereby effect early retirement of the
Certificates on any Distribution Date on
which the aggregate principal balance of
the Mortgage Loans remaining in
<PAGE>
S-9
the Trust Fund is less than __% of the
aggregate principal balance of the
Mortgage Loans as of the Cutoff Date. See
"Pooling and Servicing Agreement
Termination" herein and "Description of
the Certificates - Termination" in the
Prospectus.
Special Prepayment
Considerations................... The rate of principal payments on the
Senior Certificates collectively will
depend on the rate and timing of principal
payments (including prepayments, defaults
and liquidations ) on the Mortgage Loans.
As is the case with mortgage-backed
securities generally, the Senior
Certificates are subject to substantial
inherent cash-flow uncertainties because
the Mortgage Loans may be prepaid at any
time. Generally, when prevailing interest
rates are increasing, prepayment rates on
mortgage loans tent to decrease, resulting
in a reduced return of principal to
investors at a time when reinvestment at
such higher prevailing rates would be
desirable. Conversely, when prevailing
interest rates are declining, prepayment
rates on mortgage loans tend to increase,
resulting in a greater return of principal
to investors at a time when reinvestment
at comparable yields may not be possible.
See "Yield on the Certificates and
Prepayments of the Mortgage Loans" herein,
and "Maturity and Prepayment
Considerations" in the Prospectus.
Special Yield
Considerations................... The yield to maturity on the Senior
Certificates will depend on the rate and
timing of principal payments (including
prepayments, defaults, liquidations) on
the Mortgage Loans, as well as other
factors as described herein. The yield to
investors on the Certificates will be
adversely affected by any allocation
thereto of prepayment interest shortfalls
on the Mortgage Loans, which are expected
to result from the distribution of
interest only to the date of prepayment
(rather than a full month's interest) in
connection with prepayments in full, and
the lack of any distribution of interest
on the amount of any partial prepayments.
See "Yield on the Certificates and
Prepayments of the Mortgage Loans" herein,
and "Maturity and Prepayment
Considerations" in the Prospectus.
<PAGE>
S-10
[Certain Federal Income Tax
Consequences...................... Upon the issuance of the Offered
Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the
following opinion: [Assuming compliance
with the provisions of the Pooling and
Servicing Agreement, for federal income
tax purposes, the Trust Fund will qualify
as a "real estate mortgage investment
conduit" (a "REMIC") within the meaning of
Sections 860A through 860G (the "REMIC
Provisions") of the Internal Revenue Code
of 1986 (the "Code"), and (i) the Class A,
Class B and Class C Certificates will
evidence "regular interests" in such REMIC
and (ii) the Class R Certificates will be
the sole class of "residual interests" in
such REMIC, each within the meaning of the
REMIC Provisions in effect on the date
hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for
federal income tax purposes, the Trust
Fund will be classified as a grantor trust
under Subpart E, part I of subchapter J of
the Code, and not as an association
taxable as a corporation or as a
partnership.]
Under the REMIC Regulations, the Class R
Certificates will not be regarded as
having "significant value" for purposes of
applying the rules relating to "excess
inclusions." In addition, the Class R
Certificates may constitute "noneconomic"
residual interests for purposes of the
REMIC Regulations. Transfers of the Class
R Certificates will be restricted under
the Pooling and Servicing Agreement to
United States Persons in a manner designed
to prevent a transfer of a noneconomic
residual interest from being disregarded
under the REMIC Regulations. See "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein and "Certain
Federal Income Tax
Consequences-REMICs-Taxation of Owners of
REMIC Residual Certificates-Excess
Inclusions" and "-Noneconomic REMIC
Residual Certificates" in the Prospectus.
The Class R Certificateholders may be
required to report an amount of taxable
income with respect to the early years of
the Trust Fund's term that significantly
exceeds distributions on the Class R
Certificates during such years, with
corresponding tax deductions or losses
deferred until the later years of the
Trust Fund's term.
<PAGE>
S-11
Accordingly, on a present value basis, the
tax detriments occurring in the earlier
years may substantially exceed the sum of
any tax benefits in the later years. As a
result, the Class R Certificateholders'
after-tax rate of return may be zero or
negative, even if their pre-tax rate of
return is positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield
Considerations Applicable Solely to the
Class R Certificates", and "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein.
For further information regarding the
Federal income tax consequences of
investing in the Offered Certificates, see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
Rating.............................. It is a condition to the issuance of the
Certificates offered hereby that the
Senior Certificates be rated ____ by
___________. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization. Each security rating
should be evaluated independently of any
other security rating. A security rating
does not address the fre- quency of
prepayments of Mortgage Loans, or the
corresponding effect on yield to
investors. See "Yield on the Certificates"
and "Rating" herein.
Legal Investment.................... The Senior Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long
as they are rated as described herein,
and, as such, are legal investments for
certain entities to the extent provided in
SMMEA. See "Legal Investment" in the
Prospectus and "Rating" herein.
<PAGE>
S-12
RISK FACTORS
[To be Provided]
THE MORTGAGE POOL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after deducting payments
of principal due on such date, of [approximately] $_________________ [(subject
to a permitted variance of plus or minus __%)]. The Mortgage Loans to be
included in the Mortgage Pool will be acquired by the Depositor from
________________________, in its capacity as Unaffiliated Seller. In addition,
the [Unaffiliated Seller] will be the Master Servicer for the Certificates.
[All of the Mortgage Loans have monthly payments due on the first
day of each month. None of the Mortgage Loans are Buydown Mortgage Loans. At
origination each Mortgage Loan had a term to maturity of up to 30 years. The
mortgagor with respect to each Mortgage Loan represented in its loan application
that the Mortgaged Property initially would be owner-occupied as its primary
residence.] [Insert alternate description of loan features if applicable.]
All Mortgage Loans will have Net Mortgage Rates of ____%. As to
any Mortgage Loan, the "Net Mortgage Rate" is equal to the Mortgage Rate minus
the Servicing Fee Rate. The Mortgage Loans will have Mortgage Rates ranging from
___% to ___%, with a weighted average Mortgage Rate as of the Cut-off Date of
___%. The weighted average maturity of the Mortgage Loans as of the Cut-off Date
will be approximately ___ years and ___ months. None of the Mortgage Loans will
have been originated prior to _____________ or will have an unexpired term at
the Cut-off Date of less than approximately ___ years and ___ months or more
than approximately ___ years and __ months. The Mortgage Loans will each have a
principal balance at origination of not less than $___________ or more than
$________.
The Mortgage Loans will also have the following characteristics as
of the Cut-off Date (expressed as a percentage of the aggregate principal
balance of the Mortgage Loans having such characteristics relative to the
aggregate principal balance of all Mortgage Loans):
No more than ____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80%. Mortgage Loans
with Loan-to-Value Ratios at origination exceeding 80% will be
covered by policies of primary mortgage guaranty insurance (each,
a "Primary Credit Insurance Policy") insuring against default as
to the principal amount of the Mortgage Loans exceeding 75% (or a
lesser percentage) of the Collateral Values of the Mortgaged
Properties at origination and such insurance will be maintained
until the Loan-toValue Ratios are reduced to 80% or less. [insert
information as to FHA insurance or VA guarantee if applicable.]
At least ___% of the Mortgage Loans will be secured by
detached one-family dwelling units.
<PAGE>
S-13
No more than ___% of the Mortgage Loans will be secured
by Mortgaged Properties located in ___________ and no more than
______% of the Mortgage Loans will be secured by Mortgaged
Properties located in _______. Except as indicated in the
preceding sentence, no more than ___% of the Mortgage Loans will
be secured by Mortgaged Properties located in any one state.
No more than ___% of the Mortgage Loans will be secured
by Mortgaged Properties located in any one zip code area or
housing development, and no more than ___% will be secured by
Mortgaged Properties located in any one zip code area or housing
development in California.
No more than _____% of the Mortgage Loans will be secured
by vacation or second homes. No more than ___% of the Mortgage
Loans will be secured by condominium units.
[The foregoing type of description will be used if precise
information on the Mortgage Loans is not available on the date of the Prospectus
Supplement; a description similar to the following description will be used if
precise information is available.]
[Set forth below is a description of certain additional
characteristics of the Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
MORTGAGE RATES
Aggregate Percentage
Unpaid of Aggregate
Mortgage Number of Principal Unpaid Principal
Rates Loans Balance Balance
- -------- --------- --------- ----------------
<S> <C> <C> <C>
$ %
----- ------- ------------
Total $ 100%
============= ============= ============
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate was _____% per annum.
<PAGE>
S-14
<TABLE>
REMAINING TERMS TO STATED MATURITY
<CAPTION>
Aggregate Percentage
Remaining Terms to Unpaid of Aggregate
Stated Maturity Number of Principal Unpaid Principal
(in Months) Loans Balance Balance
- --------------- --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ---------------
Total...................................... $ 100%
============= ============= ===============
</TABLE>
As of the Cut-off Date, the weighted average remaining term to stated maturity
was approximately _______ months.
<TABLE>
ORIGINAL LOAN-TO-VALUE RATIOS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Original Loan-To-Value Ratios Loans Balance Balance
- ----------------------------- ----------- ---------- -------
<S> <C> <C> <C>
Up to 70.00%..................................... $ %
70.01% - 80.00%..................................
80.01% - 90.00% ................................. _________ _________ ____________
More than 90.00%................................. _________ _________ ____________
Total................................... $ 100%
============= ============= ===============
</TABLE>
As of the Cut-off Date, the weighted average loan-to-value ratio at origination
of the Mortgage Loans was ______% per annum.
<PAGE>
S-15
<TABLE>
ORIGINAL LOAN AMOUNTS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Original Loan Amounts Loans Balance Balance
- --------------------- ----------- ---------- ----------------
<S> <C> <C> <C>
Up to $50,000.00................................. $ %
$ 50,000 - $ 99,999.99...........................
$100,000 - $149,999.99...........................
$150,000 - $199,999.99...........................
$200,000 - $249,999.99...........................
$250,000 - $299,999.99...........................
$300,000 - $349,999.99...........................
$350,000 - $399,999.99...........................
$400,000 - $449,999.99...........................
$450,000 - $500,000.............................. _________ _________ ____________
Total................................... $ 100%
============= ============= ===============
</TABLE>
As of the Cut-off Date, the average unpaid balance of the Mortgage Loans was
$___________ and the unpaid principal balances of the largest and smallest
Mortgage Loans were $____________ and $____________, respectively.
<TABLE>
TYPES OF LOANS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Types Loans Balance Balance
- ----- --------- --------- ----------------
<S> <C> <C> <C>
Conventional Loans secured by:
One-family detached........................... $ %
Low-rise condominiums/2 family................
High-rise condominiums/3-4 family............. _________ _________ ____________
Total................................... $ 100%
============= ============= ===============
</TABLE>
<PAGE>
S-16
<TABLE>
YEARS OF ORIGINATION OF MORTGAGE LOANS
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Years of Number of Principal Unpaid Principal
Origination Loans Balance Balance
- ----------- --------- --------- ----------------
<S> <C> <C> <C>
199_ ........................................ $ %
199_ ........................................
199_ ........................................
199_ ........................................
199_ ........................................ _________ _____________ ______________
Total................................... $ 100%
============= ============= ==============
</TABLE>
<TABLE>
OCCUPANTS OF MORTGAGED PROPERTIES
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
Loans Balance Balance
--------- --------- ----------------
Owner
<S> <C> <C> <C>
Primary residence ............................ $ %
Vacation/second home .........................
Non-owner occupied investment
property..................................... ___________ ____________ _____________
Total.................................... $ 100%
============= ============= ==============
</TABLE>
<PAGE>
S-17
<TABLE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<CAPTION>
Aggregate Percentage
Unpaid of Aggregate
Number of Principal Unpaid Principal
States Loans Balance Balance
- ------ --------- --------- ----------------
<S> <C> <C> <C>
$ %
___________ ____________ ______________
Total.................................... $ 100%
============= ============= ===============
</TABLE>
[The foregoing information will be modified to the extent necessary to
describe different types of mortgage loans].
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and
the Mortgaged Properties is based upon the Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Certificates unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be representative of the
characteristics of the Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range of Mortgage Rates and maturities and
certain other characteristics of the Mortgage Loans in the Mortgage Pool may
vary.
A report on Form 8-K containing a detailed description of the Mortgage
Loans will be available to purchasers of the Certificates at or before initial
issuance and will be filed with the Securities and Exchange Commission within
fifteen days after such initial issuance. The report on Form 8-K will specify
the precise aggregate principal balance of the Mortgage Loans outstanding as of
the Cut-off Date and will set forth on a precise basis the other information
presented in this Prospectus Supplement on an approximate basis.
DESCRIPTION OF THE CERTIFICATES
The Series 199__-__ Certificates will consist of a single class of
Senior Certificates (the "Class A Certificates") and [a single class] [two
classes] of Subordinate Certificates (the "Class B[-1" and "Class B-2]"
Certificates). The Class A Certificates have an initial Certificate Principal
Balance of $_______________ (approximate), evidencing approximately ____% (the
"Senior Percentage") of the aggregate principal balance of the Mortgage Loans in
the Trust Fund as of the Cut-off Date. The Class B[-1] Certificates have an
initial Certificate Principal Balance of $______________ evidencing ___% (the
"Subordinate Percentage") of the aggregate principal balance of the Mortgage
Loans in the Trust Fund
<PAGE>
S-18
as of the Cut-off Date. [The Class B-2 Certificates, which have no Certificate
Principal Balance and no Pass-Through Rate, represent the right to receive the
balance of the Trust Fund after retirement of the Senior Certificates and the
Class B-1 Certificates, as described herein.] The Class B[-1 and Class B-2]
Certificates are not being offered hereby, and may be sold at any time to one or
more institutional investors in accordance with the terms of the Agreement.
GENERAL
The Class A Certificates will evidence beneficial ownership of the
Senior Percentage of the Mortgage Loans and the other assets included in the
Trust Fund, and will be entitled to receive distributions equal to the entire
Senior Distribution Amount. The Subordinate Percentage in the Trust Fund will be
evidenced by Class B Certificates, which will be subordinate to the Class A
Certificates to the extent of the Available Subordination Amount. The Class B
Certificates are not being offered hereby. The Class A Certificates will be
offered in registered form, in minimum denominations of approximately
$__________ and integral multiples thereof.
On each Distribution Date, to the extent of available funds and subject
to the limits of the subordination provisions described below, the holders of
Class A Certificates will be entitled to receive an amount equal to the Senior
Percentage times the sum of (i) all scheduled payments on the Mortgage Loans,
with interest at the Net Mortgage Rate, due during the related Due Period
whether or not received, (ii) all mortgagor prepayments received during the
preceding calendar month, and (ii) the unpaid principal balance of each
defaulted Mortgage Loan finally liquidated during the preceding calendar month.
The Certificates will be issued in fully registered form only. The
Class A Certificates will be transferable and exchangeable at the corporate
trust office of the Trustee at its Corporate Trust Department. No service charge
will be made for any registration of exchange or transfer of Class A
Certificates, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
Distributions of principal and interest on the Certificates will be
made on each Distribution Date beginning __________, to the persons in whose
names the Certificates are registered at the close of business on the last
business day of the month preceding the month in which payment is made (the
"Record Date"). Distributions will be made by wire transfer in immediately
available funds to the account of a Certificateholder at a bank or other entity
having appropriate facilities therefor, or by check mailed to the address of the
person entitled thereto as it appears on the Certificate Register, except that
the final distribution in retirement of Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee specified in the final distribution notice to Certificateholders.
SUBORDINATE CERTIFICATES AND RESERVE FUND
The Class B Certificates are Subordinate Certificates, and the rights
of the holders thereof to receive distributions on the Mortgage Loans will be
subordinate to the rights of the holders of the Class A Certificates to the
extent of the Available Subordination Amount. This subordination is intended to
enhance the likelihood of regular receipt in full by the Class A
Certificateholders of the Senior Distribution Amount and to protect them against
losses. The Maximum Subordination Amount initially
<PAGE>
S-19
will equal approximately $__________ (__% of aggregate principal balance of the
Mortgage Loans as of the Cut-off Date). Commencing __________, 19__, the Maximum
Subordination Amount will gradually decline annually in accordance with a
schedule set forth in the Agreement, and on __________, 19__ and each
____________ thereafter will be reduced to equal the greater of ___% of the
aggregate principal balance of the Mortgage Loans then outstanding or the sum of
the principal balances of the three largest Mortgage Loans outstanding. The
Available Subordination Amount as of any Distribution Date is equal to the
Maximum Subordination Amount less the Cumulative Subordination Payments as of
the preceding Distribution Date. As of any Distribution Date, Cumulative
Subordination Payments will equal (i) the total of all amounts distributed to
the Class A Certificateholders over the term of the Agreement, minus (ii) the
Senior Percentage times the sum of all Available Distribution Amounts for all
Distribution Dates up to and including such Distribution Date plus all Late
Collections (all amounts received which represent late payments or collections
of scheduled payments which were delinquent) previously applied to reimburse
Advances made by the Master Servicer, minus (iii) the total amount of
unreimbursed Advances then outstanding.
The protection afforded to the Class A Certificateholders from the
subordination provisions will be effected both by the preferential right
(limited to the Available Subordination Amount) of the Class A
Certificateholders to receive current distributions from the Mortgage Pool equal
to the Senior Distribution Amount and by the establishment of a reserve fund
(the "Reserve Fund"). [The Reserve Fund is not part of the Trust Fund.] The
Reserve Fund will be established with an initial cash deposit by the Master
Servicer of $__________ (the "Initial Deposit") and will be augmented by the
retention of distributions of principal and interest otherwise payable to the
Class B Certificateholders until the Reserve Fund reaches the required balance
(the "Specified Reserve Fund Balance"). Thereafter, distributions of principal
otherwise payable to the Class B Certificateholders will be retained to the
extent necessary to maintain the Reserve Fund at the Specified Reserve Fund
Balance.
As of any Distribution Date until __________ 1, 19__, the Specified
Reserve Fund Balance will be the sum of (i) the Initial Deposit and (ii) the
greater of (x) ___% of the aggregate principal balance of the Mortgage Loans on
the Cut-off Date and (y) the Available Subordination Amount as of the related
Determination Date less the outstanding principal balance of the Mortgage Loans
represented by the Class B Certificates as of the related Determination Date. As
of each Distribution Date following __________ 1, 19__, the Specified Reserve
Fund Balance will be the sum of (i) the Initial Deposit and (ii) the greater of
(x) ___% of the aggregate principal balance of the Mortgage Loans as of the
related Determination Date and (y) the Available Subordination Amount as of the
related Determination Date less the outstanding principal balance represented by
the Class B Certificates as of the related Determination Date. However, the
amount determined pursuant to each clause (ii) above will not be less than the
lesser of (a) the sum of the outstanding principal balances of the three largest
Mortgage Loans as of the related Determination Date and (b) the Available
Subordination Amount. See "Subordination" in the Prospectus.
The subordination provisions and the Reserve Fund are intended to
enhance the likelihood of timely payment of principal and interest and to
protect the Class A Certificateholders against losses; however, in certain
circumstances the Reserve Fund could be depleted and shortfalls could result. If
on any Distribution Date the aggregate amount of collections on the Mortgage
Loans, Advances by the Master Servicer (as described below), and amounts
available in the Reserve Fund do not provide sufficient funds to make full
distributions to the Class A Certificateholders, the amount of the shortfalls,
plus interest thereon at the applicable Pass-Through Rate, will be added to the
amount the Class A Certificateholders are entitled to receive on the next
Distribution Date. In the event the Reserve Fund
<PAGE>
S-20
is depleted before the Available Subordination Amount is reduced to zero, the
Class A Certificateholders will nevertheless have a preferential right to
receive current distributions from the Mortgage Pool, limited by the then
Available Subordination Amount. The Class A Certificateholders will bear their
proportionate share of any losses realized on the Mortgage Loans following the
depletion of the Reserve Fund and the reduction of the Available Subordination
Amount to zero. The Class A Certificateholders will bear their proportionate
share of any losses realized on the Mortgage Loans in excess of the Available
Subordination Amount.
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS
DELAY IN PAYMENT OF INTEREST
The effective yield to the holders of the Certificates will be lower
than the yield otherwise produced by the Pass-Through Rate and purchase price
because monthly interest will not be payable to such holders until the 25th day
(or if such day is not a business day, then on the next succeeding business day)
of the month following the month of accrual (without any additional distribution
of interest or earnings thereon in respect of such delay). See "Yield
Considerations" and "Description of the Certificates - Retained Interest,
Servicing Compensation and Payment of Expenses" in the Prospectus.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal payments on the Senior Certificates, the
aggregate amount of distributions on the Senior Certificates and the yield to
maturity of the Senior Certificates will be directly related to the rate of
payments of principal on the Mortgage Loans. The rate of principal payments on
the Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of principal prepayments thereon (including for
this purpose payments resulting from refinancings, liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and repurchases by the
Unaffiliated Seller, the Master Servicer and Depositor). The Mortgage Loans may
be prepaid by the mortgagors at any time without payment of any prepayment fee
or penalty. Prepayments, liquidations and purchases of the Mortgage Loans will
result in distributions to Certificateholders of amounts which would otherwise
be distributed over the remaining terms of the Mortgage Loans. See "Maturity and
Prepayment Considerations" in the Prospectus. Since the rate of payment of
principal on the Mortgage Loans will depend on future events and a variety of
factors (as described more fully herein and in the Prospectus under "Yield
Considerations" and "Maturity and Prepayment Considerations"), no assurance can
be given as to such rate or the rate of principal prepayments.
In general, if prevailing mortgage rates fell significantly below the
Mortgage Rates on the Mortgage Loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing mortgage rates rose
significantly above the Mortgage Rates on the Mortgage Loans, the rate of
prepayment on the Mortgage Loans would be expected to decrease. The rate of
payments (including prepayments) on pools of mortgage loans is also influenced
by a variety of economic, geographic, social and other factors, including
changes in mortgagors' housing needs, job transfers, unemployment, mortgagors'
net equity in the mortgaged properties and servicing decisions. Accordingly,
there can be no certainty as to the rate of prepayments on the Mortgage Loans
during any period or over the life of
<PAGE>
S-21
the Certificates. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
The Mortgage Loans are subject to assumption under circumstances
described under "Description of the Certificates - Collection and Other
Servicing Procedures" and "Certain Legal Aspects of Residential Loans -
Enforceability of Certain Provisions; Prepayment Charges and Prepayments" in the
Prospectus. The extent to which the Mortgage Loans are assumed by purchasers of
the Mortgaged Properties rather than prepaid by the related mortgagors in
connection with the sales of the Mortgage Properties will affect the weighted
average life of the Senior Certificates. See "Maturity and Prepayment
Considerations" in the Prospectus.
Since the rate of principal payments (including prepayments) on the
Mortgage Loans will significantly affect the yield to maturity on the
Certificates, prospective investors are urged to consult their investment
advisors as to both the rate of future principal payments (including
prepayments) on the Mortgage Loans and the suitability of the Certificates to
their investment objectives.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates offered hereby will be issued pursuant to a Pooling
and Servicing Agreement (the "Agreement") to be dated as of _____________ 1,
199__, among the Depositor, the Master Servicer and the Trustee, a form of which
is filed as an exhibit to the Registration Statement. Reference is made to the
Prospectus for important information additional to that set forth herein
regarding the terms and conditions of the Agreement and the Certificates. [The
Trustee will appoint ___________________ (the "Custodian"), to serve as
Custodian in connection with the Certificates.] The Certificates will be
transferable and exchangeable at the corporate trust office of
_________________________________________, located in
________________________________, which will serve as Certificate Registrar.
____________________ [__________ will act as paying agent and authenticating
agent.] No service charge will be made for any transfer or exchange of
Certificates but the [Trustee] [Certificate Registrar] may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with the transfer or exchange of Certificates. The Depositor will
provide to a prospective or actual Certificateholder without charge, on written
request, a copy (without exhibits) of the Agreement. Requests should be
addressed to PaineWebber Mortgage Acceptance Corporation IV, 1285 Avenue of the
Americas, New York, New York 10019, Attention: ________________.
THE MASTER SERVICER
_____________________________, a _____________________ (the "Master
Servicer"), will act as Master Servicer for the 199__-___ Certificates pursuant
to the Agreement. The Master Servicer's principal executive offices are located
at _________ ___________________________, and its telephone number is ________
___________. [Describe other locations and general operations of the Master
Servicer.]
<PAGE>
S-22
The following table summarizes the foreclosure experience on
conventional residential first trust deeds or mortgage loans serviced by the
Master Servicer during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
199__ 199__ 199__ 199__
----------------------------------------------------------------------------------------
(Dollar Amounts in Thousands)
Principal Balance
<S> <C> <C> <C> <C>
(end of period)..................... $___________________ $__________________ $__________________ $_________________
Total Number of Loans.................. ____________________ ___________________ ___________________ __________________
Total Number of
Foreclosures........................ ____________________ ___________________ ___________________ __________________
Percent Foreclosed
by Number of Loans.................. ___________________% __________________% __________________% ________________%
</TABLE>
he following table summarizes the delinquency experience on conventional
residential first trust deeds or mortgage loans serviced by the Master Servicer
during the periods indicated:
<PAGE>
S-23
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
199__ 199__ 199__ 199__
----------------------------------------------------------------------------------------
(Dollar Amounts in Thousands)
Period of Delinquency:
<S> <C> <C> <C> <C>
30-59 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
60-89 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
90 days or more $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
In foreclosure
Principal Balance $ $ $ $
Number of Loans
Percent Delinquent by
Number of Loans
% % % %
Total Delinquent and in
Foreclosure $ $ $ $
Principal Balance
Number of Loans
Percent Delinquent by
Number of Loans % % % %
</TABLE>
While the above foreclosure and delinquency experience is typical of
the Master Servicer's recent experience, there can be no assurance that the
future experience on the Mortgage Loans will be the same. In addition, the
foregoing is based on all of the conventional loans in the Master Servicer's
servicing portfolio. The Mortgage Loans may be more recently
<PAGE>
S-24
originated than and may have certain other characteristics unlike the majority
of the loans in the Master Servicer's conventional servicing portfolio.
THE TRUSTEE
______________________________________________________________________,
a ___________________________________ (the "Trustee"), will act as Trustee for
the Series 199__-____ Certificates pursuant to the Agreement. The Trustee's
principal executive offices are located at _________________, and its telephone
number is _____________.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities for the Certificates will be equal to the
product of the Servicing Fee Rate times the Scheduled Principal Balance of each
Mortgage Loan in the Mortgage Pool. As to any Mortgage Loan, the Servicing Fee
Rate is equal to ___% per annum. The Master Servicer is obligated to pay certain
ongoing expenses associated with the Mortgage Pool and incurred by the Master
Servicer in connection with its responsibilities under the Agreement, including
compensation of any Sub-Servicers. The Master Servicer is also obligated to
include in each distribution on the Certificates that portion of its servicing
compensation equal to interest at the Net Mortgage Rate on the balance of any
Mortgage Loan as to which a prepayment or liquidation occurs, such interest
commencing on the date of the prepayment or liquidation and ending on the due
date of the Mortgage Loan immediately following the date of the prepayment or
liquidation. See "Description of the Certificates - Retained Interest, Servicing
Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Master Servicer and for information
regarding expenses payable by the Master Servicer.
VOTING RIGHTS
At all times, [__]% of all Voting Rights will be allocated among all
holders of the [Senior] Certificates [and the Class B-1 Certificates] in
proportion to the then outstanding Certificate Principal Balances of their
respective Certificates[, and [__]% of all Voting Rights will be allocated among
holders of the Class B-2 Certificates in proportion to the percentage interests
evidenced by their respective Certificates].
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of a series of Certificates are described in
"Description of the Certificates - Termination" in the Prospectus. The
[Depositor] [Master Servicer] will have the right to repurchase all remaining
Mortgage Loans in the Mortgage Pool and thereby effect early retirement of the
Certificates, subject to the aggregate principal balance of the Mortgage Loans
at the time of
<PAGE>
S-25
repurchase being less than ___% of the aggregate principal balance of such
Mortgage Loans as of the Cut-off Date. In the event the [Depositor] [Master
Servicer] exercises such option, the purchase price distributed with respect to
each Senior Certificate will be 100% of its then outstanding Certificate
Principal Balance plus interest thereon at the Pass-Through Rate. In no event
will the trust created by the Agreement for a series of Certificates continue
beyond the expiration of 21 years from the death of the survivor of the person
or persons named in the Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the following opinion: [Assuming
compliance with the provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a "real estate
mortgage investment conduit" (a "REMIC") within the meaning of Sections 860A
through 860G (the "REMIC Provisions") of the Internal Revenue Code of 1986 (the
"Code"), and (i) the Class A, Class B and Class C Certificates will evidence
"regular interests" in such REMIC and (ii) the Class R Certificates will be the
sole class of "residual interests" in such REMIC, each within the meaning of the
REMIC Provisions in effect on the date hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust Fund
will be classified as a grantor trust under Subpart E, part I of subchapter J of
the Code, and not as an association taxable as a corporation or as a
partnership.]
The __________ Certificates [may] [will] [will not] be treated as
having been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of __%]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the Prospectus.
The ___________________ Certificates may be treated for Federal income
tax purposes as having been issued at a premium. Whether any holder of [either]
such Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code
<PAGE>
S-26
and "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code,
and interest (including original issue discount, if any) on the Offered
Certificates will be interest described in Section 856(c)(3)(B) of the Code.
Moreover, the Offered Certificates will be "qualified mortgages" within the
meaning of Section 860(A)(3) of the Code. See "Certain Federal Income Tax
Consequences-REMICs-Characterization of Investments in REMIC Certificates" in
the Prospectus.
________________________, a _______________, will act as REMIC
Administrator for the Trust Fund. [The Master Servicer will be responsible for
the fees and normal disbursements of the REMIC Administrator.] See "Certain
Federal Income Tax Consequences-REMICs-Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements-Certain Matters Regarding the
Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor", "-Events of Default" and "-Rights Upon Event of Default" in the
Prospectus.
For further information regarding the Federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO REMIC RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders
of REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to: (i) thrift institutions holding residual interests having
"significant value" and (ii) the transfer of "noneconomic" residual interests to
United States persons. Pursuant to the Pooling and Servicing Agreement, the
Class R Certificates may not be transferred to non-United States persons. See
"Certain Federal Income Tax Consequences--REMICS--Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Class R Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Class R Certificates, which will be in an amount equal to
all or virtually all of the taxable income includable by holders of the Class R
Certificates. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and
<PAGE>
S-27
that the purported transferor of "noneconomic" residual interests will continue
to remain liable for any taxes due with respect to the income on such residual
interests, if "a significant purpose of the transfer was to impede the
assessment or collection of tax." Based on the REMIC Regulations, the Class R
Certificates may constitute noneconomic residual interests during some or all of
their terms for purposes of the REMIC Regulations and, accordingly, if a
significant purpose of a transfer is to impede the assessment or collection of
tax, transfers of the Class R Certificates may be disregarded and purported
transferors may remain liable for any taxes due with respect to the income on
the Class R Certificates. All transfers of the Class R Certificates will be
subject to certain restrictions under the terms of the Pooling and Servicing
Agreement that are intended to reduce the possibility of any such transfer being
disregarded to the extent that the Class R Certificates constitute noneconomic
residual interests. See "Certain Federal Income Tax Consequences-REMICs-Taxation
of Owners of REMIC Residual Certificates-Noneconomic REMIC Residual
Certificates" in the Prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under
the Pooling and Servicing Agreement, the holder of the largest Percentage
Interest in the Class R Certificates shall, by its acceptance of such
Certificates, agree to irrevocably appoint the Master Servicer as its agent to
perform all of the duties of the tax matters person for the REMIC.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences
of investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations Applicable Solely to the Class R
Certificates" herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
<PAGE>
S-28
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the Underwriting
Agreement dated ____________, 199__ (the "Underwriting Agreement"), the
Depositor has agreed to sell and PaineWebber Incorporated (the "Underwriter")
has agreed to purchase the Senior Certificates. The Underwriter is obligated to
purchase all Senior Certificates offered hereby if any are purchased.]
[The Depositor has been advised by the Underwriter that it proposes
initially to offer all of the Senior Certificates to the public at the public
offering prices set forth on the cover page of this Prospectus Supplement and to
certain dealers at such prices less a concession not in excess of ___% of the
initial Certificate Principal Balance of the Senior Certificates. The
Underwriter may allow and such dealers may reallow concessions not in excess of
___% of the initial aggregate Certificate Principal Balance of the Senior
Certificates. After the initial public offering, the public offering price and
such concessions may be changed.]
[Distribution of the Senior Certificates will be made [by _________]
from time to time in negotiated transactions or otherwise at varying prices to
be determined at the time of sale. Proceeds to the Depositor from the sale of
the Senior Certificates will be _____% of the aggregate of the Certificate
Principal Balances initially represented by the Senior Certificates, plus
accrued interest at the Pass-Through Rate from the Cut-off Date but before
deducting expenses payable by the Depositor. In connection with the purchase and
sale of the Senior Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.]
The Underwriting Agreement provides that the Depositor and its parent
corporation will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act of 1933, or will contribute to
payments the Underwriter may be required to make in respect thereof.
There can be no assurance that a secondary market for the Certificates
will develop or, if it does develop, that it will continue. The primary source
of information available to investors concerning the Certificates will be the
monthly statements discussed in the Prospectus under "Description of the
Certificates -- Statements to Certificateholders," which will include
information as to the outstanding principal balance of the Certificates and the
status of the applicable form of credit enhancement. There can be no assurance
that any additional information regarding the Certificates will be available
through any other source. In addition, the Depositor is not aware of any source
through which price information about the Certificates will be generally
available on an ongoing basis. The limited nature of such information regarding
the Certificates may adversely affect the liquidity of the Certificates, even if
a secondary market for the Certificates become available.
<PAGE>
S-29
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Depositor and for the Underwriter by Thacher Proffitt & Wood, New York,
New York.
RATING
[It is a condition to issuance that the Senior Certificates offered
hereby be rated in the second highest rating category by a nationally recognized
statistical rating organization as the Depositor may designate.] [rating agency
language] See "Yield on the Certificates and Prepayments of the Mortgage Loans"
herein.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1996
PROSPECTUS SUPPLEMENT [Version 4]
(To Prospectus dated ____________, 199__)
$___________________ (Approximate)
Mortgage Asset-Backed Certificates, Series 199__-__
PaineWebber Mortgage Acceptance Corporation IV
Depositor
- ------------------------------------------------
Master Servicer
Class A-1: $__________ initial Certificate Principal Balance
(approximate), ____% Certificate Interest Rate
Class A-2: $__________ initial Certificate Principal Balance
(approximate), ____% Certificate Interest Rate
Class A-3: $__________ initial Certificate Principal Balance
(approximate), ____% Certificate Interest Rate
Class A-4: $__________ initial Certificate Principal Balance
(approximate), ____% Certificate Interest Rate
The Series 199__-__ Certificates will consist of four classes of Senior
Certificates and two classes of Subordinate Certificates. The Senior
Certificates will consist of Class A-1 Certificates, Class A-2 Certificates,
Class A-3 Certificates and Class A-4 Certificates, the latter of which is a
class of Accrual Certificates. The Subordinate Certificates will consist of
Class B-1 and Class B-2 Certificates. Only the Senior Certificates are offered
hereby.
Interest on the Senior Certificates will be distributed, to the extent of
available funds, [quarterly on each ____________ 25, ____________25,
_______________25 and ____________ 25,] or, if any such day is not a business
day, then on the next succeeding business day, beginning in ____________, 199__
(each, a "Distribution Date"), in an amount equal to the interest accrued during
the period since the immediately preceding Distribution Date (the "Interest
Accrual Period"). [Quarterly] distributions of interest on the Class A-4
Certificates will commence only upon the retirement of the Class A-1, Class A-2
and Class A-3 Certificates. Prior to that time interest will accrue on the Class
A-4 Certificates and the amount so accrued during each Interest Accrual Period
will be added to the Certificate Principal Balance thereof on the following
Distribution Date.
Distributions in respect of principal on the Senior Certificates will be made on
each Distribution Date in the order of their respective Final Scheduled
Distribution Dates, so that no payment of principal will be made with respect to
any class of Senior Certificates until all classes of Senior
<PAGE>
S-2
Certificates having an earlier Final Scheduled Distribution Date have been
retired. Principal payments on the Certificates of a particular class will be
made on a pro rata basis among the Certificates of that class.
Certain unscheduled distributions (each, a "Special Distribution") shall be made
solely to Senior Certificateholders as provided herein on the 25th day of any
calendar month in which no Distribution Date occurs, or if such day is not a
business day, then on the next succeeding business day (each, a "Special
Distribution Date"), in the event that the Master Servicer projects that the
amount which will be on deposit in the Certificate Account and which would be
available for distribution in the succeeding calendar month would be
insufficient to pay Senior Certificateholders the optimal amount of principal
and interest to which they will be entitled as of such future date.
The Series 199__-___ Certificates will represent in the aggregate the entire
beneficial ownership interest in a trust fund (the "Trust Fund") consisting
primarily of a segregated pool of conventional one- to four-family 30-year,
fixed interest rate first mortgage loans (the "Mortgage Loans"), having an
aggregate principal balance as of _______________, 199_ of approximately
$_______________ and an aggregate Cash Flow Value (as defined herein) as of such
date of approximately $_____________ (subject in each case to a permitted
variance as described herein under "Additional Information"), to be acquired by
PaineWebber Mortgage Acceptance Corporation IV (the "Depositor"), together with
other assets described herein.
Except under certain circumstances described herein, losses realized on the
Mortgage Loans will be allocated first to the Class B-1 Certificates. As further
described herein, until ___________, _____, or on any Distribution Date
thereafter on which the Senior Percentage (as described herein) is greater than
the initial Senior Percentage, the Cash Flow Value decline resulting from all
mortgagor prepayments on the Mortgage Loans will be distributed solely to
holders of the Senior Certificates in the sequential order described above.
The yield to maturity on the Certificates will be affected by the rate of
principal payments (including prepayments) on the Mortgage Loans. [The Mortgage
Loans may be prepaid at any time without penalty]. See "Yield on the
Certificates and Prepayments of the Mortgage Loans" herein.
There is currently no secondary market for the Certificates offered hereby and
there can be no assurance that a secondary market for the Certificates will
develop. PaineWebber Incorporated expects to establish a market in the
Certificates offered hereby, but is not obligated to do so. There is no
assurance that any such market, if established, will continue.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-____ OF THIS PROSPECTUS SUPPLEMENT AND PAGE ____ OF THE
ACCOMPANYING PROSPECTUS.
An election will be made to treat the Trust Fund as a "real estate mortgage
investment conduit" ("REMIC") for federal income tax purposes. As described more
fully herein and in the Prospectus, the Senior Certificates and Class B-1
Certificates will constitute the "regular interests" in the REMIC. See "Certain
Federal Income Tax Consequences" herein and in the Prospectus.
<PAGE>
S-3
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE MASTER SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH
HEREIN. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================================================
Final Scheduled Underwriting Proceeds to the
Distribution Date Price to Public Discounts and Depositor (2)(3)
(1) (2) Commissions
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A-1 ................... ______% ______% ______%
- --------------------------------------------------------------------------------------------------------------------------------
Class A-2 ................... ______% ______% ______%
- --------------------------------------------------------------------------------------------------------------------------------
Class A-3 ................... ______% ______% ______%
- --------------------------------------------------------------------------------------------------------------------------------
Class A-4 ................... ______% ______% ______%
- --------------------------------------------------------------------------------------------------------------------------------
Total ....................... $_________ $_________ $_________
================================================================================================================================
</TABLE>
(1) Determined on the assumption that there are no prepayments on the
Mortgage Loans and on the other assumptions herein.
(2) Plus accrued interest from ________ 1, 199__.
(3) Before deducting expenses payable by the Depositor estimated to be
$___________.
The Senior Certificates offered hereby [are] [will be purchased by PaineWebber
Incorporated (the "Underwriter") from the Depositor and will be] offered subject
to receipt and acceptance by the Underwriter, to prior sale and to the
Underwriter's right to reject any order in whole or in part and to withdraw,
cancel or modify the offer without notice. It is expected that delivery of the
Senior Certificates offered hereby will be made at the office of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York, 10019 [or through
the facilities of The Depository Trust Company] on or about ___________________,
199__.
--------------------------
____________, 199__
The Senior Certificates offered by this Prospectus Supplement will be part of a
separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated ___________,
<PAGE>
S-4
199__, of which this Prospectus Supplement is a part and which accompanies this
Prospectus Supplement. The Prospectus contains important information regarding
this offering which is not contained herein, and prospective investors are urged
to read the Prospectus and this Prospectus Supplement in full.
<PAGE>
S-5
TABLE OF CONTENTS
Page
----
SUMMARY OF PROSPECTUS SUPPLEMENT.............................................S-7
RISK FACTORS................................................................S-20
THE MORTGAGE POOL...........................................................S-20
ADDITIONAL INFORMATION......................................................S-25
DESCRIPTION OF THE CERTIFICATES.............................................S-26
Interest on the Senior Certificates................................S-26
Principal of the Senior Certificates...............................S-27
Cash Flow Value....................................................S-28
Distributions......................................................S-29
Special Distributions..............................................S-30
Advances...........................................................S-31
Allocation of Losses; Subordination................................S-32
Example of Distributions...........................................S-32
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS.......................................................S-35
Delay in Payment of Interest.......................................S-35
Prepayment Considerations and Weighted Average Life................S-35
POOLING AND SERVICING AGREEMENT.............................................S-39
General............................................................S-39
The Master Servicer................................................S-39
The Trustee........................................................S-42
Servicing and Other Compensation and Payment of Expenses...........S-42
Voting Rights......................................................S-42
Termination........................................................S-42
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................S-43
PLAN OF DISTRIBUTION........................................................S-43
LEGAL MATTERS...............................................................S-44
RATING......................................................................S-44
Until _______________, all dealers effecting transactions in the Senior
Certificates, whether or not participating in this distribution, may be required
to deliver a Prospectus Supplement and the Prospectus to which it relates. This
is in addition to the obligation of dealers to deliver a Prospectus Supplement
and Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
S-6
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used but not defined herein shall have the meanings assigned
thereto in the Prospectus. An Index of Significant Definitions is included at
the end of the Prospectus.
Title of Series..................... Asset-Backed Certificates, Series 199__-__
(the "Certificates").
Senior Certificates................. Class A-1, Class A-2, Class A-3 and Class
A-4 Certificates, having the aggregate
initial Certificate Principal Balances and
Certificate Interest Rates respectively
set forth on the cover page hereof, and
constituting "Senior Certificates" as
described in the Prospectus. The Senior
Certificates collectively will have an
initial Certificate Principal Balance
equal to ____% (the initial "Senior
Percentage") of the aggregate Cash Flow
Value of the Mortgage Loans as of ________
1, 199__ (the "Cut-off Date").
Subordinate Certificates............ As to Class B-1, $______________ initial
Certifi- cate Principal Balance
(approximate), ____% Certificate Interest
Rate, evidencing approximately ____% of
the aggregate Cash Flow Value of the
Mortgage Loans as of the Cut-off Date. The
Class B-2 Certificates, which have no
Certificate Principal Balance and no
Certificate Interest Rate, represent the
right to receive [(i) on any Distribution
Date, the excess, if any, of the amount of
funds available for distribution on such
Distribution Date over the optimal amounts
of principal and interest payable to the
Senior Certificateholders and Class B-1
Certificateholders on such Distribution
Date and (ii)] the amount, if any,
remaining in the Trust Fund after the
Senior Certificates and the Class B-1
Certificates have been retired. See
"Description of the Certificates -
Distributions" herein.
The Subordinate Certificates are not being
offered hereby, and may be sold at any
time in accordance with the terms of the
Pooling and Servicing Agree- ment, dated
as of ___________ 1, 199__, pursuant
<PAGE>
S-7
to which the Series 199__-__ Certificates
will be issued (the "Agreement").
Depositor........................... PaineWebber Mortgage Acceptance
Corporation IV, a direct wholly-owned
limited purpose finance subsidiary of
PaineWebber Group Inc. and an affiliate of
the Underwriter. See "The Depositor" in
the Prospectus.
Trustee............................. ___________________________________. See
"Pooling and Servicing Agreement - The
Trustee" herein.
Master Servicer..................... ____________________________. See "Pooling
and Servicing Agreement - The Master
Servicer" herein.
Interest............................ The Senior Certificates will bear interest
at the respective Certificate Interest
Rates specified on the cover page hereof.
Accrued Certificate Interest on the Class
A-1, Class A-2 and Class A- 3 Certificates
will be paid, to the extent of available
funds, [quarterly on each ______ 25,
______ 25, ______ 25 and ______ 25], or if
such day is not a business day, the
business day immediately following (each,
a "Distribution Date"), commencing ______
25, 199__, in an amount equal to the
interest accrued during the related
Interest Accrual Period. Interest on the
Class A-4 Certificates will accrue but
will not be paid thereon until the Class
A-1, Class A-2 and Class A-3 Certificates
have been retired. Prior to that time,
interest accrued on the Class A-4
Certificates during the preceding Interest
Accrual Period will be added to the
Certificate Principal Balance thereof on
each Distribution Date. Interest accruing
on the Certificate Principal Balances of
the Class A-1, Class A-2 and Class A- 3
Certificates during any Interest Accrual
Period but unpaid on the related
Distribution Date shall be due and owing
on the subsequent Distribution Date
together with interest at the weighted
average of the Certificate Interest Rates
for the Class A-1, Class A-2 and Class A-3
Certificates. With respect to any
Distribution Date, all such unpaid
<PAGE>
S-8
Accrued Certificate Interest from previous
Distribution Dates, together with
compounded interest thereon, shall
constitute the "Outstanding Senior
Interest Shortfall" for the Distribution
Date.
Shortfalls in collections of one full
month's interest resulting from principal
prepayments in full (or other
liquidations) on Mortgage Loans will be
covered by payments by the Master
Servicer, but only to the extent of its
servicing compensation for the concurrent
period; any such shortfall not so covered
will be allocated to reduce the Accrued
Certificate Interest on all Certificates
as described herein. Shortfalls in
collections of interest resulting from
delinquencies will be borne by the
Subordinate Certificates so long as they
remain outstanding. See "Description of
the Certificates - Accrued Certificate
Interest" herein.
Principal
(including prepayments)............ The initial aggregate Certificate
Principal Balance of the Certificates
(including the Subordinate Certificates)
will equal the aggregate Cash Flow Value
of the Mortgage Loans as of the Cut-off
Date. See "Description of the Certificates
- Cash Flow Value" herein. Distributions
in respect of principal will be made on
each Distribution Date, to the extent of
available funds, to the holders of Senior
Certificates in an aggregate amount equal
to (i) the amount of interest, if any,
accrued on the Class A-4 Certificates for
the related Interest Accrual Period but
not then payable thereon, plus (ii) the
decline in the aggregate Cash Flow Value
of the Mortgage Loans over the related
Deposit Period (as defined herein) times
the applicable Senior Percentage or, as
such decline relates to mortgagor
prepayments, the Senior Prepayment
Percentage, minus (iii) the principal
portion of any Special Distributions since
the immediately preceding Distribution
Date.
The Senior Prepayment Percentage will
initially be 100%; starting on __________,
it will decline gradually in accordance
with a schedule until it equals the Senior
Percentage, but will be 100% for any
Distribution Date on which the Senior
<PAGE>
S-9
Percentage is less than the initial Senior
Percentage. See "Description of the
Certificates - Principal of the Senior
Certificates" herein.
Distributions in respect of principal of
the Senior Certificates will be allocated
first to the Class A-1 Certificates, then
the Class A-2 Certificates, then the Class
A-3 Certificates, and finally the Class A-
4 Certificates, in each case until the
Certificate Principal Balance of the
respective class has been reduced to zero.
Based upon the assumptions set forth
herein, each class of Senior Certificates
is projected to be retired, and the
Certificate Principal Balance thereof
reduced to zero, not later than its Final
Scheduled Distribution Date. See
"Description of the Certificates - Cash
Flow Value" herein.
The Mortgage Loans shall be divided into
Cash Flow Value Groups for purposes of
determining Cash Flow Value. The Cash Flow
Value of any Cash Flow Value Group is
equal to the lesser of (i) the present
value of the future scheduled payments
thereon, [plus reinvestment income,]
discounted [quarterly] at the highest
Certificate Interest Rate applicable to
any class of [Senior] Certificates then
outstanding, and (ii) ___% (the "Maximum
Cash Flow Value Percentage") of the
aggregate Stated Principal Balance (as
defined herein) of the Mortgage Loans
comprising such Cash Flow Value Group.
The Cash Flow Value of any Cash Flow Value
Group is based upon the assumption that
all the Mortgage Loans comprising such
Cash Flow Value Group constitute a single,
fully-amortizing fixed rate mortgage loan
(a) bearing interest at a fixed rate equal
to the highest rate borne by any of the
Mortgage Loans comprising such Cash Flow
Value Group; (b) having an outstanding
principal balance equal to the aggregate
of the Stated Principal Balances of all
the Mortgage Loans comprising such Cash
Flow Value Group; (c) maturing in the
month of the scheduled maturity date of
the latest maturing Mortgage Loan
<PAGE>
S-10
included in such Cash Flow Value Group;
and (d) that provides for fixed, level,
monthly payments.
Special Distributions............... The Senior Certificates will be subject to
special distributions on the 25th day of
each month (or, if such day is not a
business day, on the next succeeding
business day) other than a month in which
a Distribution Date falls (each such date,
a "Special Distribution Date"), under the
limited circumstances described herein.
See "Description of the Certificates -
Special Distributions" herein and in the
Prospectus.
Allocation of Losses................ Subject to the limitations described
herein, the decline in Cash Flow Value
resulting from losses of principal
realized on the Mortgage Loans will be
allocated to the Subordinate Certificates
prior to allocation to the Senior
Certificates. See "Description of the
Certificates - Allocation of Losses;
Subordination" herein.
The Mortgage Pool................... The Mortgage Pool will consist of
[30-year,] fixed rate, level monthly
payment, fully amortizing Mortgage Loans,
with an aggregate principal balance as of
the Cut-off Date of approximately
$___________ (subject to a permitted
variance of plus or minus _____%) and an
aggregate Cash Flow Value as of the
Cut-off Date of approximately $_________
(subject to a permitted variance of plus
or minus ________%). [Include appropriate
information, with corresponding changes,
for different types of loans.] See "The
Mortgage Pool" herein.
Denominations....................... The Senior Certificates of each class will
be offered in registered form, in
denominations evidencing initial
Certificate Principal Balances of $_______
and multiples of $_______ in excess
thereof, with one Certificate evidencing
an additional amount equal to the
remainder of the aggregate initial
Certificate Principal Balance of such
Class.
Record Date......................... All distributions will be made by the
[Trustee] [Master Servicer] to the persons
in whose names the Certificates are
registered at the close of busi-
<PAGE>
S-11
ness on the last business day of the month
preceding the month in which the related
Distribution Date occurs. See "Description
of the Certificates - Distributions"
herein.
Advances............................ The Master Servicer will be obligated to
make Advances to holders of the
Certificates in respect of delinquent
payments of principal and interest on the
Mortgage Loans and in respect of certain
amounts representing interest not covered
by current net income on Mortgaged
Properties acquired on behalf of
Certificateholders by foreclosure or deed
in lieu of foreclosure. See "Description
of the Certificates - Advances" herein and
in the Prospectus.
Optional Termination................ At its option, the Master Servicer may
repurchase all of the Mortgage Loans in
the Trust Fund and thereby effect early
retirement of the Certificates on any
Distribution Date on which the aggregate
principal balance of the Mortgage Loans
remaining in the Trust Fund is less than
__% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date.
See "Pooling and Servicing Agreement -
Termination" herein and "Description of
the Certificates - Termination" in the
Prospectus. Special Prepayment
Considerations............................
The rate of principal payments on the
Senior Certificates collectively will
depend on the rate and timing of principal
payments (including prepayments, defaults
and liquidations) on the Mortgage Loans.
As is the case with mortgage- backed
securities generally, the Senior
Certificates are subject to substantial
inherent cash-flow uncertainties because
the Mortgage Loans may be prepaid at any
time. Generally, when prevailing interest
rates are increasing, prepayment rates on
mortgage loans tend to decrease, resulting
in a reduced return of principal to
investors at a time when reinvestment at
such higher prevailing rates would be
desirable. Conversely, when prevailing
interest rates are declining, prepayment
rates on mortgage loans tend to increase,
resulting in a greater return of principal
to investors at a time
<PAGE>
S-12
when reinvestment at comparable yields may
not be possible.
[The multiple class structure of the
Senior Certificates results in the
allocation of prepayments among certain
classes as follows (to be included as
appropriate):]
[Sequentially paying classes: (All)
classes of the Senior Certificates are
subject to various priorities for payment
of principal as described herein.
Distributions on classes having an earlier
priority of payment will be immediately
affected by the prepayment speed of the
Mortgage Loans early in the life of the
Mortgage Pool. Distributions on classes
with a later priority of payment will not
be directly affected by the prepayment
until such time as principal is
distributable on such classes; however,
the timing of commencement of principal
distributions and the weighted average
lives of such classes will be affected by
the prepayment speed experienced both
before and after the commencement of
principal distributions on such classes.]
[PAC Certificates: Principal distributions
on the PAC Certificates will be payable in
amounts determined based on schedules as
described herein, provided that the
prepayment speed of the Mortgage Loans
each month remains between approximately
____% SPA and ____% SPA. However, as
discussed herein, actual principal
distributions may be greater or less than
the described amounts. If the prepayment
speed of the Mortgage Loans is
consistently higher than ____% of SPA,
then the Companion Certificates will be
retired, and the rate of principal
distributions and the weighted average
lives of the remaining PAC Certificates
will become significantly more sensitive
to changes in the prepayment speed of the
Mortgage Loans and principal distributions
thereon will be more likely to deviate
from the described amounts.]
<PAGE>
S-13
[TAC Certificates: Principal distributions
on the TAC Certificates would be payable
in amounts determined based on schedules
as described herein, if the prepayment
speed of the Mortgage Loans were to remain
at a constant level of approximately %
SPA. However, as --------- discussed
herein, actual principal distributions are
likely to deviate from the described
amounts, because it is highly unlikely
that the actual prepayment speed of the
Mortgage Loans each month will remain at %
SPA. If the -------- Companion
Certificates are retired before all of the
TAC Certificates are retired, the rate of
principal distributions and the weighted
average lives of the remaining TAC
Certificates will become significantly
more sensitive to changes in the
prepayment speed of the Mortgage Loans,
and principal distributions thereon will
be more likely to deviate from the
described amounts.]
[Companion Certificates: Because of the
application of amounts available for
principal distributions among the Senior
Certificates in any given month, first to
the (PAC) (TAC) Certificates up to the
described amounts and then to the
Companion Certificates, the rate of
principal distributions and the weighted
average lives of the Companion
Certificates will be extremely sensitive
to changes in the prepayment speed of the
Mortgage Loans. The weighted average lives
of the Companion Certificates will be
significantly more sensitive to changes in
the prepayment speed than that of either
the (PAC) (TAC) Certificates or a
fractional undivided interest in the
Mortgage Loans.]
[Subordination features: As described
herein, during certain periods all or a
disproportionately large percentage of
principal prepayments on the Mortgage
Loans will be allocated among the Senior
Certificates, and during certain periods
none or a disproportionately small
percentage (or, as compared to the Class
(B) Certificates during certain periods, a
disproportionately large percentage) of
such prepayments will be
<PAGE>
S-14
distributed on the Class (M) Certificates.
As a result, the weighted average lives of
the Class (M) Certificates will be
extended and, as a relative matter, the
subordination afforded the [Senior]
Certificates by the Class (M) Certificates
(together with the Class (B) Certificates)
will be increased. (Similar descriptions
to be added to other classes with
subordination features.)]
See "Description of the Certificates -
Principal of the Senior Certificates,"
Yield on the Certificates and Prepayments
of the Mortgage Loans" herein, and
"Maturity and Prepayment Considerations"
in the Prospectus.
Special Yield
Considerations.................... The yield to maturity on each respective
class of the Senior Certificates will
depend on the rate and timing of principal
payments (including prepayments, defaults
and liquidations) on the Mortgage Loans
and the allocation thereof (and of any
losses on the Mortgage Loans) to reduce
the Certificate Principal Balance (or
Notional Amount) of such class, as well as
other factors such as the Pass-Through
Rate (and any adjustments thereto) and the
purchase price for such Certificates. The
yield to investors on any class of Senior
Certificates will be adversely affected by
any allocation thereto of prepayment
interest shortfalls on the Mortgage Loans,
which are expected to result from the
distribution of interest only to the date
of prepayment (rather than a full month's
interest) in connection with prepayments
in full, and the lack of any distribution
of interest on the amount of any partial
prepayments.
In general, if a class of Senior
Certificates is purchased at a premium and
principal distributions thereon occur at a
rate faster than anticipated at the time
of purchase, the investor's actual yield
to maturity will be lower than that
assumed at the time of purchase.
Conversely, if a class of Senior
Certificates is purchased at a discount
and principal distributions thereon occur
at a rate slower than that assumed at the
time of purchase,
<PAGE>
S-15
the investor's actual yield to maturity
will be lower than that originally
anticipated.
The Senior Certificates were structured
based on a number of assumptions,
including a prepayment assumption of ___%
SPA and weighted average lives
corresponding thereto as set forth herein
under "Special Prepayment Considerations."
The yield assumptions for the respective
classes that are to be offered hereunder
will vary as determined at the time of
sale.
[The multiple class structure of the
Senior Certificates causes the yield of
certain classes to be particularly
sensitive to changes in the prepayment
speed of the Mortgage Loans and other
factors, as follows (to be included as
appropriate):]
[Interest strip and inverse floater
classes: The yield to investors on the
(identify classes) will be extremely
sensitive to the rate and timing of
principal payments on the Mortgage Loans
(including prepayments, defaults and
liquidations), which may fluctuate
significantly over time. A rapid rate of
principal payments on the Mortgage Loans
could result in the failure of investors
in the (identify interest strip and
inverse floater strip classes) to recover
their initial investments, and a slower
than anticipated rate of principal
payments on the Mortgage Loans could
adversely affect the yield to investors on
the (identify non-strip inverse floater
classes).]
[Variable Strip Certificates: In addition
to the foregoing, the yield on the
Variable Strip Certificates will be
materially adversely affected to a greater
extent than the yields on the other Senior
Certificates if the Mortgage Loans with
higher Mortgage Rates prepay faster than
the Mortgage Loans with lower Mortgage
Rates, because holders of the Variable
Strip Certificates generally have rights
to relatively larger portions of interest
payments on the Mortgage Loans with higher
Mortgage Rates than on Mortgage Loans with
lower Mortgage Rates.]
<PAGE>
S-16
[Adjustable rate (including inverse
floater) classes: The yield on the
(identify floating rate classes) will be
sensitive, and the yield on the (identify
inverse floater classes) will be extremely
sensitive, to fluctuations in the level of
[the index]. The Pass-Through Rate on the
(identify inverse floater classes) will
vary inversely with, and at a multiple of,
(the index).]
[Inverse floater companion classes: In
addition to the foregoing, in the event of
relatively low prevailing interest rates
(including (the index)) and relatively
high rates of principal prepayments over
an extended period, while investors in the
(identify inverse floater companion
classes) may then be experiencing a high
current yield on such Certificates, such
yield may be realized only over a
relatively short period, and it is
unlikely that such investors would be able
to reinvest such principal prepayments on
such Certificates at a comparable yield.]
[Subordination features: The yield to
maturity on the Class (M) Certificates
will be extremely sensitive to losses due
to defaults on the Mortgage Loans (and the
timing thereof), to the extent such losses
are not covered by the Class (B)
Certificates, because the entire amount of
such losses (rather than a pro rata
portion thereof) will be allocable to the
Class (M) Certificates, as described
herein. (Similar descriptions to be added
for other classes with subordination
features.)]
[Residual Certificates: Holders of the
Residual Certificates are entitled to
receive distributions of principal and
interest as described herein; however,
holders of such Certificates may have tax
liabilities with respect to their
Certificates during the early years of
their term that substantially exceed the
principal and interest payable thereon
during such periods. (In addition, such
distributions will be reduced to the
extent that they are subject to United
States federal income tax withholding.)]
<PAGE>
S-17
See "Yield on the Certificates and
Prepayments of the Mortgage Loans",
(especially "-____________ Yield
Considerations," "-_______________ Yield
Considerations" and "-Additional Yield
Considerations Applicable Solely to the
Residual Certificates" and "Certain
Federal Income Tax Consequences") herein,
and "Yield Considerations" in the
Prospectus.
Certain Federal Income Tax
Consequences ...................... Upon the issuance of the Offered
Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the
following opinion: [Assuming compliance
with the provisions of the Pooling and
Servicing Agreement, for federal income
tax purposes, the Trust Fund will qualify
as a "real estate mortgage investment
conduit" (a "REMIC") within the meaning of
Sections 860A through 860G (the "REMIC
Provisions") of the Internal Revenue Code
of 1986 (the "Code"), and (i) the Class A,
Class B and Class C Certificates will
evidence "regular interests" in such REMIC
and (ii) the Class R Certificates will be
the sole class of "residual interests" in
such REMIC, each within the meaning of the
REMIC Provisions in effect on the date
hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for
federal income tax purposes, the Trust
Fund will be classified as a grantor trust
under Subpart E, part I of subchapter J of
the Code, and not as an association
taxable as a corporation or as a
partnership.]
Under the REMIC Regulations, the Class R
Certificates will not be regarded as
having "significant value" for purposes of
applying the rules relating to "excess
inclusions." In addition, the Class R
Certificates may constitute "noneconomic"
residual interests for purposes of the
REMIC Regulations. Transfers of the Class
R Certificates will be restricted under
the Pooling and Servicing Agreement to
United States Persons in a manner designed
to prevent a transfer of a noneconomic
residual interest from being disregarded
under the REMIC Regulations. See "Certain
Federal Income Tax
<PAGE>
S-18
Consequences-Special Tax Considerations
Applicable to REMIC Residual Certificates"
herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of
REMIC Residual Certificates-Excess
Inclusions" and "-Noneconomic REMIC
Residual Certificates" in the Prospectus.
The Class R Certificateholders may be
required to report an amount of taxable
income with respect to the early years of
the Trust Fund's term that significantly
exceeds distributions on the Class R
Certificates during such years, with
corresponding tax deductions or losses
deferred until the later years of the
Trust Fund's term. Accordingly, on a
present value basis, the tax detriments
occurring in the earlier years may
substantially exceed the sum of any tax
benefits in the later years. As a result,
the Class R Certificateholders' after-tax
rate of return may be zero or negative,
event if their pre-tax rate of return is
positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield
Considerations Applicable Solely to the
Class R Certificates", and "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein.
For further information regarding the
Federal income tax consequences of
investing in the Offered Certificates, see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
Rating.............................. It is a condition to the issuance of the
Certificates offered hereby that the
Senior Certificates be rated ____ by
________. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization. Each security rating
should be evaluated independently of any
other security rating. A security rating
does not address the frequency of
prepayments of Mortgage Loans, or the
corresponding effect on
<PAGE>
S-19
yield to investors. See "Yield on the
Certificates" and "Rating" herein.
Legal Investment.................... The Senior Certificates will constitute
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long
as they are rated as described herein,
and, as such, are legal investments for
cer- tain entities to the extent provided
in SMMEA. See "Legal Investment" in the
Prospectus and "Rating" herein.
<PAGE>
S-20
RISK FACTORS
[To Be Provided]
THE MORTGAGE POOL
The Mortgage Pool will consist of Mortgage Loans with an aggregate
principal balance outstanding as of the Cut-off Date, after deducting payments
of principal due on such date, of [approximately] $_________________ [(subject
to a permitted variance of plus or minus __%)]. The Mortgage Loans to be
included in the Mortgage Pool will be acquired by the Depositor from
________________________, in its capacity as Unaffiliated Seller. In addition,
the [Unaffiliated Seller] will be the Master Servicer for the Certificates.
[All of the Mortgage Loans have monthly payments due on the first day
of each month. None of the Mortgage Loans are Buydown Mortgage Loans. At
origination each Mortgage Loan had a term to maturity of up to 30 years. The
mortgagor with respect to each Mortgage Loan represented in its loan application
that the property securing such Mortgage Loan (the "Mortgaged Property")
initially would be owner-occupied as its primary residence.]
All Mortgage Loans will have Net Mortgage Rates of ____%. As to any
Mortgage Loan, the "Net Mortgage Rate" is equal to the Mortgage Rate minus the
Servicing Fee Rate. The Mortgage Loans will have Mortgage Rates ranging from
___% to ___%, with a weighted average Mortgage Rate as of the Cut-off Date of
___%. The Mortgage Loans will have Servicing Fee Rates ranging from ___% to
___%, with a weighted average Servicing Fee Rate as of the Cut-off Date of ___%.
The weighted average maturity of the Mortgage Loans as of the Cut-off Date will
be approximately ___ years and ___ months. None of the Mortgage Loans will have
been originated prior to _____________ or will have an unexpired term at the
Cut-off Date of less than approximately ___ years and ___ months or more than
approximately ___ years and __ months. The Mortgage Loans will each have a
principal balance at origination of not less than $___________ or more than
$________.
The Mortgage Loans will also have the following characteristics as of
the Cut-off Date (expressed as a percentage of the aggregate principal balance
of the Mortgage Loans having such characteristics relative to the aggregate
principal balance of all Mortgage Loans):
No more than ____% of the Mortgage Loans will have
Loan-to-Value Ratios at origination exceeding 80%. Mortgage Loans with
Loan-to-Value Ratios at origination exceeding 80% will be covered by
policies of primary mortgage guaranty insurance (each, a "Primary
Credit Insurance Policy") insuring against default as to the principal
amount of the Mortgage Loans exceeding 75% (or a lesser percentage) of
the Collateral Values of the Mortgaged Properties at origination and
such insurance will be maintained until the Loan-to-Value Ratios are
reduced to 80% or less. [insert information as to FHA insurance or VA
guarantee if applicable.]
<PAGE>
S-21
At least ___% of the Mortgage Loans will be secured by
detached one-family dwelling units.
No more than ___% of the Mortgage Loans will be secured by
Mortgaged Properties located in ___________ and no more than ______% of
the Mortgage Loans will be secured by Mortgaged Properties located in
_______. Except as indicated in the preceding sentence, no more than
___% of the Mortgage Loans will be secured by Mortgaged Properties
located in any one state.
No more than ___% of the Mortgage Loans will be secured by
Mortgaged Properties located in any one zip code area or housing
development, and no more than ___% will be secured by Mortgaged
Properties located in any one zip code area or housing development in
California.
No more than _____% of the Mortgage Loans will be secured by
vacation or second homes. No more than ___% of the Mortgage Loans will
be secured by condominium units.
[The foregoing type of description will be used if precise information
on the Mortgage Loans is not available on the date of the Prospectus Supplement;
a description similar to the following description will be used if precise
information is available.]
[Set forth below is a description of certain additional characteristics
of the Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
MORTGAGE RATES
Aggregate Percentage of
Unpaid Aggregate
Mortgage Number of Principal Unpaid Principal
Rates Loans Balance Balance
-------- --------- --------- ----------------
<S> <C> <C> <C>
% $ %
--------- --------- ----------------
Total ............................... $ 100%
========= ========= ----------------
</TABLE>
As of the Cut-off Date, the weighted average Mortgage Rate was % per annum.
<PAGE>
S-22
<TABLE>
<CAPTION>
REMAINING TERMS TO STATED MATURITY
Remaining Terms Aggregate Percentage of
to Stated Unpaid Aggregate
Maturity (in ___ Number of Principal Unpaid Principal
Months) Loans Balance Balance
---------------- --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ----------------
Total ....................................... $ 100%
========= ========= ================
</TABLE>
As of the Cut-off Date, the weighted average remaining term to stated maturity
was approximately ______ months.
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS
Aggregate
Unpaid Percentage of
Number of Principal Aggregate Unpaid
Original Loan Amounts Loans Balance Principal Balance
- --------------------- --------- --------- -----------------
<S> <C> <C> <C>
Up to 70.00% ................................. $ %
70.01% - 80.00% ..............................
80.01% - 90.00% ..............................
More than 90.00% ........................... .. --------- --------- -----------------
Total ............................... 100%
========= ========= =================
</TABLE>
As of the Cut-off Date, the weighted average loan-to-value ratio at origination
of the Mortgage Loans was % per annum.
<PAGE>
S-23
<TABLE>
<CAPTION>
ORIGINAL LOAN AMOUNTS
Aggregate
Unpaid Percentage of
Number of Principal Aggregate Unpaid
Original Loan Amounts Loans Balance Principal Balance
- --------------------- --------- --------- -----------------
<S> <C> <C> <C>
Up to 50,000.00............................... $ %
$ 50,000 - $ 99,999.99........................
$100,000 - $149,999.99........................
$150,000 - $199,999.99........................
$200,000 - $249,999.99........................
$250,000 - $299,999.99........................
$300,000 - $349,999.99........................
$350,000 - $399,999.99........................
$400,000 - $449,999.99........................
$450,000 - $499,999.99........................ --------- --------- -----------------
$ 100%
Total ............................... ========= ========= =================
</TABLE>
As of the Cut-off Date, the average unpaid balance of the Mortgage Loans was $
and the unpaid principal balances of the largest and smallest Mortgage Loans
were $ and $ , respectively.
<PAGE>
S-24
<TABLE>
<CAPTION>
TYPES OF LOANS
Percentage of
Aggregate Aggregate
Unpaid Unpaid
Number of Principal Principal
Types Loans Balance Balance
- ----- --------- --------- -------------
<S> <C> <C> <C>
Conventional Loans secured by
One-Family detached......................... $ %
Low-rise condominiums/2 family..............
High-rise condominiums/3-4
family........................................ --------- --------- -------------
Total.................................... 100%
========= ========= =============
</TABLE>
<TABLE>
<CAPTION>
YEARS OF ORIGINATION OF MORTGAGE LOANS
Aggregate
Unpaid Percentage of
Number of Principal Aggregate Unpaid
Years of Origination Loans Balance Principal Balance
- -------------------- --------- ---------- -----------------
<S> <C> <C> <C>
199_ ......................................... $ %
199_ .........................................
199_ .........................................
199_ .........................................
199_ ......................................... --------- ---------- ----------------
Total ................................... 100%
========= ========== ================
</TABLE>
<PAGE>
S-25
<TABLE>
<CAPTION>
OCCUPANTS OF MORTGAGED PROPERTIES
Aggregate Percentage of
Unpaid Aggregate Unpaid
Number of Principal Principal
Loans Balance Balance
--------- --------- ----------------
<S> <C> <C> <C>
Owner $ %
Primary residence...........................
Vacation/second home........................
Non-owner occupied investment
property ..................................... --------- --------- ----------------
Total..................................... 100%
========= ========= ================
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTY
Aggregate Percentage of
Unpaid Aggregate Unpaid
Number of Principal Principal
States Loans Balance Balance
------ --------- --------- ----------------
<S> <C> <C> <C>
$ %
--------- --------- ----------------
Total..................................... 100%
========= ========= ================
</TABLE>
[The foregoing information will be modified to the extent necessary to describe
different types of mortgage loans].
ADDITIONAL INFORMATION
The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as constituted at the close
of business on the Cut-off Date, as adjusted for the scheduled principal
payments due on or before such date. Prior to the issuance of the Certificates,
Mortgage Loans may be removed from the Mortgage Pool as a result of incomplete
documentation or otherwise, if the Depositor deems such removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the Mortgage Pool prior to the issuance of the
Certificates unless including such mortgage loans would materially alter the
characteristics of the Mortgage Pool as described herein. The Depositor believes
that the information set forth herein will be representative of the
<PAGE>
S-26
characteristics of the Mortgage Pool as it will be constituted at the time the
Certificates are issued, although the range of Mortgage Rates and maturities and
certain other characteristics of the Mortgage Loans in the Mortgage Pool may
vary.
A report on Form 8-K containing a detailed description of the Mortgage Loans
will be available to purchasers of the Certificates at or before initial
issuance and will be filed with the Securities and Exchange Commission within
fifteen days after such initial issuance. The report on Form 8-K will specify
the precise aggregate principal balance of the Mortgage Loans outstanding as of
the Cut-off Date and will set forth on a precise basis the other information
presented in this Prospectus Supplement on an approximate basis.
DESCRIPTION OF THE CERTIFICATES
The Series 199__-__ Certificates will consist of four classes of Senior
Certificates (the "Class A-1, Class A-2, Class A-3 and Class A-4 Certificates")
and two classes of Subordinate Certificates (the "Class B-1" and "Class B-2"
Certificates). The Senior Certificates have an initial aggregate Certificate
Principal Balance of $_______________ (approximate), evidencing approximately
____% (the initial Senior Percentage) of the aggregate Cash Flow Value of the
Mortgage Loans in the Trust Fund as of the Cut-off Date. The Class B-1
Certificates have an initial Certificate Principal Balance of $______________
evidencing ___% (the initial Subordinate Percentage) of the aggregate Cash Flow
Value of the Mortgage Loans in the Trust Fund as of the Cut-off Date. The Class
B-2 Certificates, which have no Certificate Principal Balance and no Certificate
Interest Rate, represent the right to receive [(i) on any Distribution Date, the
excess, if any, of the Available Distribution Amount (as defined herein) for
such Distribution Date over the optimal amounts of principal and interest
payable to the Senior Certificateholders and Class B-1 Certificateholders on
such Distribution Date, and (ii)] the balance of the Trust Fund after retirement
of the Senior Certificates and the Class B-1 Certificates, as described herein.
The Class B-1 and Class B-2 Certificates are not being offered hereby, and may
be sold at any time in accordance with the terms of the Agreement.
INTEREST ON THE SENIOR CERTIFICATES
The Certificates will bear interest at the respective Certificate Interest
Rates specified on the cover page hereof. Accrued Certificate Interest on the
Class A-1, Class A-2 and Class A-3 Certificates will be paid [quarterly on each
______ 25, ______ 25, ______ 25 and ______ 25,] or if such day is not a business
day on the business day immediately following (each, a "Distribution Date") in
an amount equal to the interest accrued during the period following the
immediately preceding Distribution Date (each, an "Interest Accrual Period").
Interest on the Class A-4 Certificates will accrue but will not be paid thereon
until the Class A-1, Class A-2 and Class A-3 Certificates have been retired.
Prior to that time, interest accrued on the Class A-4 Certificates during the
preceding Interest Accrual Period will be added to the Certificate Principal
Balance thereof on each Distribution Date. All calculations of Accrued
Certificate Interest shall be based on a year of twelve 30-day months and will
be subject to reduction as provided herein.
<PAGE>
S-27
Any unpaid Accrued Certificate Interest on the Certificate Principal
Balances of the Class A- 1, Class A-2 and Class A-3 Certificates (and, following
the retirement of the Class A-3 Certificates, the Class A-4 Certificates) from
previous Distribution Dates, together with compounded interest thereon, shall
constitute the "Outstanding Senior Interest Shortfall" for the current
Distribution Date and shall be due and payable on the current Distribution Date.
The Master Servicer will be obligated to apply amounts otherwise payable to
it as servicing compensation to cover any shortfalls in collections of one full
month's interest at the applicable Net Mortgage Rate resulting from principal
prepayments in full (or other liquidations) of Mortgage Loans, to the extent of
an aggregate amount equal to its total servicing compensation for the concurrent
period. For any Distribution Date, Accrued Certificate Interest on each
Certificate will be reduced in the event of such shortfalls in collections of
one full month's interest resulting from principal prepayments in full (or other
liquidations) of Mortgage Loans during the Prepayment Period, to the extent not
covered by the application of servicing compensation of the Master Servicer. The
aggregate amount of any such shortfalls will be allocated among all of the
outstanding Senior Certificates and the Class B-1 Certificates, in proportion to
the respective amounts of Accrued Certificate Interest that would otherwise have
been payable thereon absent such reductions and absent any delinquencies or
losses.
PRINCIPAL OF THE SENIOR CERTIFICATES
On each Distribution Date, the [Master Servicer] [Trustee] will make
distributions in respect of principal to the Senior Certificateholders in the
amounts described below. All distributions in respect principal of will be
allocated first to the Class A-1 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero. Thereafter, principal distributions
will be allocated to the Class A-2 Certificates, then the Class A-3
Certificates, and finally the Class A-4 Certificates, in each case until the
Certificate Principal Balance of each class has been reduced to zero and such
class of Senior Certificates has been retired. Based upon the assumptions that
[set forth applicable assumptions], it is projected that each class of Senior
Certificates will be retired and the Certificate Principal Balance thereof
reduced to zero not later than Final Scheduled Distribution Date of such class.
Principal distributions on any class of Certificates will be allocated on a pro
rata basis among the Certificates of such class. [Insert alternative language
for programmed amortization classes or other variations, if applicable.]
Distributions in respect of principal on the Senior Certificates will be
made on each Distribution Date in an aggregate amount equal to the sum of (i)
the amount of Accrued Certificate Interest on the Class A-4 Certificates for the
related Interest Accrual Period which is not then payable thereon (if any), and
(ii) the Senior Principal Distribution Amount as described below; provided, that
the aggregate distribution in respect of principal on any Distribution Date will
not exceed the amount by which the Available Distribution Amount exceeds the sum
of (i) the amount of Accrued Certificate Interest then payable on all of the
Senior Certificates and (ii) the Outstanding Senior Interest Shortfall for such
Distribution Date.
For any Distribution Date, the "Senior Principal Distribution Amount" is an
amount equal to (i) the then applicable Senior Percentage times the decline in
the aggregate Cash Flow Values of the Mortgage Loans over the [three-month]
period ending on the Determination Date
<PAGE>
S-28
immediately preceding the Distribution Date (each such period, a "Deposit
Period"), exclusive of the portion of such Cash Flow Value decline which is
attributable to prepayments by mortgagors, plus (ii) the then applicable Senior
Prepayment Percentage times the portion of such Cash Flow Value decline over the
Deposit Period which is attributable to full and partial prepayments by
mortgagors, minus (iii) the principal portion of any Special Distributions since
the immediately preceding Distribution Date.
The Senior Prepayment Percentage for each Distribution Date is the
percentage indicated below:
<TABLE>
<CAPTION>
Distribution Date Senior Prepayment Percentage
----------------- ----------------------------
<S> <C>
through ............ 100%
- ------------------- -------------------
through ............ Senior Percentage, plus __% of the difference
- ------------------- ------------------- between the Senior Percentage and 100%
through ............ Senior Percentage, plus __% of the difference
- ------------------- ------------------- between the Senior Percentage and 100%
through ............ Senior Percentage, plus __% of the difference
- ------------------- ------------------- between the Senior Percentage and 100%
through ............ Senior Percentage, plus __% of the difference
- ------------------- ------------------- between the Senior Percentage and 100%
and thereafter......................... Senior Percentage
</TABLE>
provided, however, that if the Senior Percentage as of any Distribution Date is
greater than the initial Senior Percentage, the Senior Prepayment Percentage for
such Distribution Date shall be 100%.
CASH FLOW VALUE
The initial aggregate Certificate Principal Balance of the Certificates
(including the Subordinate Certificates) will equal the aggregate Cash Flow
Value of the Mortgage Loans as of the Cut-off Date. For purposes of calculating
Cash Flow Values, each Mortgage Loan will be considered to be included in a
group (a "Cash Flow Value Group") of Mortgage Loans having the same Net Mortgage
Rate [describe any other characteristics of such groups]. As of the date of any
determination, the "Cash Flow Value" of any Cash Flow Value Group will be the
lesser of (i) the present value on such date of the assumed future scheduled
payments on such Cash Flow Value Group (each, a "Scheduled Cash Flow Value
Deposit"), [together with reinvestment income thereon, to the Distribution Date
immediately following the date on which any such Scheduled Cash Flow Value
Deposit is assumed to have been received,] discounted [quarterly] at the highest
Certificate Interest Rate of any class of Certificates then outstanding, and
(ii) the applicable Maximum Cash Flow Value Percentage times the Stated
Principal Balance of the Mortgage Loans comprising such Cash Flow Value Group as
of such date. [Specify or
<PAGE>
S-29
describe Maximum Cash Flow Value Percentage for any Cash Flow Value Group.] The
"Stated Principal Balance" of any Mortgage Loan as of any date of determination
is equal to the outstanding principal balance thereof as of the Cut-off Date,
after application of principal payments due on or before such date, whether or
not received, minus the principal portion of all monthly payments due on or
before such date of determination which were received or with respect to which
Advances were made, minus all unscheduled collections of principal with respect
to such Mortgage Loan, minus any reduction in the outstanding principal balance
of the Mortgage Loan after the Cut-off Date resulting from a bankruptcy
proceeding involving the related mortgagor. The Cash Flow Value of any Mortgage
Loan is equal to the portion of the Cash Flow Value of the related Cash Flow
Value Group allocated to such Mortgage Loan in the same proportion which the
Stated Principal Balance of such Mortgage Loan bears to the aggregate Stated
Principal Balance of all the Mortgage Loans in such Cash Flow Value Group.
The Cash Flow Value of each Cash Flow Value Group is determined on the
assumptions that (A) such Cash Flow Value Group constitutes a single,
fully-amortizing, fixed-rate mortgage loan (i) bearing interest at a fixed rate
equal to the highest Mortgage Rate borne by any of the Mortgage Loans comprising
such Cash Flow Value Group, (ii) having an outstanding principal balance equal
to the aggregate Stated Principal Balance of the Mortgage Loans comprising such
Cash Flow Value Group, (iii) maturing in the month of the scheduled maturity
date of the latest maturing Mortgage Loan included in such Cash Flow Value
Group, and (iv) that provides for fixed, level, monthly payments (each a
"Scheduled Cash Flow Value Group Deposit")[; and (B) each Scheduled Cash Flow
Value Group Deposit is (i) received on the assumed date of receipt (which shall
be the Master Servicer Advance Date (as defined below) in any month) and (ii) is
reinvested at the Assumed Reinvestment Rate pending distribution. The "Assumed
Reinvestment Rate" is an assumed annual rate of return, compounded quarterly of
____% to _____________, 199__, _____% to ____________, 199_ and ____%
thereafter].
DISTRIBUTIONS
With respect to any Distribution Date, the Available Distribution
Amount will equal the total amount of all cash on deposit in the Certificate
Account as of the corresponding Determination Date, together with Advances made
by the Master Servicer for the concurrent Master Servicer Advance Date and
together with interest and investment income earned on amounts held in the
Certificate Account, exclusive of:
(a) all monthly payments collected but due on a date
subsequent to the latest Due Period, together with interest and
investment income earned thereon after receipt,
(b) all prepayments and other unscheduled recoveries of
principal, and related payments of interest thereon, received
subsequent to the related Prepayment Period, together with interest and
investment income earned thereon after receipt, and
(c) all amounts in the Certificate Account which are payable
or reimbursable to the Master Servicer.
<PAGE>
S-30
On each Distribution Date, the Available Distribution Amount will be
distributed in the following order of priority, in each case to the extent of
available funds:
(i) to the holders of the Senior Certificates, the amounts
described above under "Interest on the Senior Certificates" and
"Principal of the Senior Certificates"; and
(ii) to the holders of the Class B-1 Certificates, an amount
equal to (a) Accrued Certificate Interest on the Certificate Principal
Balance of the Class B-1 Certificates for such Distribution Date, and
(b) unpaid Accrued Certificate Interest from prior Distribution Dates
together with compounded interest thereon (the "Outstanding Subordinate
Interest Shortfall"), and (c) as a distribution in respect of
principal, the lesser of (i) the outstanding Certificate Principal
Balance thereof and (ii) the difference between the decline in the
aggregate Cash Flow Values of the Mortgage Loans during the related
Deposit Period and the sum of (x) the Senior Principal Distribution
Amount and (y) the principal portion of any Special Distributions since
the immediately preceding Distribution Date; and
(iii) to the holders of the Class B-2 Certificates, any
remaining portion of the Available Distribution Amount.
All distributions will be made by or on behalf of the [Trustee] [Master
Servicer] to the persons in whose names the Certificates are registered at the
close of business on each Record Date, which will be the last business day of
the month preceding the month in which the related Distribution Date occurs.
Such distributions shall be made [either (i) by check mailed to the address of
each Certificateholder as it appears in the Certificate Register or (ii) at the
request to the Trustee in writing by the Record Date immediately prior to such
Distribution Date of any holder of Certificates having an initial Certificate
Principal Balance in excess of $_____________, by wire transfer in immediately
available funds to the account of such Certificateholder specified in the
request.] Distributions to holders of each respective class of Certificates will
be allocated among such holders in proportion to their respective Percentage
Interest in that class.
SPECIAL DISTRIBUTIONS
The Senior Certificates will be subject to special distributions (each,
a "Special Distribution") on the 25th day of each month (or, if such day is not
a business day, on the next succeeding business day) other than a month in which
a Distribution Date falls (each such date, a "Special Distribution Date"). On
the ___ business day before each Special Distribution Date (each such date, a
"Special Distribution Date"). On the business day before each Special
Distribution Date (each such date a "Special Determination Date") the Master
Servicer shall determine whether the Projected Distribution Amount for the
Distribution Date or Special Distribution Date, as the case may be, in the
following calendar month will equal or exceed the Optimal Senior Distribution
Amount for such date. The "Optimal Senior Distribution Amount" is the amount
which the Master Servicer projects would be distributable on the Distribution
Date or Special Distribution Date, as the case may be, in the calendar month
following such Special Determination Date, assuming a distribution thereon to
the Senior Certificateholders equal to (i)
<PAGE>
S-31
Accrued Certificate Interest on the aggregate Certificate Principal Balance of
the Senior Certificates, plus (ii) the Senior Principal Distribution Amount,
plus (iii) the Outstanding Senior Interest Shortfall. As of each Special
Determination Date, the "Projected Distribution Amount" is the amount which the
Master Servicer projects would be available for distribution on the Distribution
Date or Special Distribution Date, as the case may be, in the immediately
succeeding calendar month, based upon (i) collections on the Mortgage Loans,
together with any interest and investment income with respect thereto, as of
such Special Determination Date, (ii) Advances to be made by the Master Servicer
on the Master Servicer Advance Date (as defined below) in the same calendar
month as such Special Determination Date, (iii) reinvestment of the amounts
described in (i) and (ii) in permitted instruments having the then highest
available yield for such investments of similar maturity, and (iv) projected
collections and Advances with respect to the Mortgage Loans following such
Special Determination Date through the Determination Date or Special
Determination Date, as the case may be, in the immediately succeeding calendar
month. The calculations described in each of the two immediately preceding
sentences are based upon the assumption that during the period following the
Special Determination Date on which such calculations are made, there shall be
no defaults in monthly payments on the Mortgage Loans, no Principal Prepayments
or final liquidations with respect to the Mortgage Loans, and no acquisitions of
Mortgaged Properties through foreclosure or deed-in-lieu foreclosure or
dispositions of Mortgaged Properties already so acquired.
In the event that the Projected Distribution Amount calculated as of
any Special Determination Date with respect to any Distribution Date or Special
Distribution Date, as the case may be, in the following calendar month is less
than the Optimal Senior Distribution Amount calculated for such date, the Master
Servicer shall make or cause to be made on the immediately succeeding Special
Distribution Date, to the extent of available funds, a Special Distribution to
Senior Certificateholders. The amount of such Special Distribution shall be the
minimum amount necessary to eliminate the deficit described in the foregoing
sentence, in light of such Special Distribution. All Special Distributions shall
be made on the class of outstanding Senior Certificates with the earliest Final
Scheduled Distribution Date and shall be allocated, without priority, to reduce
the Certificate Principal Balance of such class of Senior Certificates and to
pay interest at the applicable Certificate Interest Rate on the amount of such
reduction. No portion of any Special Distribution shall be made on any class of
Senior Certificates until all classes of Senior Certificates with earlier Final
Scheduled Distribution Dates have been retired.
ADVANCES
Subject to the following limitations, the Master Servicer will be
obligated to advance on or before the 25th day of each month, or if such 25th
day is not a business day then on the business day immediately following (each,
a "Master Servicer Advance Date"), out of its own funds, the aggregate of
payments of principal and interest (adjusted to the Net Mortgage Rate) which
were due during the related Due Period and delinquent as of the Determination
Date in such calendar month, plus certain amounts representing interest not
covered by any current net income on Mortgaged Properties acquired on behalf of
Certificateholders by foreclosure or deed in lieu of foreclosure.
<PAGE>
S-32
The Master Servicer will be obligated to make Advances regardless of whether
such Advances are deemed to be recoverable from the related Mortgage Loans.
All Advances will be reimbursable to the Master Servicer either (a) from late
collections, Insurance Proceeds and Liquidation Proceeds from the Mortgage Loan
as to which such unreimbursed Advance was made or (b) as to any Advance with
respect to which the Master Servicer cannot reimburse itself out of the
liquidation proceeds for the related Mortgaged Loan or REO Property (an
"Unrecovered Advance"), out of any funds in the Certificate Account prior to the
distributions on the Senior Certificate.
ALLOCATION OF LOSSES; SUBORDINATION
Any liquidation loss on a Mortgage Loan, to the extent that the
proceeds of such liquidation are less than the Cash Flow Value of such Mortgage
Loan, will be allocated first to the Class B-1 Certificates, until the
Certificate Principal Balance of the Class B-1 Certificates has been reduced to
zero; any additional liquidation losses, to the same extent, will be allocated
to the Senior Certificates. Allocation of any such losses to the Subordinate
Certificates will be effected as follows. Immediately after each Distribution
Date, the aggregate Certificate Principal Balance of the Subordinate
Certificates will be recalculated as equal to the excess, if any, of the then
aggregate Cash Flow Value of all of the Mortgage Loans which remain outstanding
over the aggregate Certificate Principal Balance of the Senior Certificates
immediately after such Distribution Date. In addition, the Senior Percentage
will be recalculated after each Distribution Date and will equal the then
aggregate Certificate Principal Balance of the Senior Certificates divided by
the then aggregate Cash Flow Value of all of the Mortgage Loans which remain
outstanding (but not more than 100%); and the corresponding percentage for the
Subordinate Certificates (the "Subordinate Percentage") will equal 100% minus
the Senior Percentage. Any allocation of losses to the Subordinate Certificates
will have the effect of increasing the Senior Percentage and, accordingly, the
portion of future distributions payable to the Senior Certificateholders
relative to that payable to the Subordinate Certificateholders. Conversely,
payments to the Senior Certificateholders with respect to the Cash Flow Value
decline resulting from mortgagor prepayments when the Senior Prepayment
Percentage exceeds the Senior Percentage will have the effect of decreasing the
Senior Percentage and accelerating the amortization of the Senior Certificates.
In addition, such payment to the Senior Certificateholders of mortgagor
prepayments when the Senior Prepayment Percentage exceeds the Senior Percentage
will have the effect of preserving the availability of the subordination
provided by the Subordinate Certificates. In the event that the Certificate
Principal Balance of the Subordinate Certificates is reduced to zero while one
or more classes of Senior Certificates remain outstanding and additional losses
cause the Certificate Principal Balance of the Senior Certificates to exceed the
aggregate Cash Flow Value of the Mortgage Loans, the Certificate Principal
Balance of each remaining Senior Class will be reduced by such class's pro rata
share of such excess.
EXAMPLE OF DISTRIBUTIONS
<PAGE>
S-33
The following chart sets forth an example of distributions on the
Certificates, based upon the assumption that the Certificates were issued in
_________ 199__ and that distributions are made on the 25th of ___________,
___________, _________ and ____________.
_________ 1......................... Cut-off Date. The initial principal
balance of the Mortgage Loans will be the
aggregate principal balance of the
Mortgage Loans as of _________ 1, 199__,
after deducting any principal payments due
on or before such date. Any principal and
interest payments due on or before
_________ 1, will not be part of the Trust
Fund, and the Depositor will retain such
amounts when they are received.
_________ 2 through
_______ 31..................... Prepayment Period. Principal prepayments,
and interest thereon to the date of
prepayment, received at any time during
this period will be deposited into the
Certificate Account for dis- tribution on
________ 25.
____________ 25
________ 25 and
________ 25.................... With respect to any Principal Prepayment
in full of a Mortgage Loan, during the
prior calendar month, the Master Servicer
will deposit into the Certificate Account,
to the extent of servicing compensation
earned for the concurrent period, an
amount which, together with interest from
the mortgagor [and reinvestment income in
such calendar month on the proceeds of
such liquidation or prepayment], will
constitute one month's interest at the Net
Mortgage Rate on the Stated Principal
Balance of such prepaid Mortgage Loan.
_______ 31.......................... Record Date. Distributions on ________ 25
will be made to Certificateholders of
record at the close of business on the
last business day of the month immediately
preceding the month of distribution.
_________ 2 to
_________ 20................... Deposit Period. Payments due during the
three related Due Periods (_________ 2 -
____________ 1, ____________ 2-_______ 1,
_______ 2- ________ 1) from mortgagors
will be deposited in the Certificate
Account as received, and will
<PAGE>
S-34
include scheduled principal payments plus
interest on the _________, ____________
and October balances, less interest from
the date of prepayment of any Mortgage
Loan prepaid in full during the Prepayment
Period.
____________ 20,
________ 20 and
________ 20.................... Advance Determination Date. Master
Servicer determines aggregate amount of
delinquent monthly payments due for the
immediately preceding Due Period.
____________ 25,
________ 25 and
________ 25.................... Master Servicer Advance Date. Master
Servicer deposits in Certificate Account
the aggregate amount determined on the
related Advance Determination Date.
____________ 20 and
________ 20.................... Special Determination Date. Master
Servicer calculates Projected Distribution
Amount and Optimal Senior Distribution
Amount with respect to _______ 25 and
________ 25, respectively.
____________ 25 and
________ 25.................... If Projected Distribution Amount
calculated on immediately preceding
Special Determination Date with respect to
Distribution Date or Special Distribution
Date, as the case may be, in following
month is less than Optimal Senior
Distribution Amount calculated for such
date, [Master Servicer] [Trustee] shall
make a Special Distribution in minimum
amount necessary to eliminate such
deficit, in light of such Special
Distribution.
________ 20......................... Determination Date. Master Servicer
calculates amounts of principal and
interest to be distributed on ________ 25.
________ 25......................... Distribution Date. On ________ 25, the
[Master Servicer] [Trustee] will
distribute or cause to be distributed to
the Certificateholders the amounts
determined on ________ 20.
<PAGE>
S-35
Succeeding [three month] periods follow the above pattern, except for
the Cut-off Date.
YIELD ON THE CERTIFICATES AND PREPAYMENTS
OF THE MORTGAGE LOANS
DELAY IN PAYMENT OF INTEREST
The effective yield to the holders of the Certificates will be lower
than the yield otherwise produced by the Certificate Interest Rate and purchase
price because [quarterly] interest will not be payable to such holders until the
25th day (or if such day is not a business day, then on the next succeeding
business day) of the month following the Interest Accrual Period (without any
additional distribution of interest or earnings thereon in respect of such
delay). See "Yield Considerations" and "Description of the Certificates -
Retained Interest, Servicing Compensation and Payment of Expenses" in the
Prospectus.
PREPAYMENT CONSIDERATIONS AND WEIGHTED AVERAGE LIFE
Because the Cash Flow Value decline resulting from principal payments
on the Mortgage Loans will be distributed to the holders of the Certificates (to
the extent collected or advanced), and because, as described above, the Senior
Prepayment Percentage of the Cash Flow Value decline resulting from prepayments
initially will be distributed solely to the holders of Senior Certificates, the
rate of payment of principal of the Senior Certificates, the weighted average
life of each class of the Senior Certificates and the aggregate amount of
distributions on the Senior Certificates will be directly related to the rate of
payment of principal of the Mortgage Loans. The rate of principal payments on
the underlying Mortgage Loans will in turn be affected by the rate of principal
prepayments thereon (including for this purpose payments resulting from
refinancing, liquidations of the Mortgage Loans due to defaults, casualties,
condemnations, and repurchases by the Depositor, the Master Servicer or
Unaffiliated Sellers). [The Mortgage Loans may be prepaid by the mortgagors at
any time without payment of any prepayment fee or penalty.] The actual rate of
principal prepayments on pools of mortgage loans is influenced by a variety of
economic, tax, geographic, demographic, social, legal and other factors and has
fluctuated considerably in recent years. In addition, the rate of principal
prepayments may differ among pools of mortgages at any time because of specific
factors relating to the mortgage loans in the particular pool, including, among
other things, the age of the mortgage loans, the geographic locations of the
Mortgaged Properties and the extent of the mortgagors' equity in real property
securing the loans, and changes in the mortgagors' housing needs, job transfers,
unemployment and servicing decisions. Generally, however, if prevailing interest
rates fall significantly below the Mortgage Rates on the Mortgage Loans, the
Mortgage Loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the Mortgage Rates on the Mortgage Loans.
Conversely, if prevailing interest rates rise significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayments would be expected to
decrease. See "Maturity and Prepayment Considerations" in the Prospectus.
The yield to maturity of any class of the Senior Certificates will
depend on the rate of payment of principal on the Mortgage Loans and the price
paid by the purchaser. [Specifically, since the Class __ Certificates are being
offered at discounts from their original Certificate Prin-
<PAGE>
S-36
cipal Balances, if the purchaser of a Class __ Certificate calculates its yield
to maturity based on an assumed rate of payment of principal faster than that
actually realized on the Mortgage Loans, its actual yield to maturity will be
lower than that so calculated.] The timing of changes in the rate of prepayments
on the Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. In general, the earlier a
prepayment of principal on the underlying Mortgage Loans, the greater the effect
on an investor's yield to maturity, inasmuch as the effect on an investor's
yield of principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments.
The Final Scheduled Distribution Date for each class of Senior
Certificates is the latest Distribution Date on which the Certificate Principal
Balance thereof is expected to be reduced to zero, based on the assumptions used
for determining the Cash Flow Values of the Mortgage Loans which are [expected
to be] included in the Mortgage Pool, as described above, including the
assumption that no prepayments or defaults occur with respect to the Mortgage
Loans. However, [many of the Mortgage Loans included in a Cash Flow Value Group
may have original terms, maturity dates or Mortgage Rates shorter or less than
indicated under those assumptions. For these reasons, and] because of the
likelihood of prepayments, the weighted average life for each class of Senior
Certificates is likely to be shorter than would be the case if payments actually
made on the Mortgage Loans conformed to the above described assumptions, and the
actual last Distribution Date for any class of Senior Certificates could occur
significantly earlier than the Final Scheduled Distribution Date.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
_____________________________ ("_______") assumes that each Mortgage Loan
(regardless of interest rate, principal amount, original term to maturity or
geographic location) prepays at a rate of 0.2% per annum of its outstanding
principal balance in the first month after origination, that this prepayment
rate increases by 0.2% per annum in each month through the 30th month after
origination and remains constant at 6% per annum in each month thereafter. The
__________________________ does not purport to be either a historical
description of the prepayment experience of any pool of mortgage loans or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans.
The following table indicates the projected weighted average life of
each class of Senior Certificates and sets forth the percentage of the initial
Certificate Principal Balance of each class of Senior Certificates that would be
outstanding after each of the dates shown, at various percentages of the
____________ model. The column headed 0% ___ assumes that no Mortgage Loans are
prepaid. The other columns assume prepayments at rates equal to _______%,
______% and ________% of the _______________ model. The table has been prepared
based on the characteristics of the Mortgage Loans as described below under "The
Mortgage Pool" [and on the specific characteristics of the Mortgage Loans
expected to be included in the Mortgage Pool]. For the 0% prepayment case, the
table has been prepared based on the assumptions used for determining the Cash
Flow Values of the Mortgage Loans, as described
<PAGE>
S-37
above. For all other prepayment cases, the table has been prepared based on the
same assumptions except (i) that the Mortgage Loans included in each Cash Flow
Value Group are each assumed to have a Mortgage Rate, maturity date and original
term equal to the weighted average Mortgage Rate, maturity date and original
term, respectively, of all Mortgage Loans expected to be included in each Cash
Flow Value Group, and (ii) that all such Mortgage Loans are prepaid at the
indicated percentage of the __________________ model. There is no assurance
[that the actual characteristics of such Mortgage Loans will not differ from
those assumed in preparing the following table, and there is no assurance] that
the prepayments of the Mortgage Loans will conform to any of the assumed
prepayment rates. [To the extent there are changes in the weighted average
original and remaining terms to maturity of or Mortgage Rates on the Mortgage
Loans actually included in the Mortgage Pool from the assumptions used in the
following table, distributions of principal of the Certificates may occur
earlier or later than indicated by the table, but the final distribution of
principal of each class of Certificates will in no event be later than its Final
Scheduled Distribution Date as shown on the cover page of this Prospectus
Supplement.]
<PAGE>
S-38
<TABLE>
<CAPTION>
Percent of Initial Certificate Principal Balance
DATE CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B-1
- ---- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
_______________, 199__ .....................
_____________25, 1994 ......................
_____________25, 1995 ......................
_____________25, 1996 ......................
_____________25, 1997 ......................
_____________25, 1998 ......................
_____________25, 1999 ......................
_____________25, 2000 ......................
_____________25, 2001 ......................
_____________25, 2002 ......................
_____________25, 2003 ......................
_____________25, 2004 ......................
_____________25, 2005 ......................
_____________25, 2006 ......................
_____________25, 2007 ......................
_____________25, 2008 ......................
_____________25, 2009 ......................
_____________25, 2010 ......................
_____________25, 2011 ......................
_____________25, 2012 ......................
_____________25, 2013 ......................
_____________25, 2014 ......................
_____________25, 2015 ......................
_____________25, 2016 ......................
_____________25, 2017 ......................
_____________25, 20___ .....................
Weighted Average Life
(years) (1) ..............................
</TABLE>
- -------------------
(1) The weighted average life of a Certificate is determined by (i)
multiplying the amount of each principal distribution by the number of years
from the date of issuance to the related Distribution Date, (ii) summing the
results and (iii) dividing the sum by the total principal distributed on the
Certificate.
<PAGE>
S-39
The percentages of ___ in the table above illustrate the changes in
weighted average life for prepayment scenarios both slower and faster than
recent historical rates. The Depositor believes that the historical prepayment
experience on mortgage loans is not necessarily indicative of the future
prepayment experience of any mortgage loans, including the Mortgage Loans. In
addition, it is not likely that the Mortgage Loans will prepay at a constant
percentage of ___ until maturity or that all of the Mortgage Loans will prepay
at the same percentage.
The Depositor makes no representation that the Mortgage Loans will
prepay in the manner or at any of the rates assumed in the table set forth
above. Each investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase any of the
Certificates. Since unanticipated events and circumstances are likely to occur,
it is probable that principal reductions on the Certificates will be
significantly different from the hypothetical principal reductions shown. The
actual return to an investor also will be affected by the price paid by such
investor for its Certificates and such investor's individual tax situation.
POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates offered hereby will be issued pursuant to a Pooling
and Servicing Agreement (the "Agreement") to be dated as of _____________ 1,
199__, among the Depositor, the Master Servicer and the Trustee, a form of which
is filed as an exhibit to the Registration Statement. Reference is made to the
Prospectus for important information additional to that set forth herein
regarding the terms and conditions of the Agreement and the Certificates. [The
Trustee will appoint ___________________________ _____________ (the
"Custodian"), to serve as Custodian in connection with the Certificates.] The
Certificates will be transferable and exchangeable at the corporate trust office
of , located in ________________________________, which will serve as
Certificate Registrar. ____________________ [__________ will act as paying agent
and authenticating agent.] No service charge will be made for any transfer or
exchange of Certificates but the [Trustee] [Certificate Registrar] may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with the transfer or exchange of Certificates. The
Depositor will provide to a prospective or actual Certificateholder without
charge, on written request, a copy (without exhibits) of the Agreement. Requests
should be addressed to PaineWebber Mortgage Acceptance Corp. IV, 1285 Avenue of
the Americas, New York, New York ______, Attention: ________________.
THE MASTER SERVICER
_____________________________, a _____________________ (the "Master
Servicer"), will act as Master Servicer for the 199__-___ Certificates pursuant
to the Agreement. The Master Servicer's principal executive offices are located
at _________ ___________________________, and its telephone number is ________
___________. [Describe other locations and general operations of the Master
Servicer.]
<PAGE>
S-40
The following table summarizes the foreclosure experience on
conventional residential first trust deeds or mortgage loans serviced by the
Master Servicer during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
199__ 199__ 199__ 199__
----------------------------------------------------------------------------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C>
Principal Balance
(end of period)..................... $ $ $ $
------------------- ------------------ ------------------ ---------------
Total Number of Loans.................. -------------------- ------------------- ------------------- ----------------
Total Number of
Foreclosures........................ -------------------- ------------------- ------------------- ----------------
Percent Foreclosed
by Number of Loans.................. % % % %
------------------- ------------------ ------------------ ----------------
</TABLE>
<PAGE>
S-41
The following table summarizes the delinquency experience on
conventional residential first trust deeds or mortgage loans serviced by the
Master Servicer during the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------
199__ 199__ 199__ 199__
----------------------------------------------------------------------------------------
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C>
Period of Delinquency:
30-59 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
60-89 days $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
Period of Delinquency:
90 days or more $ $ $ $
Principal Balance
Number of Loans
Percent of Delinquent by
Number of Loans % % % %
In foreclosure
Principal Balance $ $ $ $
Number of Loans
Percent Delinquent by
Number of Loans
% % % %
Total Delinquent and in
Foreclosure $ $ $ $
Principal Balance
Number of Loans
Percent Delinquent by
Number of Loans % % % %
</TABLE>
While the above foreclosure and delinquency experience is typical of
the Master Servicer's recent experience, there can be no assurance that the
future experience on the Mortgage Loans will be the same. In addition, the
foregoing is based on all of the conventional loans in the Master Servicer's
servicing portfolio. The Mortgage Loans may be more recently originated than and
may have certain other characteristics unlike the majority of the loans in the
Master Servicer's conventional servicing portfolio.
<PAGE>
S-42
THE TRUSTEE
_____________________________________________________________________,
a ___________________________________ (the "Trustee"), will act as Trustee for
the Series 199__-____ Certificates pursuant to the Agreement. The Trustee's
principal executive offices are located at _________________, and its telephone
number is _____________.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer in respect
of its master servicing activities for the Certificates will be equal to the
product of the Servicing Fee Rate times the Scheduled Principal Balance of each
Mortgage Loan in the Mortgage Pool. The "Scheduled Principal Balance" of any
Mortgage Loan is equal to the outstanding principal balance thereof minus the
principal portion of all delinquent scheduled monthly payments. As to any
Mortgage Loan, the Servicing Fee Rate is equal to ___% per annum. The Master
Servicer is obligated to pay certain ongoing expenses associated with the
Mortgage Pool and incurred by the Master Servicer in connection with its
responsibilities under the Agreement. See "Description of the Certificates -
Servicing Compensation and Payment of Expenses" in the Prospectus for
information regarding other possible compensation to the Master Servicer and for
information regarding expenses payable by the Master Servicer.
VOTING RIGHTS
At all times, __% of all Voting Rights will be allocated among all
holders of the Senior Certificates and the Class B-1 Certificates in proportion
to the then outstanding Certificate Principal Balances of their respective
Certificates, and __% of all Voting Rights will be allocated among holders of
the Class B-2 Certificates in proportion to the percentage interests evidenced
by their respective Certificates.
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of a series of Certificates are described in
"Description of the Certificates - Termination" in the Prospectus. The
[Depositor] [Master Servicer] will have the right to repurchase all remaining
Mortgage Loans in the Mortgage Pool and thereby effect early retirement of the
Certificates, subject to the aggregate principal balance of the Mortgage Loans
at the time of repurchase being less than ___% of the aggregate principal
balance of such Mortgage Loans as of the Cut-off Date. In the event the Master
Servicer exercises such option, the purchase price distributed with respect to
each Senior Certificate will be 100% of its then outstanding Certificate
Principal Balance plus interest thereon at the Certificate Interest Rate. In no
event will the trust created by the Agreement for a series of Certificates
continue beyond _________
- ----------------------.
<PAGE>
S-43
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the following opinion: [Assuming
compliance with the provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a "real estate
mortgage investment conduit" (a "REMIC") within the meaning of Sections 860A
through 860G (the "REMIC Provisions") of the Internal Revenue Code of 1986 (the
"Code"), and (i) the Class A, Class B and Class C Certificates will evidence
"regular interests" in such REMIC and (ii) the Class R Certificates will be the
sole class of "residual interests" in such REMIC, each within the meaning of the
REMIC Provisions in effect on the date hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust Fund
will be classified as a grantor trust under Subpart E, part I of subchapter J of
the Code, and not as an association taxable as a corporation or as a
partnership.]
The __________ Certificates [may] [will] [will not] be treated as
having been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of __%]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the Prospectus.
The ___________________ Certificates may be treated for Federal income
tax purposes as having been issued at a premium. Whether any holder of [either]
such Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code, and interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860(A)(3) of the Code. See
"Certain Federal Income Tax Consequences-REMICs-Characterization of Investments
in REMIC Certificates" in the Prospectus.
________________________, a _______________, will act as REMIC
Administrator for the Trust Fund. [The Master Servicer will be responsible for
the fees and normal disbursements of the REMIC Administrator.] See "Certain
Federal Income Tax Consequences-REMICs-Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements-Certain Matters Regarding the
Master Servicer, the Special Servicer, the
<PAGE>
S-44
REMIC Administrator and the Depositor", "-Events of Default" and "-Rights Upon
Event of Default" in the Prospectus.
For further information regarding the Federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO REMIC RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders
of REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to: (i) thrift institutions holding residual interests having
"significant value" and (ii) the transfer of "noneconomic" residual interests to
United States persons. Pursuant to the Pooling and Servicing Agreement, the
Class R Certificates may not be transferred to non-United States persons. See
"Certain Federal Income Tax Consequences--REMICS--Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Class R Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Class R Certificates, which will be in an amount equal to
all or virtually all of the taxable income includable by holders of the Class R
Certificates. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, if "a significant purpose of the transfer was
to impede the assessment or collection of tax." Based on the REMIC Regulations,
the Class R Certificates may constitute noneconomic residual interests during
some or all of their terms for purposes of the REMIC Regulations and,
accordingly, if a significant purpose of a transfer is to impede the assessment
or collection of tax, transfers of the Class R Certificates may be disregarded
and purported transferors may remain liable for any taxes due with respect to
the income on the Class R Certificates. All transfers of the Class R
Certificates will be subject to certain restrictions under the terms of the
Pooling and Servicing Agreement that are intended to reduce the possibility of
any such transfer being disregarded to the extent that the Class R Certificates
constitute noneconomic residual interests. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual
Certificates-Noneconomic REMIC Residual Certificates" in the Prospectus.
<PAGE>
S-45
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under
the Pooling and Servicing Agreement, the holder of the largest Percentage
Interest in the Class R Certificates shall, by its acceptance of such
Certificates, agree to irrevocably appoint the Master Servicer as its agent to
perform all of the duties of the tax matters person for the REMIC.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences
of investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations Applicable Solely to the Class R
Certificates" herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the Underwriting
Agreement dated ____________, 199__ (the "Underwriting Agreement"), the
Depositor has agreed to sell and PaineWebber Incorporated (the "Underwriter")
has agreed to purchase the Senior Certificates. The Underwriter is obligated to
purchase all Senior Certificates offered hereby if any are purchased.]
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Senior Certificates to the public at the public offering
prices set forth on the cover page of this Prospectus Supplement and to certain
dealers at such prices less a concession not in excess of the amount set forth
below for each class. The Underwriter may allow and such dealers may reallow
concessions not in excess of the amount set forth below for each class. After
the initial public offering, the public offering price and such concessions may
be changed.
<PAGE>
S-46
<TABLE>
<CAPTION>
Concession Reallowance
(Percent of (Percent of
Certificate Certificate
Principal Balance) Principal Balance)
------------------ ------------------
<S> <C> <C>
Class A-1 Certificates....................
Class A-2 Certificates....................
Class A-3 Certificates....................
Class A-4 Certificates....................
</TABLE>
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter against certain civil liabilities, including liabilities under
the Securities Act of 1933, or will contribute to payments the Underwriter may
be required to make in respect thereof.
The Underwriting Agreement provides that the Depositor and its parent
corporation will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act of 1933, or will contribute to
payments the Underwriter may be required to make in respect thereof.
There can be no assurance that a secondary market for the Senior
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Senior
Certificates will be monthly statements discussed in the Prospectus under
"Description of the Certificates - Statements to the Certificateholders," which
will include information as to the outstanding principal balance of the Senior
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Senior
Certificates will be available through any other source. In addition, the
Depositor is not aware of any source through which price information about the
Senior Certificates will be generally available on an ongoing basis. The limited
nature of such information regarding the Senior Certificates may adversely
affect the liquidity of the Senior Certificates, even if a secondary market for
the Senior Certificates becomes available.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Depositor and for the Underwriter by Thacher Proffitt & Wood, New York,
New York.
There can be no assurance that a secondary market for the Senior
Certificates will develop or, if it does develop, that it will continue. The
primary source of information available to investors concerning the Senior
Certificates will be the monthly statements discussed in the Prospectus under
"Description of the Certificates - Statements to Certificateholders, "which will
include information as to the outstanding principal balance of the Senior
Certificates and the status of the applicable form of credit enhancement. There
can be no assurance that any additional information regarding the Senior
Certificates will be available through any other source. In addition, the
Depositor is not aware of any source through which price information
<PAGE>
S-47
about the Senior Certificates will be generally available on an ongoing basis.
The limited nature of such information regarding the Senior Certificates may
adversely affect the liquidity of the Senior Certificates, even if a secondary
market for the Senior Certificates become available.
RATING
[It is a condition to issuance that the Senior Certificates offered
hereby be rated in the second highest rating category by a nationally recognized
rating organization as the Depositor may designate.] [rating agency language]
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER __, 1996
PROSPECTUS SUPPLEMENT [Version 5]
(To Prospectus dated ___________, 199__)
$_____________ (Approximate)
Asset-Backed Certificates, Series 199__-
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Depositor
Class A: $_______ Initial Certificate Principal Balance (approximate)
___% Pass-Through Rate on Class A Principal Amount
Class B: No Initial Certificate Principal Balance
____% Pass-Through Rate on Class B Notional Amount
The Series 199__-____ Certificates offered hereby will consist of Class A
Certificates and Class B Certificates. The Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (the "Trust
Fund") consisting of a segregated pool of [_____] Securities having an aggregate
principal balance as of __________, 199_ of approximately $__________ (subject
to a permitted variance described herein under "Substitution of Trust Fund
Assets") and as further described herein to be sold by PaineWebber Mortgage
Acceptance Corporation IV (the "Depositor") pursuant to a Trust Agreement
between the Depositor and ______, as trustee (the "Trustee"). The [____]
Securities will evidence ownership interests in segregated pools of [oneto four-
family first mortgage loans] (the "Mortgage Loans"). The Class A Certificates
evidence ownership of all principal payments and ___% of each interest payment
on the [_____] Securities, after deduction of the Trust Administration Fee
specified herein, which corresponds to interest at the above-specified
Pass-Through Rate on the outstanding Class A Certificate Principal Balance for
the [second] preceding month. The Class B Certificates evidence ownership of
___% of each interest payment on the [_____] Securities, after deduction of the
Trust Administration Fee, which corresponds to interest at the above-specified
Pass-Through Rate on the outstanding Class B Notional Amount for the [second]
preceding month. The Notional Amount is used solely for purposes of the
determination of interest payments and certain other rights of holders of Class
B Certificates and does not represent an interest in principal payments on the
[______] Securities.
Principal and interest are payable on the ____ day of each month or, if such day
is not a business day, then on the next succeeding business day, beginning in
_____________ (each, a "Distribution Date"). The Certificates offered hereby
will constitute a separate series of Certificates being offered by the Depositor
from time to time pursuant to the Prospectus dated
<PAGE>
S-2
___________, 199__ which accompanies this Prospectus Supplement and of which
this Prospectus Supplement is a part.
The yield to maturity on the Certificates will be affected by the rate of
principal payments (including prepayments) on the Mortgage Loans. [The Mortgage
Loans may be prepaid at any time without penalty.] The yield to maturity on the
Class B Certificates will be extremely sensitive to the rate of principal
payments on the Mortgage Loans and may fluctuate significantly from time to
time. The Class B Certificates will be adversely affected in the event of higher
than anticipated levels of prepayments. In addition, in the case of Class B
Certificates, a rapid rate of principal payments could result in the failure of
investors to recover their initial investment. See "Yield on the Certificates
and Prepayments on the [_____] Securities" herein.
There is currently no secondary market for the Certificates offered hereby and
there can be no assurance that a secondary market for the Certificates will
develop. PaineWebber Incorporated expects to establish a market in the
Certificates offered hereby, but is not obligated to do so. There is no
assurance that any such market, if established, will continue.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE INFORMATION SET FORTH UNDER "RISK
FACTORS" ON PAGE S-____ OF THIS PROSPECTUS SUPPLEMENT AND PAGE ____ OF THE
ACCOMPANYING PROSPECTUS.
ALTHOUGH DISTRIBUTIONS ON THE [_____] SECURITIES ARE GUARANTEED BY [______], THE
CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND ARE NOT GUARANTEED
BY [___], OR ANY OTHER PERSON, AND DO NOT REPRESENT AN OBLIGATION OF OR INTEREST
IN [_____], THE DEPOSITOR, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES.
THE GUARANTEE OF [_____] IS [NOT] BACKED BY THE FULL FAITH AND CREDIT OF THE
UNITED STATES OF AMERICA. DISTRIBUTIONS WILL BE MADE ON THE CERTIFICATES ONLY
IF, AND TO THE EXTENT THAT, THE TRUSTEE RECEIVES DISTRIBUTIONS ON THE [_____]
SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
S-3
<TABLE>
<CAPTION>
[_________________________________________________________________________________________________________________
Aggregate
Initial
Certificate Underwriting Proceeds to
Principal Price to Discounts and the Depositor
Balance Public(1) Commissions (1)(2)
----------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Class A Certificates.......................... $ % % %
Class B Certificates.......................... NONE %(3) %(3) %(3)
Total......................................... $ % % %
__________________________________________________________________________________________________________________
(1) Plus accrued interest from ________________, 199__.
(2) Before deducting expenses payable by the Depositor estimated to be
$_________.]
(3) Stated as a percentage of the Class B Notional Amount.
</TABLE>
[The Class A and Class B Certificates offered hereby will be purchased by
PaineWebber Incorporated (the "Underwriter") from the Depositor and will be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the Depositor, before deducting expenses payable by the
Depositor, estimated to be $___________, will be ____% of the aggregate initial
Class A Certificate Principal Balance, plus accrued interest at the Class A
Pass-Through Rate from ______________, 199__.]
The Class A and Class B Certificates offered hereby [are] [will be purchased by
PaineWebber Incorporated (the "Underwriter") from the Depositor and will be]
offered subject to receipt and acceptance by the Underwriter, to prior sale and
to the Underwriter's right to reject any order in whole or in part and to
withdraw, cancel or modify the offer without notice. It is expected that
delivery of the Series 199__-__ Certificates offered hereby will be made at the
office of PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New
York 10019 or through the facilities of The Depository Trust Company on or about
___________________, 199__.
PaineWebber Incorporated
________________, 199__
<PAGE>
S-4
The Certificates offered by this Prospectus Supplement will be part of a
separate series of Certificates being offered by the Depositor pursuant to its
Prospectus dated ___________, 199__, of which this Prospectus Supplement is a
part and which accompanies this Prospectus Supplement. The Prospectus contains
important information regarding this offering which is not contained herein, and
prospective investors are urged to read the Prospectus and this Prospectus
Supplement in full.
TABLE OF CONTENTS
PAGE
SUMMARY OF PROSPECTUS SUPPLEMENT........................................ 5
RISK FACTORS............................................................ 10
DESCRIPTION OF THE CERTIFICATES......................................... 10
THE [_______] SECURITIES................................................ 11
[Substitution of Trust Fund Assets.................... 13
YIELD ON THE CERTIFICATES AND PREPAYMENT
ON THE [_________] SECURITIES......................................... 13
Payment Delay......................................... 13
Prepayment Considerations and Risks................... 13
TRUST AGREEMENT......................................................... 17
General............................................... 17
The Trustee........................................... 18
Voting Rights......................................... 18
Transfer to ERISA Plans............................... 18
Termination........................................... 18
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES]............................... 19
PLAN OF DISTRIBUTION.................................................... 19
LEGAL MATTERS........................................................... 21
RATING.................................................................. 21
Until ________________, all dealers effecting transactions in the Certificates,
whether or not participating in this distribution, may be required to deliver a
Prospectus Supplement and the Prospectus to which it relates. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
S-5
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Capitalized terms used herein but not defined
herein shall have the meaning assigned thereto in the Prospectus. An Index of
Significant Definitions is included at the end of the Prospectus.
Title of Series..................... Asset-Backed Certificates, Series 199__-__
(the "Certificates").
Class A Certificates ............... $_________________ initial Certificate
Principal Balance (approximate), ___%
Pass-Through Rate on such balance. The
initial Class A Certificate Balance is
equal to the aggregate principal balance
of the [______] Securities as of
_______________ 1, 199__ (the "Cut- off
Date").
Class B Certificates ............... No Certificate Principal Balance, ____%
Pass-Through Rate on an amount equal to
the Class A Certificate Principal Balance
outstanding from time to time (with
respect to the Class B Certificates, the
"Notional Amount"). [To be revised, with
corresponding changes, if Class B
Certificates have a Certificate Principal
Balance.]
Depositor........................... PaineWebber Mortgage Acceptance Corp. IV,
a wholly-owned limited purpose finance
subsidiary of PaineWebber Group Inc., and
an affiliate of the Underwriter. See "The
Depositor" in the Prospectus.
Trustee ............................ _____________________________ __________.
See "Trust Agreement - The Trustee"
herein.
Principal (including
prepayments) ..................... All principal payments (including
principal prepayments) with respect to the
[_______] Securities will ------ be passed
through on each Distribution Date to
holders of the Class A Certificates,
commencing ________________, 199_. Holders
of Class A Certificates will be entitled
to receive such principal payments on each
Distribution Date on a pro rata basis in
accordance with the Percentage Interest
evidenced by their respective
Certificates. The Percentage Interest
<PAGE>
S-6
evidenced by any Class A Certificate is
equal to the initial Certificate Principal
Balance thereof divided by the aggregate
initial Certificate Principal Balance of
all of the Class A Certificates.
Holders of the Class B Certificates will
not receive any of principal payments on
the [________] Securities. See
"Description of the Certificates" herein
and in the Prospectus.
Interest ........................... Holders of the Class A Certificates will
be entitled to distributions of interest
payments on the [____] Securities on each
Distribution Date based on the
Pass-Through Rate and the then outstanding
Certificate Principal Bal- ance thereof.
Holders of the Class B Certificates will
be entitled to distributions of interest
payments on the [______] Securi- ties on
each Distribution Date based on the Pass-
Through Rate and the then outstanding
Notional Amount thereof.
[_____] Securities.................. ____% [_____] Securities having an
aggregate unpaid principal balance of
approximately $_____ as of the Cut- off
Date and guaranteed as to the timely
distribution of interest and [the ultimate
distribution of] principal by [________].
Such guarantee of [______] is [not] backed
by the full faith and credit of the United
States of America. See "The Trust
Funds-Agency Securities" in the
Prospectus.
Denominations....................... The Class A Certificates offered hereby
will be offered in registered form, in
denominations evidencing initial
Certificate Principal Balances of
$___________ and multiples of $_______ in
excess thereof, with one Cer- tificate
evidencing the remainder of the aggregate
initial Class A Certificate Principal
Balance.
The Class B Certificates offered hereby
will be offered in registered form, in
denominations evidencing initial Notional
Amounts of $___________ and integral
multiples of $______ in excess thereof,
with one Certificate evidencing an
additional amount equal to the remainder
of the aggregate initial Notional Amount.
<PAGE>
S-7
Record Date ........................ All distributions will be made by or on
behalf of the Trustee to the persons in
whose names the Certificates are
registered at the close of business on the
last business day of the [second] month
preceding the month in which the related
Distribution Date occurs. See "Description
of the Certificates" herein.
Optional Termination................ At its option, the Depositor may
repurchase all of the [____] Securities in
the Trust Fund and thereby effect early
retirement of the Certificates on any
Distribution Date on which the aggregate
principal balance of the [____] Securities
remaining in the Trust Fund is less than
__% of the aggregate principal balance of
the [____] Securities as of the Cut-off
Date. See "Trust Agreement - Termination"
herein and "Description of the
Certificates - Termination" in the
Prospectus.
Yield Considerations and
Risks............................. The rate of payment of principal of each
Class A Certificate, the aggregate amount
of each distribution on and the yield to
maturity of all Certificates will depend
on the rate of payment of principal
(including prepayments) of the mortgage
loans underlying the [_____] Securities
(the "Mortgage Loans"). [The Mortgage
Loans can be prepaid at any time, without
penalty.] The rate of payment of principal
varies significantly from time to time and
between pools of mortgage loans at any
time and will be affected by a variety of
factors. The rate of payment of principal
may also be affected by any repurchase by
the issuer or guarantor of the Mortgage
Loans. In such event the repurchase price
paid by the issuer or guarantor would be
passed through to the Certificateholders
as a prepayment of principal.
THE YIELD ON CLASS B CERTIFICATES, WHICH
ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, WILL BE ESPECIALLY SENSITIVE TO
THE RATE OF PRINCIPAL PAYMENTS ON THE
MORTGAGE LOANS AND MAY FLUCTUATE SIGNIFI-
CANTLY FROM TIME TO TIME. INVESTORS SHOULD
FULLY CON- SIDER THE ASSOCIATED RISKS,
INCLUDING THE RISK THAT IF THE RATE OF
PRINCIPAL PAYMENTS IS RAPID THE INVESTORS
MAY NOT RECOVER THEIR INITIAL INVESTMENT.
<PAGE>
S-8
The effective yield of each Certificate
will be lower than the yield otherwise
produced by the applicable Pass-Through
Rate and purchase price of such
Certificate because, although interest
will accrue from the first day through the
last day of each month, principal and
interest distributions with respect to
such month will not be passed through to
holders of the Certificates until on or
after the [_______]th day of the month
following the month of accrual.
[Certain Federal Income Tax
Consequences...................... Upon the issuance of the Offered
Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the
following opinion: [Assuming compliance
with the provisions of the Pooling and
Servicing Agreement, for federal income
tax purposes, the Trust Fund will qualify
as a "real estate mortgage investment
conduit" (a "REMIC") within the meaning of
Sections 860A through 860G (the "REMIC
Provisions") of the Internal Revenue Code
of 1986 (the "Code"), and (i) the Class A,
Class B and Class C Certificates will
evidence "regular interests" in such REMIC
and (ii) the Class R Certificates will be
the sole class of "residual interests" in
such REMIC, each within the meaning of the
REMIC Provisions in effect on the date
hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for
federal income tax purposes, the Trust
Fund will be classified as a grantor trust
under Subpart E, part I of subchapter J of
the Code, and not as an association
taxable as a corporation or as a
partnership.]
Under the REMIC Regulations, the Class R
Certificates will not be regarded as
having "significant value" for purposes of
applying the rules relating to "excess
inclusions." In addition, the Class R
Certificates may constitute "noneconomic"
residual interests for purposes of the
REMIC Regulations. Transfers of the Class
R Certificates will be restricted under
the Pooling and Servicing Agreement to
United States Persons in a manner designed
to prevent a transfer of a noneconomic
residual interest from being disregarded
under the REMIC Regulations. See "Certain
Federal
<PAGE>
S-9
Income Tax Consequences-Special Tax
Considerations Applicable to REMIC
Residual Certificates" herein and "Certain
Federal Income Tax
Consequences-REMICs-Taxation of Owners of
REMIC Residual Certificates-Excess
Inclusions" and "-Noneconomic REMIC
Residual Certificates" in the Prospectus.
The Class R Certificateholders may be
required to report an amount of taxable
income with respect to the early years of
the Trust Fund's term that significantly
exceeds distributions on the Class R
Certificates during such years, with
corresponding tax deductions or losses
deferred until the later years of the
Trust Fund's term. Accordingly, on a
present value basis, the tax detriments
occurring in the earlier years may
substantially exceed the sum of any tax
benefits in the later years. As a result,
the Class R Certificateholders' after-tax
rate of return may be zero or negative,
even if their pre-tax rate of return is
positive.
See "Yield and Maturity Considerations,"
especially "-Additional Yield
Considerations Applicable Solely to the
Class R Certificates", and "Certain
Federal Income Tax Consequences-Special
Tax Considerations Applicable to REMIC
Residual Certificates" herein.
For further information regarding the
Federal income tax consequences of
investing in the Offered Certificates, see
"Certain Federal Income Tax Consequences"
herein and in the Prospectus.
Rating.............................. It is a condition to the issuance of the
Certificates of- fered hereby that the
Certificates be rated ________ by
___________________. A security rating is
not a recommendation to buy, sell or hold
securities and may be subject to revision
or withdrawal at any time by the assigning
rating organization. Each security rating
should be evaluated independently of any
other security rating. A security rating
does not address the frequency of
prepayments on the [_____] Securities or
the underlying Mortgage Loans, or the
corresponding effect on yield to
investors. See "Yield on the
<PAGE>
S-10
Certificates and Prepayments on the
[________] Securities" and "Rating"
herein.
Legal Investment.................... The Certificates will constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") so long as they are
rated as described herein, and, as such,
are legal investments for certain entities
to the extent provided in SMMEA. See
"Legal Investment" in the Prospectus and
"Rating" herein.
<PAGE>
S-11
RISK FACTORS
[To Be Provided]
DESCRIPTION OF THE CERTIFICATES
The Series 199__-__ Certificates are to be issued as Class A
Certificates and Class B Certificates. The Class A Certificates evidence the
holders' beneficial ownership of an undivided interest in all principal payments
on the [_______] Securities and ___% of each interest payment on the [ ]
Securities, after deduction of the Trust Administration Fee (as defined herein).
The interest allocated to the Class A Certificates will be passed through
monthly to each holder thereof at a ___% Pass-Through Rate on the outstanding
Certificate Principal Balance thereof for the [second] month preceding the month
in which the distribution of interest is to be made. The Class B Certificates
evidence the holders' beneficial ownership of an undivided interest in ___% of
each interest payment on the [______] Securities, after deduction of the Trust
Administration Fee. The interest allocated to the Class B Certificates will be
passed through to each holder thereof at a ___% Pass-Through Rate on the
outstanding Notional Amount thereof for the [second] month preceding the month
in which the distribution of interest is to be made.
The aggregate Notional Amount for the Class B Certificates for any
month will be equal to the outstanding Certificate Principal Balance of the
Class A Certificates for that month. The Notional Amount is used solely for
purposes of the determination of interest payments and certain other rights of
holders of Class B Certificates and holders of Class B Certificates shall not
have any interest in, or be entitled to any payment with respect to, principal
payments on the [______] Securities. The aggregate initial Certificate Principal
Balance of the Class A Certificates and the aggregate initial Notional Amount of
the Class B Certificates shall each be approximately $___________ at the Cut-off
Date. The outstanding Certificate Principal Amount or Notional Amount, as the
case may be, of each Class of Certificates for any month will equal the unpaid
principal balance of the [_______] Securities for that month calculated based on
the applicable pool factors for the [______] Securities.
The Trust Administration Fee is payable out of interest payments
on the [______] Securities before calculating the amount of such interest which
is to be allocated to each Class of Certificates and is equal to ___% per annum,
payable monthly, on the aggregate unpaid principal balance of the [_______]
Securities for the [second] month preceding the month in which the distribution
of interest is to be made.
Pursuant to the [_____] program, principal and interest at a ___%
pass-through rate in respect of the [______] Securities is required to be paid
directly to the Trustee on the [_____]th of each month or, if such [_____]th day
is not a business day, on the next succeeding business day [by check] [in
next-day funds]. Payments of principal and interest will be collected by the
Trustee and held in a segregated [non]interest-bearing trust account in the name
of and for the benefit of the Certificateholders [and invested in Permitted
Investments for the benefit of the Trustee]. Assuming timely receipt thereof by
the Trustee by 1:00 p.m. on the [_____] distribution date, principal and
interest on the Certificates, at the
<PAGE>
S-12
applicable Pass-Through Rate, will be distributed on the day of receipt; if
payment on the [______] Securities is received by the Trustee after 1:00 p.m. or
the [_______] distribution date, principal and interest at the applicable
Pass-Through Rate will be distributed on the next business day (the
"Distribution Date"). In each case distributions will be made to the holders of
record of the Certificates on the last business day of the [second] preceding
month (the "Record Date"). The first Distribution Date will be ____.
Distributions on the Certificates will be made by check mailed to
the registered holders entitled thereto or, upon written request to the Trustee
made at any time at least five business days prior to the related Distribution
Date of a holder of one or more Certificates by wire transfer in immediately
available funds to the account of such holder; provided, however, that the final
distribution in respect of any Certificate will be made only upon presentation
and surrender of such Certificate at the Corporate Trust Office of the Trustee
(as defined herein). Wire transfers will be made at the expense of the
Certificateholder requesting such wire transfer by deducting such expense from
the related transfer. The Corporate Trust Office of the Trustee is presently
located at ___________________________, but such address may be changed by the
Trustee with prior written notice to registered Certificateholders.
Distributions will be made to the holders of the Certificates
entitled thereto only if, and to the extent that, the Trustee receives payments
on the [_______] Securities. The Trustee will be required to apply all payments
received in respect of the [_______] Securities accruing after the Cut-off Date
to the Certificates without making any deduction, other than deduction of the
Trust Administration Fee, certain expenses of the Trustee, if any, in connection
with any legal actions relating to the Trust Agreement or the Certificates, and
any applicable tax withholding. Although payment of principal and interest on
the [________] Securities is guaranteed by [______], the Certificates are not
guaranteed by [______] or any other person and do not represent interests in or
obligations of the Depositor, the Trustee or any of their respective affiliates.
THE [_______] SECURITIES
The [_______] Securities are ________% [________] Securities, each
of which is guaranteed as to the timely distribution of interest and [the
ultimate distribution of] principal by [_______]. The guarantee of [_______] is
[an obligation solely of and is not] backed by the full faith and credit of the
United States of America.
[All] [None] of the Mortgage Loans are insured by the Federal
Housing Administration ("FHA Loans") or are partially guaranteed by the Veterans
Administration ("VA Loans"). All the Mortgage Loans have maximum original stated
maturities of approximately [30] years and are [fixed-rate, level payment, fully
amortizing] mortgage loans secured by first liens on [one- to four-] family
residential units. See "The Trust Funds - Agency Securities" in the Prospectus.
The aggregate outstanding principal balance of the [_____]
Securities at the Cut-off Date will be approximately $__________ [(subject to a
permitted variance of plus or minus 5%)]. The pass-through rate on each
[_______] Security is ______%. The maximum remaining term to maturity at the
Cut-off Date of any Mortgage Loan will be no greater than [______] months and it
is expected that at such Cut-off Date
<PAGE>
S-13
the weighted average remaining term to maturity ("WAM") of the Mortgage Loans
will be between [_______] and [_______] months, based on information provided by
[______] as of the issue date of the [_______] Securities [, adjusted to reflect
the number of months elapsed from such issue date to the Cut-off Date]. It is
also expected that the weighted average coupon ("WAC") of the Mortgage Loans
will have been no less than % and no greater than % as of the issue date of such
[______] Securities. The information with respect to weighted average remaining
term to maturity and weighted average coupon does not reflect the effect of
payments (including prepayments) on the Mortgage Loans subsequent to the
issuance of such [______] Securities. Consequently, actual pool characteristics
at the Cut-off Date may differ significantly from the parameters stated above.
[The schedule below is based on the dated , 199 , as published in
The Bond Buyer, and provides certain information as to the issue dates of such [
] Securities and their , 199 principal balances. it also gives information as to
the WAC, WAM, and latest maturity date of the Mortgage Loans, in each case as of
the issue date of the related [______] Securities.
<TABLE>
<CAPTION>
Pool Issue Latest Loan Principal Balance at WAC at WAM at
Number Date Maturity Date ___________, 199__ Issue Date Issue Date
------ ----- ------------- -------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
The WAC of such [______] Securities as of their issue dates was %.
The WAM of such [_______] Securities as of , 199 was months, computed by
reducing the WAM of each [______] Security by the number of months that elapsed
from its issue date to , 199 . The information with respect to the WAC and the
WAM does not reflect the effect of payments (including prepayments) on the
Mortgage Loans subsequent to the issuance of the [______] Securities. The
current WAC and WAM may, as a result, differ significantly from those stated
above.]
[The Depositor will acquire the [______] Securities from
PaineWebber Incorporated, an affiliate of the Depositor, in a negotiated
transaction.] Since all of the [______] Securities have not been identified by
the Depositor at the date of this Prospectus Supplement, there may be
discrepancies between the actual [______] Securities and the [______] Securities
which the Depositor currently expects to deposit with the Trustee
<PAGE>
S-14
pursuant to the Trust Agreement. Any discrepancy may have a substantial effect
on the yields obtained by investors in the Certificates.
Specific information with respect to the actual [______]
Securities (including the unpaid principal balance and the approximate WAC and
WAM of the Mortgage Loans based on the information provided by [______] as of
the issue date of the [______] Securities) will be available to the
underwriter[s] at the Closing Date and will be set forth in a Current Report on
Form 8-K which will be filed with the Securities and Exchange Commission as soon
as practicable following the Closing Date.
[SUBSTITUTION OF TRUST FUND ASSETS
If a portion of the [______] Securities expected to be included in
the Trust Fund is not delivered on or prior to the Cut-off Date, the Depositor
will deposit in the Trust Fund, on an interim basis, cash or cash equivalents,
or will deliver other [______] Securities without regard to pass-through rates
or maturities, such that the aggregate assets included in the Trust Fund have a
principal amount at least equal to the principal amount of the [_______]
Securities expected to be included in the Trust Fund. In such event, no later
than the first Distribution Date, the Depositor will deliver to the Trustee the
[_______] Securities described herein in substitution for any cash or cash
equivalents deposited in the Trust Fund or other [_______] Securities previously
delivered to the Trustee.]
YIELD ON THE CERTIFICATES AND PREPAYMENT
ON THE [__________] SECURITIES
PAYMENT DELAY
The effective yield of each Certificate will be lower than the yield
otherwise produced by the applicable Pass-Through Rate and purchase price of
such Certificate because, although interest will accrue from the first day of
each month, principal and interest distributions with respect to such month will
not be made to Certificateholders until on or about the day of the month
following the month of accrual (or if such day is not a business day, then on
the next succeeding business day), resulting in a delay of approximately days.
PREPAYMENT CONSIDERATIONS AND RISKS
The rate of principal distributions on the Certificates is directly
related to the rate of payments of principal on the Mortgage Loans. Principal
payments on the Mortgage Loans will be passed through to the Certificateholders.
The rate of principal payments on the Mortgage Loans will be affected by the
rate of principal prepayments thereon (including for this purpose prepayments
resulting from liquidations due to defaults, casualties, condemnations and other
dispositions). [Mortgagors may prepay the Mortgage Loans at any time without
penalty.] If prevailing interest rates vary significantly from the interest
rates on the Mortgage Loans, the Mortgage Loans are likely to be subject to
higher or lower prepayment rates than if prevailing interest rates are at or
near the interest rates on the Mortgage Loans. In general, when
<PAGE>
S-15
the level of prevailing interest rates declines significantly below the interest
rates on the Mortgage Loans, the rate of prepayments is likely to increase, and,
when the level of prevailing interest rates rises significantly above the
interest rates on the Mortgage Loans, the rate of prepayments is likely to
decline. Prepayment rates are influenced by a number of other factors, including
the age and assumability of the Mortgage Loans, general economic conditions and
demographic factors. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
The actual ranges and dispersions of the interest rates and maturities
of the mortgage loans included in a pool underlying a [______] Security may have
a significant effect on the prepayment experience on that pool. Even pools with
the same pass-through rate and WAC and WAM of the underlying mortgage loans may
experience significantly different prepayment rates as a result of variations in
such ranges and dispersions.
[Under the GNMA I program, all mortgages underlying a GNMA Security
must have the same annual interest rate (except for mortgages relating to mobile
homes). The annual interest rate on a GNMA I Security is 0.50% less than the
annual interest rate on the underlying mortgage loans for such GNMA I Security.
The GNMA II program permits a variation in the annual rates on the underlying
mortgage loans of up to 1%. The annual interest rate on a GNMA II Security is
between 0.50% and 1.50% less than the highest annual interest rate on the
underlying mortgage loans.] [The maximum permitted variation in the annual
interest rates on mortgages underlying a FNMA Security is 2%. The annual
interest rate on a FNMA Security is between 0.50% and 2.55% less than the
highest annual interest rate on the underlying mortgage loans.] [Under FHLMC's
Cash Program, there was no required range within which interest rates on
mortgage loans underlying FHLMC Securities issued before June, 199_, had to
fall. This wide possible variation in interest rates on the mortgage loans
underlying a FHLMC Security issued under the FHLMC Cash Program before June 199_
is likely to make prepayments received on such a FHLMC Security less predictable
than the prepayment on an agency security backed by mortgage loans that bear the
same interest rate or that bear interest rates within a narrower range. FHLMC
has announced that, beginning with mortgage pools underlying FHLMC Securities
issued in June, 199_, FHLMC will restrict to 1% the range of annual interest
rates on the underlying mortgage loans in the 15- and 30-year single-family
fixed-rate Cash Program and that the maximum annual interest rate on the
mortgage loans underlying a FHLMC Security issued under the Cash Program will
not be more than 2% greater than the pass-through rate on such FHLMC Security.
In addition, mortgage loans underlying a FHLMC Security issued under the Cash
Program will be grouped by original maturity and remaining maturity to within a
maximum of six months]. [Under FHLMC's Guarantor Program, the interest rate on a
FHLMC Security is established based upon the lowest interest rate on the
underlying mortgage loans, minus a minimum servicing fee and the amount of
FHLMC's management and guaranty fees as agreed upon between the seller and
FHLMC. For FHLMC Pools formed under the Guarantor Program with Security numbers
beginning with 18-012, the range between the lowest and highest annual interest
rates on the mortgage loans in a FHLMC Pool may not exceed two percentage
points. For FHLMC Pools formed under the Guarantor Program beginning December,
199_, FHLMC has announced that it will restrict the range of annual interest
rates on the underlying mortgage loans to 1%.] [[_______] generally reserves the
right to waive such general program limits on the range
<PAGE>
S-16
of annual interest rates in particular circumstances. Consequently, certain of
the [_______] Securities may not conform to the indicated ranges.]
[Certain of the conventional mortgage loans may have "due-on-sale"
clauses, which allow the holder of such mortgage loan to demand payment in full
of the remaining principal balance of such mortgage loan upon sale or certain
transfers of property securing such mortgage loan. The Depositor is unable to
provide more precise information as to the portion of the Mortgage Loans that
are subject to such "due-on-sale" clauses.] [All of the Mortgage Loans are FHA
Loans or VA Loans and consequently contain no "due-on-sale" provisions.] Both
FHLMC and FNMA enforce "due-on-sale" clauses to the extent permitted by
applicable law, except that FNMA may elect to repurchase a loan subject to a
"due-on-sale" clause in lieu of enforcement of such clause. [Consequently,
transfers of the property securing the Mortgage Loans may not affect prepayments
on such Mortgage Loans to the same extent as if such Mortgage Loans were
conventional mortgage loans containing "due-on-sale" clauses.]
[In addition, the Mortgage Loans underlying the FNMA Securities are
subject to a right of repurchase by FNMA in certain circumstances. Such a
repurchase would result in an acceleration of distributions of principal on the
FNMA Securities which would be treated as principal prepayments for purposes of
the Certificates. See "The Trust Funds - Agency Securities" in the Prospectus.]
The timing of changes in the rate of prepayments on the Mortgage Loans
may significantly affect an investor's actual yield to maturity, event if the
average rate of principal payments experienced over time is consistent with an
investor's expectation. In general, the earlier a prepayment of principal of the
Mortgage Loans the greater the effect on an investor's yield to maturity. As a
result, the effect on an investor's yield of principal payments occurring at a
rate higher (or lower) than the rate anticipated by the investor during the
period immediately following the issuance of the Certificates may not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
A LOWER RATE OF PRINCIPAL PREPAYMENTS THAN ANTICIPATED WOULD NEGATIVELY
AFFECT THE YIELD EXPERIENCED BY INVESTORS IN CLASS A CERTIFICATES, WHICH ARE
BEING OFFERED AT A DISCOUNT FROM THEIR ORIGINAL CERTIFICATE PRINCIPAL BALANCES.
A HIGHER RATE OF PRINCIPAL PREPAYMENTS THAN ANTICIPATED WOULD NEGATIVELY AFFECT
THE YIELD EXPERIENCED BY INVESTORS IN CLASS B CERTIFICATES, WHICH ARE BEING
OFFERED WITHOUT ANY PRINCIPAL AMOUNT AND COULD RESULT IN THE FAILURE OF
INVESTORS TO RECOVER THEIR INITIAL INVESTMENT.
Prepayments on mortgages are commonly measured relative to a prepayment
standard or model. The model used in this Prospectus Supplement, the Standard
Prepayment Assumption ("SPA"), represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of mortgages.
A prepayment assumption of 100% SPA assumes prepayment rates of 0.2% per annum
of the then outstanding principal balance of such mortgages in the first month
of the life of the mortgages and an additional 0.2% per annum in each month
thereafter until the thirtieth month. Beginning in the thirtieth month and in
each month thereafter during the life of the mortgages, 100% SPA assumes a
constant prepayment rate of 6% per annum each month. As used in the table below,
"SPA" assumes prepayment rates equal to % of 100% SPA; " % SPA" assumes
prepayment rates equal to %
<PAGE>
S-17
of 100% SPA; "______% SPA" assumes prepayment rates equal to ______% of 100%
SPA. SPA does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
mortgage loans, including the Mortgage Loans.
The following table illustrates certain relationships between the
assumed purchase prices of the Certificates, as stated below, certain assumed
prepayment rates and the yields (calculated as described below) on the
Certificates, stated on a corporate bond equivalent basis. For purposes of the
illustration, it is assumed, among other things, that (i) the purchase prices of
the Class A Certificates and the Class B Certificates are ______% and ______% of
their aggregate Certificate Principal Balance and aggregate Notional Amount,
respectively, at the Cut-off Date, plus accrued interest from _________, 199__
(ii) all of the Mortgage Loans have identical payment provisions, interest rates
of %, and remaining terms to maturity at the Cut-off Date equal to months, (iii)
such Mortgage Loans prepay monthly at the specified SPA, (iv) the settlement
date for the Certificates is ___________, 199__, and (v) payments of principal
and interest on the Mortgage Loans for a particular month are passed through to
holders of the _________ Certificates on the ________ day of the [second]
succeeding month, beginning _________, 199__. THERE CAN BE NO ASSURANCE AS TO
THE ACCURACY OF ANY OF SUCH ASSUMPTIONS; CONSEQUENTLY, SUCH YIELDS ARE SET FORTH
FOR ILLUSTRATIVE PURPOSES ONLY.
STANDARD PREPAYMENT ASSUMPTION
---% ---% ---% ---% ---%
Yield
Class A Certificates.......
Class B Certificates.......
The yields set forth above were calculated by determining the monthly
discount rates which, when applied to an assumed stream of cash flows to be paid
on Certificates of a Class, would cause the discounted present value of such
assumed stream of cash flows to equal the assumed purchase price of such
Certificates and by converting such monthly rates to corporate bond equivalent
rates. Such calculation does not take into account variations that may occur in
the interest rates at which investors may be able to reinvest funds received by
them as distributions on the Certificates and consequently does not purport to
reflect the return on any investment in Certificates when such reinvestment
rates are considered.
The characteristics of the Mortgage Loans will not correspond exactly
to those assumed in the prepayment statistics above. The yields to maturity on
the Certificates will therefore differ from those set forth above even if all of
the Mortgage Loans prepay monthly at the related assumed prepayment rate. In
addition, it is not likely that any Mortgage Loan will prepay at a constant rate
until maturity or that all of the Mortgage Loans will prepay at the same rate,
and the timing of changes in the rate of prepayments may significantly affect
the yield to a holder of a Certificate.
<PAGE>
S-18
The following table sets forth, among other things, the most recent
prepayment experience publicly available on _________, 199_ for [_____]
Securities issued and outstanding and having the same pass-through rates as the
[______] Securities to be deposited in the Trust Fund.
Pricing Speed Prepayment Experience
Trust Fund Asset (% OF SPA) (% OF SPA)(1)
---------------- --------------------- -------------
3 mos. 6 mos. 1 yr.
----- ----- ----
[___________] Security %
--------------------------------
(1) For periods ending
The historical rate of principal payments (including prepayments) set
forth in the table above has been computed from information published in THE
BOND BUYER. The Depositor believes that such information is accurate, but has no
means of verifying the data. The historical rate of principal payments
(including prepayments) on [______] Securities since their respective issuance
can also be computed from the information published in THE BOND BUYER. See "The
[______] Securities" herein. The Depositor makes no representation that the
Mortgage Loans will prepay in the manner or at any of the rates assumed in the
table set forth above.
The Depositor believes that the historical payment experience
(including prepayments) on such securities is not necessarily indicative of the
future prepayment experience of such securities or of the mortgage loans
underlying the [_______] Securities. Since the rate of principal payments
(including prepayments) on such mortgage loans will significantly affect the
yield to maturity on the Certificates, prospective investors are urged to
consult their investment advisors as to both the rate of future principal
payments (including prepayments) on the underlying mortgage loans and the
suitability of the Certificates to their investment objectives.
TRUST AGREEMENT
GENERAL
The Certificates offered hereby will be issued pursuant to a Trust
Agreement (the "Trust Agreement") to be dated as of _______________, 199__,
among the Depositor and the Trustee, a form of which is filed as an exhibit to
the Registration Statement. Reference is made to the Prospectus for
<PAGE>
S-19
important information additional to that set forth herein regarding the terms
and conditions of the Agreement and the Certificates. The Certificates will be
transferable and exchangeable at the Corporate Trust Office. No service charge
will be made for any transfer or exchange of Certificates but the [Trustee]
[Certificate Registrar] may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with the transfer or
exchange of Certificates. The Depositor will provide to a prospective or actual
Certificateholder without charge, on written request, a copy (without exhibits)
of the Agreement. Requests should be addressed to PaineWebber Mortgage
Acceptance Corporation. IV, 1285 Avenue of the Americas, New York, New York
10019, Attention: ________________.
THE TRUSTEE
___________________________________________________, a
______________________________ (the "Trustee"), will act as Trustee for the
Series 199__-__ Certificates pursuant to the Trust Agreement. The Trustee's
principal executive offices are located at _________, and its telephone number
is _______.
VOTING RIGHTS
At all times, [___% of] the Voting Rights will be allocated among the
holders of the [Class A] Certificates in proportion to the then outstanding
Certificate Principal Balances of their respective Certificates [and ___% of the
Voting Rights will be allocated among the holders of the Class B Certificates in
proportion to their respective percentage interests].
TRANSFER TO ERISA PLANS
No transfer of a Certificate or any interest therein may be made to an
employee benefit plan or other retirement plan or arrangement, including
individual retirement accounts and annuities, Keogh Plans and collective
investment funds in which such plans, accounts or arrangements are invested that
is subject to ERISA or the Code (each a "Plan") unless the prospective
transferee provides the Depositor and the Trustee with a certification of facts
and an opinion of counsel which establishes to the satisfaction of the Depositor
and the Trustee that such transfer will not result in a violation of ERISA or
cause the Depositor to be deemed a fiduciary of such Plan or result in the
imposition of an excise tax under the Code on the Depositor.
TERMINATION
The circumstances under which the obligations created by the Agreement
will terminate in respect of a series of Certificates are described in
"Description of the Certificates - Termination" in the Prospectus. The Depositor
will have the right to repurchase all remaining [_______] Securities in the
Trust Fund and thereby effect early retirement of the Certificates, subject to
the aggregate principal balance of the [________________] Securities at the time
of repurchase being less than ___% of the aggregate principal balance of such
[____________] Securities as of the Cut-off Date. In the event the Depositor
exercises such option, the
<PAGE>
S-20
repurchase price distributed with respect to each Class A Certificate will be
100% of its then outstanding Certificate Principal Balance plus interest thereon
at the Pass-Through Rate, and with respect to each Class B Certificate will be
_____________. In no event will the trust created by the Agreement for a series
of Certificates continue beyond the expiration of 21 years from the death of the
survivor of the person or persons named in the Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Thacher Proffitt & Wood,
counsel to the Depositor, will deliver the following opinion: [Assuming
compliance with the provisions of the Pooling and Servicing Agreement, for
federal income tax purposes, the Trust Fund will qualify as a "real estate
mortgage investment conduit" (a "REMIC") within the meaning of Sections 860A
through 860G (the "REMIC Provisions") of the Internal Revenue Code of 1986 (the
"Code"), and (i) the Class A, Class B and Class C Certificates will evidence
"regular interests" in such REMIC and (ii) the Class R Certificates will be the
sole class of "residual interests" in such REMIC, each within the meaning of the
REMIC Provisions in effect on the date hereof.] [Assuming compliance with the
Pooling and Servicing Agreement, for federal income tax purposes, the Trust Fund
will be classified as a grantor trust under Subpart E, part I of subchapter J of
the Code, and not as an association taxable as a corporation or as a
partnership.]
The __________ Certificates [may] [will] [will not] be treated as
having been issued with original issue discount for Federal income tax reporting
purposes. The prepayment assumption that will be used in determining the rate of
accrual of [original issue discount,] market discount and premium, if any, for
Federal income tax purposes will be based on the assumption that subsequent to
the date of any determination the Mortgage Loans will prepay at a rate equal to
[a CPR of __%]. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount" in the Prospectus.
The ___________________ Certificates may be treated for Federal income
tax purposes as having been issued at a premium. Whether any holder of [either]
such Class of Certificates will be treated as holding a Certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. Holders of [each] such Class of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Regular Certificates-Premium" in
the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code, assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code, and interest (including original issue
discount, if any) on the Offered Certificates will be interest described in
Section 856(c)(3)(B) of the Code. Moreover, the Offered Certificates will be
"qualified mortgages" within the meaning of Section 860(A)(3) of the Code.
<PAGE>
S-21
See "Certain Federal Income Tax Consequences-REMICs-Characterization of
Investments in REMIC Certificates" in the Prospectus.
________________________, a _______________, will act as REMIC
Administrator for the Trust Fund. [The Master Servicer will be responsible for
the fees and normal disbursements of the REMIC Administrator.] See "Certain
Federal Income Tax Consequences-REMICs-Reporting and Other Administrative
Matters" and "The Pooling and Servicing Agreements-Certain Matters Regarding the
Master Servicer, the Special Servicer, the REMIC Administrator and the
Depositor", "-Events of Default" and "-Rights Upon Event of Default" in the
Prospectus.
For further information regarding the Federal income tax consequences
of investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences-REMICs" in the Prospectus.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO REMIC RESIDUAL CERTIFICATES
The IRS has issued REMIC Regulations that significantly affect holders
of REMIC Residual Certificates. The REMIC Regulations impose restrictions on the
transfer or acquisition of certain residual interests, including the Class R
Certificates. In addition, the REMIC Regulations provide special rules
applicable to: (i) thrift institutions holding residual interests having
"significant value" and (ii) the transfer of "noneconomic" residual interests to
United States persons. Pursuant to the Pooling and Servicing Agreement, the
Class R Certificates may not be transferred to non-United States persons. See
"Certain Federal Income Tax Consequences--REMICS--Taxation of Owners of REMIC
Residual Certificates" in the Prospectus.
The REMIC Regulations provide for the determination of whether a
residual interest has "significant value" for purposes of applying the rules
relating to "excess inclusions" with respect to residual interests. Based on the
REMIC Regulations, the Class R Certificates do not have significant value and,
accordingly, thrift institutions and their affiliates will be prevented from
using their unrelated losses or loss carryovers to offset any excess inclusions
with respect to the Class R Certificates, which will be in an amount equal to
all or virtually all of the taxable income includable by holders of the Class R
Certificates. See "Certain Federal Income Tax Consequences-REMICs-Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions" in the Prospectus.
The REMIC Regulations also provide that a transfer to a United States
person of "noneconomic" residual interests will be disregarded for all federal
income tax purposes, and that the purported transferor of "noneconomic" residual
interests will continue to remain liable for any taxes due with respect to the
income on such residual interests, if "a significant purpose of the transfer was
to impede the assessment or collection of tax." Based on the REMIC Regulations,
the Class R Certificates may constitute noneconomic residual interests during
some or all of their terms for purposes of the REMIC Regulations and,
accordingly, if a significant purpose of a transfer is to impede the assessment
or collection of tax, transfers of the Class R Certificates may be disregarded
and purported transferors may remain liable for any taxes due with respect to
the income on the Class R Certificates. All transfers of the Class R
Certificates will be subject to certain restrictions under the terms of the
Pooling and Servicing Agreement
<PAGE>
S-22
that are intended to reduce the possibility of any such transfer being
disregarded to the extent that the Class R Certificates constitute noneconomic
residual interests. See "Certain Federal Income Tax Consequences-REMICs-Taxation
of Owners of REMIC Residual Certificates-Noneconomic REMIC Residual
Certificates" in the Prospectus.
The Class R Certificateholders may be required to report an amount of
taxable income with respect to the earlier accrual periods of the term of the
Trust Fund that significantly exceeds the amount of cash distributions received
by such Certificateholders from the Trust Fund with respect to such periods.
Furthermore, the tax on such income may exceed the cash distributions with
respect to such periods. Consequently, Class R Certificateholders should have
other sources of funds sufficient to pay any federal income taxes due in the
earlier years of the Trust Fund's term as a result of their ownership of the
Class R Certificates. In addition, the required inclusion of this amount of
taxable income during the Trust Fund's earlier accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of a Class R Certificate (or possibly later
under the "wash sale" rules of Section 1091 of the Code) may cause the Class R
Certificateholders' after-tax rate of return to be zero or negative even if the
Class R Certificateholders' pre-tax rate of return is positive. That is, on a
present value basis, the Class R Certificateholders' resulting tax liabilities
could substantially exceed the sum of any tax benefits and the amount of any
cash distributions on the Class R Certificates over their life.
Potential investors in Class R Certificates should be aware that under
the Pooling and Servicing Agreement, the holder of the largest Percentage
Interest in the Class R Certificates shall, by its acceptance of such
Certificates, agree to irrevocably appoint the Master Servicer as its agent to
perform all of the duties of the tax matters person for the REMIC.
Purchasers of the Class R Certificates are strongly advised to consult
their tax advisors as to the economic and tax consequences of investment in such
Certificates.
For further information regarding the federal income tax consequences
of investing in the Class R Certificates, see "Yield and Maturity
Considerations-Additional Yield Considerations Applicable Solely to the Class R
Certificates" herein and "Certain Federal Income Tax
Consequences-REMICs-Taxation of Owners of REMIC Residual Certificates" in the
Prospectus.
PLAN OF DISTRIBUTION
[Subject to the terms and conditions set forth in the Underwriting
Agreement dated ____________, 199__ (the "Underwriting Agreement"), the
Depositor has agreed to sell and PaineWebber Incorporated (the "Underwriter")
has agreed to purchase the Class A and Class B Certificates. The Underwriter is
obligated to purchase all Certificates offered hereby if any are purchased.]
[The Depositor has been advised by the Underwriter that it proposes
initially to offer all of the Class A and Class B Certificates to the public at
the public offering prices set forth on the cover page of this Prospectus
Supplement and to certain dealers at such prices less a concession not in excess
of ___%
<PAGE>
S-23
of the initial Certificate Principal Balance of the Class A Certificates and
___% of the initial Notional Amount of the Class B Certificates. The Underwriter
may allow and such dealers may reallow concessions not in excess of ___% of the
initial aggregate Certificate Principal Balance of the Class A Certificates and
___% of the initial Notional Amount of the Class B Certificates. After the
initial public offering, the public offering price and such concessions may be
changed.]
[Distribution of the Class A and Class B Certificates will be made [by
_________] from time to time in negotiated transactions or otherwise at varying
prices to be determined at the time of sale. Proceeds to the Depositor from the
sale of the Class A and Class B Certificates will be _____% of the aggregate of
the Certificate Principal Balances initially represented by the Class A
Certificates, plus accrued interest at the Pass-Through Rate from the Cut-off
Date but before deducting expenses payable by the Depositor. In connection with
the purchase and sale of the Class A and Class B Certificates, the Underwriter
may be deemed to have received compensation from the Depositor in the form of
underwriting discounts.]
The Underwriting Agreement provides that the Depositor and its parent
corporation will indemnify the Underwriter against certain civil liabilities,
including liabilities under the Securities Act of 1933, or will contribute to
payments the Underwriter may be required to make in respect thereof.
There can be no assurance that a secondary market for the Certificates
will develop or, if it does develop, that it will continue. The primary source
of information available to investors concerning the Certificates will be the
monthly statements discussed in the Prospectus under "Description of the
Certificates -- Statements to Certificateholders," which will include
information as to the outstanding principal balance of the Certificates and the
status of the applicable form of credit enhancement. There can be no assurance
that any additional information regarding the Certificates will be available
through any other source. In addition, the Depositor is not aware of any source
through which price information about the Certificates will be generally
available on an ongoing basis. The limited nature of such information regarding
the Certificates may adversely affect the liquidity of the Certificates, even if
a secondary market for the Certificates become available.
<PAGE>
S-24
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
for the Depositor and for the Underwriter by Thacher Proffitt & Wood, New York,
New York.
RATING
It is a condition to the issuance of the Certificates that they will
have been rated in the highest rating category by such nationally recognized
statistical rating organization as the Depositor may designate. [rating agency
language] See "Yield on the Certificates and Prepayments on the [_____]
Securities" herein.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. Each rating should be evaluated independently of any
other rating.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
Subject to Completion, Dated November __, 1996
PROSPECTUS
NOVEMBER __, 1996
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Depositor
ASSET-BACKED CERTIFICATES
(Issuable in Series)
Principal and interest with respect to Certificates will be payable
monthly, quarterly, semiannually or at such other intervals on the dates
specified in the related Prospectus Supplement.
The Certificates offered hereby and by Supplements to this Prospectus
will be offered from time to time in one or more series (each, a "Series"). Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a Trust Fund consisting primarily of a segregated pool of
various types of single-family and multifamily residential mortgage loans, home
improvement contracts, cooperative apartment loans or manufactured housing
conditional sales contracts and installment loan agreements (collectively, the
"Residential Loans"), or beneficial interests therein (which may include
Mortgage Securities as defined herein), pass-through or participation
certificates issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC") (any such certificates, "Agency
Securities"). Information regarding a Series of Certificates and the composition
of the related Trust Fund will be furnished at the time of offering in a
Prospectus Supplement.
Each Series of Certificates will include one or more classes. Each
class of Certificates of any Series will represent the right, which right may be
senior to the rights of one or more of the other classes of the Certificates, to
receive a specified portion of payments of principal and interest on the
Residential Loans or Agency Securities in the related Trust Fund in the manner
described herein and in the related Prospectus Supplement. A Series may include
one or more classes of Certificates entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions. See
"Description of the Certificates". A Series may include two or more classes of
Certificates which differ as to the timing, sequential order or amount of
distributions of principal or interest or both. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
insurance policies, surety bonds, guarantees, letters of credit, reserve funds,
cash accounts, reinvestment income or other types of credit support, or any
combination thereof. See "Description of Credit Support".
The only obligations of the Depositor with respect to a Series of
Certificates will be pursuant to its representations and warranties as described
herein. The Master Servicer with respect to a Series of Certificates evidencing
interests in a Trust Fund including Residential Loans will be named in the
related Prospectus Supplement. The principal obligations of a Master Servicer
will be limited to its contractual servicing obligations, and, to the extent
described in the related Prospectus Supplement, its obligation to make certain
cash advances in the event of payment delinquencies on the Residential Loans.
<PAGE>
Each Trust Fund will be held in trust for the benefit of the holders of
the related Series of Certificates as more fully described herein. If specified
in the related Prospectus Supplement, one or more elections may be made to treat
the related Trust Fund as a "real estate mortgage investment conduit" ("REMIC")
for federal income tax purposes. See "Certain Federal Income Tax Consequences".
PAINEWEBBER INCORPORATED
<PAGE>
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 17.
THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT. NEITHER THE CERTIFICATES NOR, EXCEPT AS SET FORTH HEREIN OR IN THE
RELATED PROSPECTUS SUPPLEMENT, ANY UNDERLYING RESIDENTIAL LOAN (OTHER THAN
RESIDENTIAL LOANS IDENTIFIED AS FHA LOANS OR VA LOANS IN THE RELATED PROSPECTUS
SUPPLEMENT) OR ANY MORTGAGE SECURITY, WILL BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY. ALTHOUGH PAYMENT OF PRINCIPAL AND
INTEREST ON AGENCY SECURITIES WILL BE GUARANTEED AS DESCRIBED HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT BY GNMA, FNMA OR FHLMC, THE CERTIFICATES OF ANY
SERIES EVIDENCING INTERESTS IN A TRUST FUND INCLUDING SUCH AGENCY SECURITIES
WILL NOT BE SO GUARANTEED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Certificates may be offered through one or more different methods,
including offerings through underwriters, as more fully described under "Plans
of Distribution" and in the related Prospectus Supplement. The Depositor may
retain or hold for sale, from time to time, one or more classes of a Series of
Certificates.
The Depositor does not intend to list any of the Certificates on any
securities exchange and has not made any other arrangement for secondary trading
of the Certificates. With respect to each Series, all of the Certificates of
each class offered hereby will be rated in one of the four highest rating
categories by one or more nationally recognized statistical rating
organizations. There will have been no public market for any Series of
Certificates prior to the offering thereof. No assurance can be given that such
a market will develop as a result of such an offering.
The Certificates are offered when, as and if delivered to and accepted
by the underwriters subject to prior sale, withdrawal or modification of the
offer without notice, the approval of counsel and other conditions. Retain this
Prospectus for future reference. This Prospectus may not be used to consummate
sales of the securities offered hereby unless accompanied by a Prospectus
Supplement.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE RELATED
PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON. THIS PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT
DO NOT CONSTITUTE AN OFFER
<PAGE>
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
CERTIFICATES OFFERED HEREBY AND THEREBY NOR AN OFFER OF THE CERTIFICATES TO ANY
PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE UNLAWFUL.
THE DELIVERY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT AT ANY TIME
DOES NOT IMPLY THAT INFORMATION THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THEIR RESPECTIVE DATE.
4
<PAGE>
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information filed by the Depositor can be
inspected and copied at the public reference facilities maintained by the
Commission at its Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, and its Regional Offices located as follows: Chicago Regional
Office, Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661; New York Regional Office, Seven World Trade Center, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Depositor does not intend to send any
financial reports to Certificateholders. The Commission also maintains a site on
the World Wide Web at "http://www.sec.gov" at which users can view and download
copies of reports, proxy and information statements and other information filed
electronically through the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") system. The Depositor has filed the Registration Statement, including
all exhibits thereto, through the EDGAR system and therefore such materials
should be available by logging onto the Commission's Web site. The Commission
maintains computer terminals providing access to the EDGAR system at each of the
offices referred to above.
This Prospectus does not contain all of the information set forth in
the Registration Statement (of which this Prospectus forms a part) and exhibits
thereto which the Depositor has filed with the Commission under the Securities
Act of 1933 and to which reference is hereby made.
Copies of FHLMC's most recent Offering Circular for FHLMC Certificates,
FHLMC's most recent Information Statement and any subsequent information
statement, any supplement to any information statement relating to FHLMC and any
quarterly report made available by FHLMC after December 31, 1983 can be obtained
by writing or calling the FHLMC Investor Inquiry Department at 8200 Jones Branch
Drive, Mail Stop 319, McLean, Virginia 22102 (800-336-3672). The Depositor did
not participate in the preparation of FHLMC's Offering Circular, Information
Statement or any supplement and, accordingly, makes no representation as to the
accuracy or completeness of the information set forth therein.
Copies of FNMA's most recent Prospectus for FNMA Certificates are
available from FNMA's Mortgage Backed Securities Office, 3900 Wisconsin Avenue,
N.W., Washington, D.C. 20016 (202-752-6547). FNMA's annual report and quarterly
financial statements, as well as other financial information, are available from
FNMA's Office of the Treasurer, 3900 Wisconsin Avenue, N.W., Washington, D.C.
20016 (202-752-7000) or the Office of the Vice President of Investor Relations,
3900 Wisconsin Avenue, N.W., Washington, D.C. 20016 (202-752-7000). The
Depositor did not participate in the preparation of FNMA's Prospectus and,
accordingly, makes no representations as to the accuracy or completeness of the
information set forth therein.
REPORTS TO CERTIFICATEHOLDERS
<PAGE>
The Master Servicer or the Trustee (as specified in the related
Prospectus Supplement) will furnish to all registered holders of Certificates of
the related Series monthly, quarterly, semi-annually or at such other intervals
specified in the related Prospectus Supplement, and annual statements containing
information with respect to each Trust Fund described herein and in the related
Prospectus Supplement. See "Description of the Certificates-Statements to
Certificateholders".
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each Series of Certificates offered hereby, there are
incorporated herein and in the related Prospectus Supplement by reference all
documents and reports filed or caused to be filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, prior
to the termination of the offering of the related Series of Certificates, that
relate specifically to such related Series of Certificates. The Company will
provide or cause to be provided without charge to each person to whom this
Prospectus and a related Prospectus Supplement is delivered in connection with
the offering of one or more classes of such Series of Certificates, upon written
or oral request of such person, a copy of any or all such reports incorporated
herein by reference, in each case to the extent such reports relate to one or
more of such classes of such Series of Certificates, other than the exhibits to
such documents, unless such exhibits are specifically incorporated by reference
in such documents. Requests should be directed in writing to PaineWebber
Mortgage Acceptance Corporation IV, 1285 Avenue of the Americas, New York, New
York 10019 or by telephone at (212) 713-2000.
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to the
Certificates of each Series to be offered hereunder will, among other things,
set forth with respect to such Certificates, as appropriate: (i) a description
of the class or classes of Certificates and the Certificate Interest Rate or
method of determining the rate or the amount of interest, if any, to be paid to
each such class; (ii) the aggregate principal amount and Distribution Dates
relating to such Series and, if applicable, the initial and final scheduled
Distribution Dates for each class; (iii) information as to the assets comprising
the Trust Fund, including the general characteristics of the Trust Fund Assets
included therein and, if applicable, the insurance policies, surety bonds,
guarantees, letters of credit, reserve funds, cash accounts, reinvestment income
or other instruments or agreements included in the Trust Fund or otherwise, and
the amount and source of any reserve account or cash account; (iv) the
circumstances, if any, under which the Trust Fund may be subject to early
termination; (v) the method used to calculate the amount of principal to be
distributed with respect to each class of Certificates; (vi) the order of
application of distributions to each of the classes within such Series, whether
sequential, pro rata, or otherwise; (vii) additional information with respect to
the method of distribution of such Certificates; (viii) whether one or more
REMIC elections will be made and designation of the regular interests and
residual interests; (ix) the aggregate original percentage ownership interest in
the Trust Fund to be evidenced by each class of Certificates; (x) information as
to the Trustee; (xi) information as to the nature and extent of subordination
with respect to any class of Certificates that is subordinate in right of
payment to any other class; and (xii) information as to the Master Servicer.
2
<PAGE>
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES COVERED BY SUCH PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION THEREOF, MAY BE
REQUIRED TO DELIVER SUCH PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS WHEN ACTING AS UNDERWRITERS OF THE CERTIFICATES COVERED BY SUCH
PROSPECTUS SUPPLEMENT AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
3
<PAGE>
SUMMARY OF TERMS
The following summary of certain pertinent information is qualified in
its entirety by reference to the more detailed information appearing elsewhere
in this Prospectus and in each Prospectus Supplement with respect to the Series
offered thereby and the terms and provisions of the related Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") or Trust Agreement
(the "Trust Agreement"; each Pooling and Servicing Agreement or Trust Agreement,
an "Agreement") to be prepared and delivered in connection with the offering of
such Series. Unless otherwise specified, capitalized terms used and not defined
in this Summary of Terms have the meanings ascribed to them in this Prospectus
and in the related Prospectus Supplement.
Title of Certificates............... Asset-Backed Certificates, issuable in
Series (the "Certificates").
Depositor........................... PaineWebber Mortgage Acceptance
Corporation IV (the "Depositor"), a
Delaware corporation, is a wholly-owned
limited purpose finance subsidiary of
PaineWebber Group Inc. The Depositor's
principal offices are located at 1285
Avenue of the Americas, New York, New York
10019 and its telephone number is (212)
713-2000. See "The Depositor".
Master Servicer..................... The entity or entities named as Master
Servicer (the "Master Servicer") for each
Series of Certificates evidencing
interests in a Trust Fund including
Residential Loans as specified in the
related Prospectus Supplement. See
"Description of the Certificates-Certain
Matters Regarding the Master Servicer, the
Depositor and the Trustee".
Trustee............................. The Trustee (the "Trustee") for each
Series of Certificates will be named in
the related Prospectus Supplement. See
"Description of the Certificates-Certain
Matters Regarding the Master Servicer, the
Depositor and The Trustee".
Description of Certificates......... Each Series of Certificates will include
one or more classes. Each Series of
Certificates (including any class or
classes of Certificates of such Series not
offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in a segregated pool of
Residential Loans or Agency Securities, or
beneficial interests therein (which may
include Mortgage Securities as defined
herein) (each, a "Trust Fund Asset"), and
certain other assets described below
(together, all such Trust Fund
4
<PAGE>
Assets and other assets with respect to a
Series of Certificates shall constitute a
"Trust Fund"). Unless otherwise specified
in the related Prospectus Supplement, each
class of Certificates will have a stated
principal amount (a "Certificate Principal
Balance") and will be entitled to
distributions of interest thereon based on
a specified interest rate (the
"Certificate Interest Rate"). The
Certificate Interest Rate may vary for
each class of Certificates and may be
fixed, variable or adjustable. The related
Prospectus Supplement will specify the
Certificate Interest Rate for each Series
of Certificates or each class thereof, or
the method for determining the Certificate
Interest Rate.
If so provided in the related Prospectus
Supplement, a Series of Certificates
evidencing interests in a Trust Fund
including Residential Loans may include
one or more classes of Certificates
(collectively, the "Senior Certificates")
which are senior to one or more classes of
Certificates (collectively, the
"Subordinate Certificates") in respect of
certain distributions of principal and
interest and allocations of losses on the
Residential Loans to the extent and in the
manner provided in the related Prospectus
Supplement. Credit enhancement may also be
provided with respect to any Series by
means of various insurance policies,
surety bonds, guarantees, letters of
credit, reserve funds, cash accounts,
reinvestment income or other types of
credit support, or any combination of the
foregoing, as described herein and in the
related Prospectus Supplement. See
"Description of Credit Support".
A Series may include one or more classes
of Certificates that (i) may be entitled
to principal distributions, with
disproportionate, nominal or no interest
distributions, (ii) may be entitled to
interest distributions, with
disproportionate, nominal or no principal
distributions ("Strip Certificates"),
(iii) may be entitled to receive
distributions only of prepayments of
principal throughout the lives of the
Certificates or during specified periods,
(iv) may be subordinated in the right to
receive distributions of scheduled
payments of principal, prepayments of
principal, interest or any combination
thereof to one or more other classes of
Certificates of such Series
5
<PAGE>
throughout the lives of the Certificates
or during specified periods, (v) may be
entitled to receive such distributions
only after the occurrence of events
specified in the related Prospectus
Supplement, (vi) may be entitled to
receive distributions in accordance with a
schedule or formula or on the basis of
collections from designated portions of
the assets in the related Trust Fund,
(vii) as to Certificates entitled to
distributions allocable to interest, may
be entitled to receive interest at a fixed
rate or a rate that is subject to change
from time to time, and (viii) as to
Certificates entitled to distributions
allocable to interest, may be entitled to
distributions allocable to interest only
after the occurrence of events specified
in the related Prospectus Supplement and
may accrue interest until such events
occur, in each case as specified in the
related Prospectus Supplement. The timing
and amounts of such distributions may vary
among classes, over time, or otherwise as
specified in the related Prospectus
Supplement. In addition, a Series may
include two or more classes of
Certificates which differ as to timing,
sequential order or amount of
distributions of principal or interest, or
both, or which may include one or more
classes of Certificates ("Accrual
Certificates"), as to which accrued
interest will not be distributed but
rather will be added to the Certificate
Principal Balance thereof on each
Distribution Date, as hereinafter defined,
in the manner described in the related
Prospectus Supplement.
As to each Series, one or more elections
may be made to treat the related Trust
Fund or a designated portion thereof as a
"real estate mortgage investment conduit"
or "REMIC" as defined in the Internal
Revenue Code of 1986 (the "Code"). If any
such election is made as to any Series,
one of the classes of Certificates
comprising such Series will be designated
as evidencing all "residual interests" in
the related REMIC as defined in the Code.
See "Description of the Certificates".
The Certificates will not represent an
interest in or obligation of the Depositor
or any affiliate thereof except as set
forth herein, nor will the Certificates,
any Residential Loans (other than
Residential Loans
6
<PAGE>
identified as FHA Loans or VA Loans in the
related Prospectus Supplement) or Mortgage
Securities be insured or guaranteed by any
governmental agency or instrumentality.
Although payment of principal and interest
on Agency Securities will be guaranteed as
described herein and in the related
Prospectus Supplement by GNMA, FNMA or
FHLMC, the Certificates of any Series
including such Agency Securities will not
be so guaranteed.
Interest............................ Interest on each class of Certificates
other than certain classes of Strip
Certificates or Accrual Certificates
(prior to the time when accrued interest
becomes payable thereon) of each Series
will accrue at the applicable Certificate
Interest Rate on the outstanding
Certificate Principal Balances thereof and
will be distributed to Certificateholders
as provided in the related Prospectus
Supplement (each of the specified dates on
which distributions are to be made, a
"Distribution Date"). Distributions with
respect to interest on Strip Certificates
with no or, in certain cases, a nominal
Certificate Principal Balance will be made
on each Distribution Date on the basis of
a notional amount as described herein and
in the related Prospectus Supplement.
Interest that has accrued but is not yet
payable on any Accrual Certificates will
be added to the Certificate Principal
Balance thereof on each Distribution Date.
Distributions of interest with respect to
one or more classes of Certificates (or
accruals thereof in the case of Accrual
Certificates) may be reduced to the extent
of certain delinquencies or other
contingencies described herein and in the
related Prospectus Supplement. See "Yield
Considerations", "Maturity and Prepayment
Considerations" and "Description of the
Certificates".
Principal........................... The Certificates of each Series (other
than certain Strip Certificates) initially
will have an aggregate Certificate
Principal Balance equal to either (i) the
outstanding principal balance of the Trust
Fund Assets included in the related Trust
Fund, as of, unless the related Prospectus
Supplement provides otherwise, the close
of business on the first day of the month
of formation of the related Trust Fund
(the "Cut-off Date"), after application of
scheduled
7
<PAGE>
payments due on or before such date,
whether or not received, or, (ii) if so
specified in the related Prospectus
Supplement with respect to a Series having
more than one class of Certificates, the
total of the Cash Flow Values (as defined
herein) of the Residential Loans as of
such date. The Certificate Principal
Balance of a Certificate represents the
maximum dollar amount (exclusive of
interest thereon) which the holder thereof
is entitled to receive in respect of
principal from future cash flow on the
assets in the related Trust Fund. The
initial Certificate Principal Balance of
each class of Certificates will be set
forth on the cover of the related
Prospectus Supplement. Except as otherwise
specified in the related Prospectus
Supplement, distributions in respect of
principal on the Certificates of each
Series will be payable on each
Distribution Date to the class or classes
of Certificates entitled thereto until the
Certificate Principal Balance of such
class has been reduced to zero, on a pro
rata basis among all of the Certificates
of such class, in proportion to their
respective outstanding Certificate
Principal Balances, or in the priority and
manner otherwise specified in the related
Prospectus Supplement. Strip Certificates
not having a Certificate Principal Balance
will not receive distributions in respect
of principal. See "The Trust Funds",
"Maturity and Prepayment Considerations"
and "Description of the Certificates".
The Trust Funds..................... Each Trust Fund will consist of a
segregated pool of Residential Loans or
Agency Securities and certain other assets
as described herein and in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus
Supplement, all Trust Fund Assets will be
purchased by the Depositor, either
directly or through an affiliate, from
unaffiliated sellers and will be deposited
into the related Trust Fund as of the
first day of the month in which the
Certificates evidencing interests therein
are initially issued. In addition, if the
related Prospectus Supplement so provides,
the related Trust Fund Assets will include
funds on deposit in an account (a
"Pre-Funding Account") which will be used
to purchase additional Residential Loans
during the period specified in the
8
<PAGE>
related Prospectus Supplement. See
"Description of the
Certificates--Pre-Funding Accounts".
A. Residential Loans................ The Residential Loans will consist of (i)
mortgage loans (the "Mortgage Loans")
secured by first or junior liens on one-
to four-family residential properties
(each, a "Mortgaged Property,"
collectively, "Mortgaged Properties") or
mortgage loans (the "Multifamily Loans")
secured by first or junior liens on
multifamily residential properties
consisting of five or more dwelling units
(also, "Mortgaged Properties"), (ii) home
improvement installment sales contracts
and installment loan agreements (the "Home
Improvement Contracts") which may be
unsecured or secured by a lien on the
related Mortgaged Property or a
Manufactured Home, which lien may be
subordinated to one or more senior liens
on the related Mortgaged Property, as
described in the related Prospectus
Supplement, (iii) cooperative loans (the
"Cooperative Loans") secured primarily by
shares in a private cooperative housing
corporation (a "Cooperative") which with
the related proprietary lease or occupancy
agreement give the owner thereof the right
to occupy a particular dwelling unit in
the Cooperative or (iv) manufactured
housing conditional sales contracts and
installment loan agreements (the
"Manufactured Housing Contracts"), which
may be secured by either liens on (a) new
or used Manufactured Homes (as defined
herein) or (b) the real property and any
improvements thereon (the "Mortgaged
Property," which may include the related
Manufactured Home if deemed to be part of
the real property under applicable state
law) relating to a Manufactured Housing
Contract as well as in certain cases a
lien on a new or used Manufactured Home
which is not deemed to be a part of the
related real property under applicable
state law (such Manufactured Housing
Contracts that are secured by Mortgaged
Property are referred to herein as "Land
Contracts"). The Mortgaged Properties,
Cooperative shares (together with the
right to occupy a particular dwelling unit
evidenced thereby) and Manufactured Homes
(collectively, the "Residential
Properties") may be located in any one of
the fifty states, the District of Columbia
or the
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Commonwealth of Puerto Rico. Unless
otherwise specified in the related
Prospectus Supplement, each Trust Fund
will contain only one of the following
types of residential loans: (1) fully
amortizing loans with a fixed rate of
interest (such rate, an "Interest Rate")
and level monthly payments to maturity;
(2) fully amortizing loans with a fixed
Interest Rate providing for level monthly
payments, or for payments of interest only
during the early years of the term,
followed by monthly payments of principal
and interest that increase annually at a
predetermined rate until the loan is
repaid or for a specified number of years,
after which level monthly payments resume;
(3) fully amortizing loans with a fixed
Interest Rate providing for monthly
payments during the early years of the
term that are calculated on the basis of
an interest rate below the Interest Rate,
followed by monthly payments of principal
and interest that increase annually by a
predetermined percentage over the monthly
payments payable in the previous year
until the loan is repaid or for a
specified number of years, followed by
level monthly payments; (4) fixed Interest
Rate loans providing for level payments of
principal and interest on the basis of an
assumed amortization schedule and a
balloon payment of principal at the end of
a specified term; (5) fully amortizing
loans with an Interest Rate adjusted
periodically (with corresponding
adjustments in the amount of monthly
payments) to equal the sum (which may be
rounded) of a fixed margin and an index as
described in the related Prospectus
Supplement, which may provide for an
election, at the mortgagor's option during
a specified period after origination of
the loan, to convert the adjustable
Interest Rate to a fixed Interest Rate, as
described in the related Prospectus
Supplement; (6) fully amortizing loans
with an adjustable Interest Rate providing
for monthly payments less than the amount
of interest accruing on such loan and for
such amount of interest accrued but not
paid currently to be added to the
principal balance of such loan; (7)
adjustable Interest Rate loans providing
for an election at the mortgagor's option,
in the event of an adjustment to the
Interest Rate resulting in an Interest
Rate in excess of the Interest Rate at
origination of the
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loan, to extend the term to maturity for
such period as will result in level
monthly payments to maturity; or (8) such
other types of Residential Loans as may be
described in the related Prospectus
Supplement.
If specified in the related Prospectus
Supplement, the Residential Loans will be
covered by standard hazard insurance
policies with extended coverage insuring
against losses due to fire and various
other causes. If specified in the related
Prospectus Supplement, the Residential
Loans will be covered by flood insurance
policies if the related Residential
Property is located in a federally
designated flood area and if such
insurance is available. If specified in
the related Prospectus Supplement, the
Residential Loans will be covered by
primary credit insurance policies or will
be insured by the Federal Housing
Administration (the "FHA") or partially
guaranteed by the Veterans Administration
(the "VA"). See "Description of Primary
Insurance Coverage".
B. Agency Securities............... The Agency Securities will consist of any
combination of "fully modified
pass-through" mortgage-backed certificates
("GNMA Certificates") guaranteed by the
Government National Mortgage Association
("GNMA"), guaranteed mortgage pass-through
securities ("FNMA Certificates") issued by
the Federal National Mortgage Association
("FNMA") and mortgage participation
certificates ("FHLMC Certificates") issued
by the Federal Home Loan Mortgage
Corporation ("FHLMC").
C. Mortgage Securities............. If specified in the related Prospectus
Supplement, a Trust Fund may include
previously issued asset- backed
certificates, collateralized mortgage
obligations or participation certificates
(each, and collectively, "Mortgage
Securities") evidencing interests in, or
collateralized by, Residential Loans or
Agency Securities as defined herein.
D. Certificate Account............. Each Trust Fund will include one or more
accounts (collectively, the "Certificate
Account") established and maintained on
behalf of the Certificateholders into
which the Master Servicer or the Trustee
will, to the extent described herein and
in the related
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Prospectus Supplement, deposit all
payments and collections received or
advanced with respect to the related Trust
Fund Assets. A Certificate Account may be
maintained as an interest bearing or a
non-interest bearing account, or funds
held therein may be invested in certain
short-term high-quality obligations. See
"Description of the Certificates-Deposits
to the Certificate Account".
E. Credit Support.................. If so specified in the Prospectus
Supplement, one or more classes of
Certificates within any Series evidencing
interests in a Trust Fund that includes
Residential Loans may be covered by any
combination of a surety bond, a guarantee,
letter of credit, an insurance policy, a
bankruptcy bond, a reserve fund, a cash
account, reinvestment income,
subordination of one or more classes of
Certificates in a Series to the extent
provided in the related Prospectus
Supplement, cross-support between
Certificates evidencing beneficial
ownership in different asset groups within
the same Trust Fund or another type of
credit support to provide partial or full
coverage for certain defaults and losses
relating to the Residential Loans. The
amount and types of coverage, the
identification of the entity providing the
coverage (if applicable), the terms of any
subordination and related information with
respect to each type of credit support, if
any, will be set forth in the related
Prospectus Supplement for a Series of
Certificates. If specified in the related
Prospectus Supplement, the coverage
provided by one or more forms of credit
support may apply concurrently to two or
more separate Trust Funds. If applicable,
the related Prospectus Supplement will
identify the Trust Funds to which such
credit support relates and the manner of
determining the amount of the coverage
provided thereby and the application of
such coverage to the identified Trust
Funds. See "Description of Credit Support"
and "Description of the
Certificates-Subordination".
Servicing and Advances.............. The Master Servicer, directly or through
sub-servicers, will service and administer
the Residential Loans included in a Trust
Fund and, unless the related Prospectus
Supplement provides otherwise, in
connection therewith (and pursuant to
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the terms of the related Mortgage
Securities, if applicable) will be
obligated to make certain cash advances
with respect to delinquent scheduled
payments on the Residential Loans or will
be obligated to make such cash advances
only to the extent that the Master
Servicer determines that such advances
will be recoverable (any such advance, an
"Advance"). Advances made by the Master
Servicer will be reimbursable to the
extent described herein and in the related
Prospectus Supplement. The Prospectus
Supplement with respect to any Series may
provide that the Master Servicer will
obtain a cash advance surety bond, or
maintain a cash advance reserve fund, to
cover any obligation of the Master
Servicer to make advances. The obligor on
any such surety bond will be named, and
the terms applicable to any such cash
advance reserve fund will be described in
the related Prospectus Supplement. See
"Description of the
Certificates-Advances".
Optional Termination................ If so specified in the related Prospectus
Supplement, a Series of Certificates may
be subject to optional early termination
("Optional Termination") through the
repurchase of the assets in the related
Trust Fund by the party entitled to effect
such termination, under the circumstances
and in the manner set forth herein under
"Description of the
Certificates-Termination" herein and in
the related Prospectus Supplement.
Certain Federal Income
Tax Consequences.................. The Certificates of each Series offered
hereby will constitute either (i)
interests ("Grantor Trust Certificates")
in a Trust Fund treated as a grantor trust
under applicable provisions of the Code,
or (ii) "regular interests" ("REMIC
Regular Certificates") or "residual
interests" ("REMIC Residual Certificates")
in a Trust Fund treated as a REMIC under
Sections 860A through 860G of the Code.
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
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ERISA Considerations................ A fiduciary of an employee benefit plan
and certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh
plans, and collective investment funds and
separate accounts in which such plans,
accounts, annuities or arrangements are
invested, that is subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the
Internal Revenue Code of 1986 (the "Code")
should carefully review with its legal
advisors whether the purchase or holding
of Certificates could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA
or Section 4975 of the Code. The U.S.
Department of Labor has issued an
individual exemption, Prohibited
Transaction Exemption 90-36, to
PaineWebber Incorporated ("PaineWebber")
that generally exempts from the
application of certain of the prohibited
transaction provisions of Section 406 of
ERISA and the excise taxes imposed on such
prohibited transactions by Section 4975(a)
and (b) of the Code and Section 502(i) of
ERISA, transactions relating to the
purchase, sale and holding of pass-through
certificates underwritten by PaineWebber
and the servicing and operation of asset
pools such as the Mortgage Pools, provided
that certain conditions are satisfied. See
"ERISA Considerations".
Legal Investment.................... The Prospectus Supplement for each Series
of Certificates will specify which, if
any, of the Certificates offered thereby
constitute at the date of issuance
"mortgage related securities" for purposes
of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA").
Institutions whose investment activities
are subject to review by federal or state
authorities should consult with their
counsel or the applicable authorities to
determine whether and to what extent a
class of Certificates constitutes a legal
investment for them. See "Legal
Investment".
Use of Proceeds..................... The Depositor will use the net proceeds
from the sale of each Series for one or
more of the following purposes: (i) to
purchase the related Trust Fund Assets,
(ii) to repay indebtedness which has been
incurred to obtain funds to acquire such
Trust Fund
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Assets, (iii) to establish any Reserve
Funds described in the related Prospectus
Supplement and (iv) to pay costs of
structuring, guaranteeing and issuing such
Certificates. If so specified in the
related Prospectus Supplement, the
purchase of the Trust Fund Assets for a
Series may be effected by an exchange of
Certificates with the Depositor of such
Trust Fund Assets. See "Use of Proceeds."
Ratings............................. Unless otherwise specified in the related
Prospectus Supplement, it will be a
requirement for issuance of any Series
that the Certificates offered by this
Prospectus and such Prospectus Supplement
be rated by at least one Rating Agency in
one of its four highest applicable rating
categories. The rating or ratings
applicable to Certificates of each Series
offered hereby and by the related
Prospectus Supplement will be as set forth
in the related Prospectus Supplement. A
securities rating should be evaluated
independently of similar ratings on
different types of securities. A security
rating does not address the effect that
the rate of prepayments on Residential
Loans comprising or underlying the Trust
Fund Assets may have on the yield to
investors in the Certificates. See "Risk
Factors."
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<PAGE>
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Certificates offered hereby and by the
related Prospectus Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any Series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such Series
remain outstanding. The market value of Certificates of each Series will
fluctuate with changes in prevailing rates of interest. Consequently, sale of
the Certificates by a holder in any secondary market that may develop may be at
a discount from par value or from its purchase price. Holders of Certificates
have no optional redemption rights. Unless otherwise provided in the related
Prospectus Supplement, PaineWebber expects to make a secondary market in the
Certificates offered hereby, but is not obligated to do so.
LIMITED ASSETS
The Depositor does not have, nor is it expected to have, any
significant assets. Unless otherwise specified in the related Prospectus
Supplement, the Certificates of a Series will be payable solely from the Trust
Fund for such Certificates and will not have any claim against or security
interest in the Trust Fund for any other Series. There will be no recourse to
the Depositor or any other person for any failure to receive distributions on
the Certificates. Furthermore, at the times set forth in the related Prospectus
Supplement, certain Trust Fund Assets and/or any balance remaining in the
Certificate Account immediately after making all payments due on the
Certificates of such Series, after making adequate provision for future payments
on certain classes of Certificates and after making any other payments specified
in the related Prospectus Supplement, may be promptly released or remitted to
the Depositor, the Master Servicer, any credit enhancement provider or any other
person entitled thereto and will no longer be available for making payments to
Certificateholders. Consequently, holders of Certificates of each Series must
rely solely upon payments with respect to the Trust Fund Assets and the other
assets constituting the Trust Fund for a Series of Certificates, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Certificates of such
Series.
The Certificates will not represent an interest in or obligation of the
Depositor, the Master Servicer or any of their respective affiliates. The only
obligations, if any, of the Depositor with respect to the Trust Fund Assets and
the other assets constituting the Trust Fund for a Series of Certificates, or
the Certificates of any Series will be pursuant to certain representations and
warranties. The Depositor does not have, and is not expected in the future to
have, any significant assets with which to meet any obligation to repurchase
Trust Fund Assets with respect to which there has been a breach of any
representation or warranty. If, for example, the Depositor were required to
repurchase a Residential Loan, its only sources of funds to make such repurchase
would be from funds obtained (i) from the enforcement of a corresponding
obligation, if any, on the part of the seller or originator of such Residential
Loan, or (ii) from a reserve account or similar credit enhancement established
to provide funds for such repurchases. The Master Servicer's servicing
obligations under the related Agreement may
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<PAGE>
include its limited obligation to make certain advances in the event of
delinquencies on the Residential Loans, but only to the extent deemed
recoverable. To the extent described in the related Prospectus Supplement, the
Depositor, Master Servicer or Trustee will be obligated under certain limited
circumstances to purchase or act as a remarketing agent with respect to a
convertible Residential Loan upon the conversion of the interest rate thereon to
a fixed rate.
CREDIT ENHANCEMENT
Although credit enhancement is intended to reduce the risk of
delinquent payments or losses to holders of Certificates entitled to the benefit
thereof, the amount of such credit enhancement will be limited, as set forth in
the related Prospectus Supplement, and may decline and could be depleted under
certain circumstances prior to the payment in full of the related Series of
Certificates, and as a result Certificateholders may suffer losses. Moreover,
such credit enhancement may not cover all potential losses or risks. For
example, credit enhancement may or may not cover, or may cover only in part,
fraud or negligence by a loan originator or other parties. See "Description of
Credit Support".
PREPAYMENT AND YIELD CONSIDERATIONS
The timing of principal payments of the Certificates of a Series will
be affected by a number of factors, including the following: (i) the extent of
prepayments of the Residential Loans and, in the case of Agency Securities, the
underlying loans related thereto, comprising the Trust Fund, which prepayments
may be influenced by a variety of factors, (ii) the manner of allocating
principal and/or payment among the classes of Certificates of a Series as
specified in the related Prospectus Supplement, (iii) the exercise by the party
entitled thereto of any right of optional termination and (iv) the rate and
timing of payment defaults and losses incurred with respect to the Trust Fund
Assets. Prepayments of principal may also result from repurchases of Trust Fund
Assets due to material breaches of the Unaffiliated Seller's (as defined
herein), originator's, Depositor's or Master Servicer's representations and
warranties, as applicable. The yield to maturity experienced by a holder of
Certificates may be affected by the rate of prepayment of the Residential Loans
comprising or underlying the Trust Fund Assets. See "Yield Considerations" and
"Maturity and Prepayment Considerations".
Interest payable on the Certificates of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending two or
more days prior to a Distribution Date, the effective yield to
Certificateholders will be reduced from the yield that would otherwise be
obtainable if interest payable on the Certificates were to accrue through the
day immediately preceding each Distribution Date, and the effective yield (at
par) to Certificateholders will be less than the indicated coupon rate. See
"Description of the Certificates--Distributions" and "--Principal Interest on
the Certificates".
BALLOON PAYMENTS
Certain of the Residential Loans as of the Cut-off Date may not be
fully amortizing over their terms to maturity and, thus, will require principal
payments (i.e., balloon payments) at their stated maturity. Residential Loans
with balloon payments involve a greater degree of risk
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because the ability of a borrower to make a balloon payment typically will
depend upon its ability either to timely refinance the loan or to timely sell
the related Residential Property. The ability of a borrower to accomplish either
of these goals will be affected by a number of factors, including the level of
available mortgage rates at the time of sale or refinancing, the borrower's
equity in the related Residential Property, the financial condition of the
borrower and tax laws.
NATURE OF MORTGAGES
There are several factors that could adversely affect the value of the
Residential Properties such that the outstanding balance of the related
Residential Loans, together with any senior financing on the Residential
Properties, if applicable, would equal or exceed the value of the Residential
Properties. Among the factors that could adversely affect the value of the
Residential Properties are an overall decline in the residential real estate
market in the areas in which the Residential Properties are located or a decline
in the general condition of the Residential Properties as a result of failure of
borrowers to adequately maintain the Residential Properties or of natural
disasters that are not necessarily covered by insurance, such as earthquakes and
floods. In the case of Home Improvement Contracts or other Residential Loans
that are secured by junior liens, such decline could extinguish the value of the
interest of a junior mortgagee in the Residential Property before having any
effect on the interest of the related senior mortgagee. If such a decline
occurs, the actual rates of delinquencies, foreclosures and losses on all
Residential Loans could be higher than those currently experienced in the
mortgage lending industry in general.
Even assuming that the Residential Properties provide adequate security
for the Residential Loans, substantial delays could be encountered with the
liquidation of defaulted Residential Loans and corresponding delays in the
receipt of related proceeds by Certificateholders could occur. An action to
foreclose on a Residential Property securing a Residential Loan is regulated by
state statutes and rules and is subject to many of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a
Residential Property. In the event of a default by a borrower, these
restrictions, among other things, may impede the ability of the Master Servicer
to foreclose on or sell the Residential Property or to obtain liquidation
proceeds sufficient to repay all amounts due on the related Residential Loan. In
addition, the Master Servicer will be entitled to deduct from related
liquidation proceeds all expenses reasonably incurred in attempting to recover
amounts due on defaulted Residential Loans and not yet reimbursed, including
payments to senior lienholders, legal fees and costs of legal action, real
estate taxes and maintenance and preservation expenses.
Liquidation expenses with respect to defaulted loans do not vary
directly with the outstanding principal balances of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted loan having a small remaining principal balance as it would in
the case of a defaulted loan having a large remaining principal balance, the
amount realized after expenses of liquidation would be smaller as a percentage
of the outstanding principal of the small loan than would be the case with the
defaulted loan having a large remaining principal balance. Since the mortgages
and deeds of trust securing certain Mortgage Loans, Multifamily Loans and Home
Improvement Contracts will be primarily junior
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liens subordinate to the rights of the mortgagee under the related senior
mortgage(s) or deed(s) of trust, the proceeds from the liquidation, insurance or
condemnation proceeds will be available to satisfy the outstanding balance of
such junior lien only to the extent that the claims of the senior mortgagees
have been satisfied in full, including any related foreclosure costs. In
addition, a junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to any senior mortgage, in which case it
must either pay the entire amount due on any senior mortgage to the related
senior mortgagee at or prior to the foreclosure sale or undertake the obligation
to make payments on any such senior mortgage in the event the mortgagor is in
default thereunder. The Trust Fund will not have any source of funds to satisfy
any senior mortgages or make payments due to any senior mortgagees, although the
Master Servicer or Sub-Servicer may, at its option, advance such amounts to the
extent deemed recoverable and prudent. In the event that such proceeds from a
foreclosure or similar sale of the related Mortgaged Property are insufficient
to satisfy all senior liens and the Mortgage Loan, Multifamily Loan or Home
Improvement Contract in the aggregate, the Trust Fund, as the holder of the
junior lien, and, accordingly, holders of one or more classes of the
Certificates, to the extent not covered by credit enhancement, are likely to (i)
incur losses in jurisdictions in which a deficiency judgment against the
borrower is not available, and (ii) incur losses if any deficiency judgment
obtained is not realized upon. In addition, the rate of default of junior
mortgage loans, multifamily loans and home improvement contracts may be greater
than that of mortgage loans secured by first liens on comparable properties.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of certain
originators and servicers of Residential Loans. In addition, most states have
other laws, public policy and general principles of equity relating to the
protection of consumers, unfair and deceptive practices and practices which may
apply to the origination, servicing and collection of the Residential Loans.
Depending on the provisions of the applicable law and the specific facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Master Servicer to collect all or part of the principal
of or interest on the Residential Loans, may entitle the borrower to a refund of
amounts previously paid and, in addition, could subject the Master Servicer to
damages and administrative sanctions. See "Certain Legal Aspects of Residential
Loans".
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the costs of cleanup.
In several states, such a lien has priority over the lien of an existing
mortgage against such property. In addition, under the laws of some states and
under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), a lender may be liable, as an "owner" or
"operator", for costs of addressing releases or threatened releases of hazardous
substances that require remedy on a property, if agents or employees of the
lender have become sufficiently involved in the operations of the borrower,
regardless of whether the environmental damage or threat was caused by a prior
owner. A lender also risks such liability on foreclosure of the related
property. See "Risk Factors -- Environmental Risks" and "Certain Legal Aspects
of Residential Loans--Environmental Legislation".
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<PAGE>
CERTAIN OTHER LEGAL CONSIDERATIONS REGARDING RESIDENTIAL LOANS
The Residential Loans may also be subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
borrowers regarding the terms of the Residential Loans;
(ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of
age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit;
(iii) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's credit
experience; and
(iv) for Residential Loans that were originated or closed
after November 7, 1989, the Home Equity Loan Consumer Protection Act of
1988, which requires additional disclosures, limits changes that may be
made to the loan documents without the borrower's consent and restricts
a lender's ability to declare a default or to suspend or reduce a
borrower's credit limit to certain enumerated events.
THE RIEGLE ACT. Certain mortgage loans are subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Riegle Act")
which incorporates the Home Ownership and Equity Protection Act of 1994. These
provisions impose additional disclosure and other requirements on creditors with
respect to non-purchase money mortgage loans with high interest rates or high
up-front fees and charges. The provisions of the Riegle Act apply on a mandatory
basis to all mortgage loans originated on or after October 1, 1995. These
provisions can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the related
loans. In addition, any assignee of the creditor would generally be subject to
all claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
The Home Improvement Contracts are also subject to the Preservation of
Consumers' Claims and Defenses regulations of the Federal Trade Commission and
other similar federal and state statutes and regulations (collectively, the
"Holder in Due Course Rules"), which protect the homeowner from defective
craftsmanship or incomplete work by a contractor. These laws permit the obligor
to withhold payment if the work does not meet the quality and durability
standards agreed to by the homeowner and the contractor. The Holder in Due
Course Rules have the effect of subjecting any assignee of the seller in a
consumer credit transaction to all claims and defenses which the obligor in the
credit sale transaction could assert against the seller of the goods.
Violations of certain provisions of these federal laws may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Residential Loans and in addition could subject the Trust Fund
to damages and administrative enforcement. See "Certain Legal Aspects of
Residential Loans".
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RATING OF THE CERTIFICATES
Unless otherwise specified in the related Prospectus Supplement, it
will be a condition to the issuance of a class of Certificates that they be
rated in one of the four highest rating categories by the Rating Agency
identified in the related Prospectus Supplement. Any such rating would be based
on among other things, the adequacy of the value of the Trust Fund Assets and
any credit enhancement with respect to such class and such Rating Agency's
assessment solely of the likelihood that holders of a class of Certificates will
receive payments to which such Certificateholders are entitled under the related
Agreement. Such rating will not constitute an assessment of the likelihood that
principal prepayments on the related Residential Loans will be made, the degree
to which such prepayments might differ from that originally anticipated or the
likelihood of early optional termination of the Series of Certificates. Such
rating shall not be deemed a recommendation to purchase, hold or sell
Certificates, inasmuch as it does not address market price or suitability for a
particular investor. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios.
There is also no assurance that any such rating will remain in effect
for any given period of time or that it may not be lowered or withdrawn entirely
by the Rating Agency in the future if in its judgment circumstances in the
future so warrant. In addition to being lowered or withdrawn due to any erosion
in the adequacy of the value of the Trust Fund Assets or any credit enhancement
with respect to a Series, such rating might also be lowered or withdrawn, among
other reasons, because of an adverse change in the financial or other condition
of a credit enhancement provider or a change in the rating of such credit
enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established
with respect to a class of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such Series. Such
criteria are sometimes based upon an actuarial analysis of the behavior of
similar loans in a larger group. Such analysis is often the basis upon which
each Rating Agency determines the amount of credit enhancement required with
respect to each such class. There can be no assurance that the historical data
supporting any such actuarial analysis will accurately reflect future experience
nor any assurance that the data derived from a large pool of similar loans
accurately predicts the delinquency, foreclosure or loss experience of any
particular pool of Residential Loans. No assurance can be given that the values
of any Residential Properties have remained or will remain at their levels on
the respective dates of origination of the related Residential Loans. If the
residential real estate markets should experience an overall decline in property
values such that the outstanding principal balances of the Residential Loans in
a particular Trust Fund and any secondary financing on the related Residential
Properties become equal to or greater than the value of the Residential
Properties, the rate of delinquencies, foreclosures and losses could be higher
than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Residential Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to any Trust
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Fund. To the extent that such losses are not covered by credit enhancement, such
losses will be borne, at least in part, by the holders of one or more classes of
the Certificates of the related Series. See "Rating".
BOOK-ENTRY REGISTRATION
If issued in book-entry form, such registration may reduce the
liquidity of the Certificates in the secondary trading market since investors
may be unwilling to purchase Certificates for which they cannot obtain physical
certificates. Since transactions in Certificates can be effected only through
the Depository Trust Company ("DTC"), participating organizations
("Participants"), Financial Intermediaries and certain banks, the ability of a
Certificateholder to pledge a Certificate to persons or entities that do not
participate in the DTC system, or otherwise to take action in respect of such
Certificates, may be limited due to lack of a physical certificate representing
the Certificates.
In addition, Certificateholders may experience some delay in their
receipt of distributions of interest and principal on the Certificates since
distributions are required to be forwarded by the Trustee to DTC and DTC will
then be required to credit such distributions to the accounts of Participants
which thereafter will be required to credit them to the accounts of
Certificateholders either directly or indirectly through Financial
Intermediaries. See "Description of the Certificates--Book-Entry Registration of
Certificates" herein.
CERTAIN HOME IMPROVEMENT CONTRACTS
CONTRACTS UNSECURED. The obligations of a borrower under an unsecured
Home Improvement Contract will not be secured by an interest in the related real
estate or otherwise, and the related Trust Fund, as the owner of such unsecured
Home Improvement Contract, will be a general unsecured creditor as to such
obligations. As a consequence, in the event of a default under an unsecured Home
Improvement Contract, the related Trust Fund will have recourse only against the
obligor's (the "Obligor") assets generally, along with all other general
unsecured creditors of the Obligor. In a bankruptcy or insolvency proceeding
relating to an Obligor on an unsecured Home Improvement Contract, the
obligations of the Obligor under such unsecured Home Improvement Contract may be
discharged in their entirety, notwithstanding the fact that the portion of such
Obligor's assets made available to the related Trust Fund as a general unsecured
creditor to pay amounts due and owing thereunder are sufficient to pay such
amounts in whole or part. An Obligor on an unsecured Home Improvement Contract
may not demonstrate the same degree of concern over performance of the Obligor's
obligations under such unsecured Home Improvement Contract as if such
obligations were secured by the real estate owned by such Obligor.
MORTGAGE LOANS UNDERWRITTEN AS NON-CONFORMING CREDITS MAY EXPERIENCE RELATIVELY
HIGHER LOSSES
If so specified in the related Prospectus Supplement, the single family
Mortgage Loans assigned and transferred to the related Trust Fund may include
Mortgage Loans underwritten in accordance with the underwriting standards for
"non-conforming credits," which include borrowers whose creditworthiness and
repayment ability do not satisfy FNMA or FHLMC
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underwriting guidelines. A Mortgage Loan made to a "non-conforming credit" means
a residential loan that is ineligible for purchase by FNMA or FHLMC due to
borrower credit characteristics, property characteristics, loan documentation
guidelines or other characteristics that do not meet FNMA or FHLMC underwriting
guidelines, including a loan made to a borrower whose creditworthiness and
repayment ability do not satisfy such FNMA or FHLMC underwriting guidelines and
a borrower who may have a record of major derogatory credit items such as
default on a prior residential loan, credit write-offs, outstanding judgments or
prior bankruptcies. Because the borrowers on such Mortgage Loans are less
creditworthy than borrowers who meet FNMA or FHLMC underwriting guidelines,
delinquencies and foreclosures can be expected to be more prevalent with respect
to such Mortgage Loans than with respect to residential loans originated in
accordance with FNMA or FHLMC underwriting guidelines. As a result, changes in
the values of the Mortgaged Properties may have a greater effect on the loss
experience of such Mortgage Loans than on residential loans originated in
accordance with FNMA or FHLMC underwriting guidelines. If the values of the
Mortgaged Properties decline after the dates of origination of such Mortgage
Loans, the rate of losses on such Mortgage Loans may increase and such increase
may be substantial. See "Residential Loan Program Underwriting Standards".
TRUST FUND ASSETS MAY INCLUDE DELINQUENT, SUB-PERFORMING AND NON-PERFORMING
RESIDENTIAL LOANS
If so specified in the related Prospectus Supplement, the Trust Fund
Assets in the related Trust Fund may include Residential Loans that are
delinquent, sub-performing or non-performing. Credit enhancement provided with
respect to a particular Series of Certificates may not cover all losses related
to such delinquent, sub-performing or non-performing Residential Loans.
Prospective investors should consider the risk that the inclusion of such
Residential Loans in the Trust Fund for a Series may cause the rate of defaults
and prepayments on the Residential Loans to increase and, in turn, may cause
losses to exceed the available credit enhancement for such Series and affect the
yield on the Certificates of such Series. See "The Trust Funds - Residential
Loans".
PRE-FUNDING ACCOUNTS
If so provided in the related Prospectus Supplement, on the Closing
Date the Depositor will deposit an amount (the "Pre-Funded Amount") specified in
such Prospectus Supplement into the Pre-Funding Account. The Pre-Funded Amount
will be used to purchase Residential Loans ("Subsequent Loans") within a period
commencing from the Closing Date and ending on a date not more than three months
after the Closing Date (such period, the "Funding Period") from the Depositor
(which, in turn, will acquire such Subsequent Loans from the seller or sellers
specified in the related Prospectus Supplement). To the extent that the entire
Pre-Funded Amount has not been applied to the purchase of Subsequent Loans by
the end of the related Funding Period, any amounts remaining in the Pre-Funding
Account will be distributed as a prepayment of principal to Certificateholders
on the Distribution Date immediately following the end of the Funding Period, in
the amounts and pursuant to the priorities set forth in the related Prospectus
Supplement.
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OTHER CONSIDERATIONS
There is no assurance that the market value of the Trust Fund Assets or
any other assets of a Trust Fund will at any time be equal to or greater than
the principal amount of the Certificates of the related Series then outstanding,
plus accrued interest thereon. Moreover, upon an event of default under the
Agreement for a Series and a sale of the assets in the Trust Fund or upon a sale
of the assets of a Trust Fund for a Series of Certificates, the Trustee, the
Master Servicer, the credit enhancer, if any, and any other service provider
specified in the related Prospectus Supplement generally will be entitled to
receive the proceeds of any such sale to the extent of unpaid fees and other
amounts owing to such persons under the related Agreement prior to distributions
to Certificateholders. Upon any such sale, the proceeds thereof may be
insufficient to pay in full the principal of and interest on the Certificates of
such Series.
THE TRUST FUNDS
Each Trust Fund Asset will be selected by the Depositor for inclusion
in a Trust Fund from among those purchased, either directly or through
affiliates, from sellers not affiliated with the Depositor (any such sellers of
Residential Loans, hereinafter "Unaffiliated Sellers"), or, if provided in the
related Prospectus Supplement, from sellers affiliated with the Depositor.
RESIDENTIAL LOANS
The Residential Loans will consist of mortgage loans (the "Mortgage
Loans") secured by first or junior liens on one- to four-family residential
properties (each, a "Mortgaged Property," collectively, "Mortgaged Properties")
(which may include Mortgage Securities) or mortgage loans (the "Multifamily
Loans") secured by first or junior liens on multifamily residential properties
consisting of five or more dwelling units (also, "Mortgaged Properties"), home
improvement installment sales contracts and installment loan agreements (the
"Home Improvement Contracts") which may be unsecured or secured by a lien on the
related Mortgaged Property or a Manufactured Home, which lien may be
subordinated to one or more senior liens on the related Mortgaged Property,
cooperative loans (the "Cooperative Loans") secured primarily by shares in the
related private cooperative housing corporation (a "Cooperative") that, with the
related proprietary lease or occupancy agreement, give the owner thereof the
right to occupy a particular dwelling unit (each, a "Cooperative Unit") in the
Cooperative or manufactured housing conditional sales contracts and installment
loan agreements (the "Manufactured Housing Contracts"), which may be secured by
either liens on (a) new or used Manufactured Homes or (b) the real property and
any improvements thereon (the "Mortgaged Property," which may include the
related Manufactured Home if deemed to be part of the real property under
applicable state law) relating to a Manufactured Housing Contract as well as in
certain cases a lien on a new or used Manufactured Home which is not deemed to
be a part of the related real property under applicable state law (such
Manufactured Housing Contracts that are secured by Mortgaged Property are
referred to herein as "Land Contracts"). The Mortgaged Properties, Cooperative
shares (together with the right to occupy a particular Cooperative Unit
evidenced thereby) and Manufactured Homes (collectively, the "Residential
Properties") may be located in any one of the fifty states, the District of
Columbia or the Commonwealth of Puerto Rico. Unless otherwise provided in the
related Prospectus Supplement, each Trust Fund will
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contain (and any participation interest in any of the foregoing will relate to)
only one of the following types of Residential Loans:
(1) Fully amortizing loans with a fixed rate of interest (such
rate, an "Interest Rate") and level monthly payments to maturity;
(2) Fully amortizing loans with a fixed Interest Rate
providing for level monthly payments, or for payments of interest only
during the early years of the term, followed by monthly payments of
principal and interest that increase annually at a predetermined rate
until the loan is repaid or for a specified number of years, after
which level monthly payments resume;
(3) Fully amortizing loans with a fixed Interest Rate
providing for monthly payments during the early years of the term that
are calculated on the basis of an interest rate below the Interest
Rate, followed by monthly payments of principal and interest that
increase annually by a predetermined percentage over the monthly
payments payable in the previous year until the loan is repaid or for a
specified number of years, followed by level monthly payments;
(4) Fixed Interest Rate loans providing for level payments of
principal and interest on the basis of an assumed amortization schedule
and a balloon payment of principal at the end of a specified term;
(5) Fully amortizing loans with an Interest Rate adjusted
periodically ("ARM Loans"), (with corresponding adjustments in the
amount of monthly payments), to equal the sum (which may be rounded) of
a fixed margin and an index as described in the related Prospectus
Supplement, which may provide for an election, at the mortgagor's
option during a specified period after origination of the loan, to
convert the adjustable Interest Rate to a fixed Interest Rate, as
described in the related Prospectus Supplement;
(6) Fully amortizing loans with an adjustable Interest Rate
providing for monthly payments less than the amount of interest
accruing on such loan and for such amount of interest accrued but not
paid currently to be added to the principal balance of such loan;
(7) ARM Loans providing for an election at the mortgagor's
option, in the event of an adjustment to the Interest Rate resulting in
an Interest Rate in excess of the Interest Rate at origination of the
loan, to extend the term to maturity for such period as will result in
level monthly payments to maturity; or
(8) Such other types of Residential Loans as may be described
in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, the Trust Fund
underlying a Series of Certificates may include previously issued asset-backed
certificates, collateralized mortgage obligations or participation certificates
(each, and collectively, "Mortgage Securities"), evidencing interests in, or
collateralized by, Residential Loans or Agency Securities as described herein.
The Mortgage Securities may have been issued previously by the Depositor or an
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affiliate thereof, a financial institution or other entity engaged generally in
the business of lending or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts, acquiring and depositing
loans into such trusts, and selling beneficial interests in such trusts. Except
as otherwise set forth in the related Prospectus Supplement, such Mortgage
Securities will be generally similar to Certificates offered hereunder. As to
any such Series of Certificates, the related Prospectus Supplement will include
a description of such Mortgage Securities and any related credit enhancement,
and the Residential Loans underlying such Mortgage Securities will be described
together with any other Residential Loans included in the Trust Fund relating to
such Series. As to any such Series of Certificates, as used herein the term
"Residential Loans" includes the Residential Loans underlying such Mortgage
Securities. Notwithstanding any other reference herein to the Master Servicer,
with respect to a Series of Certificates as to which the Trust Fund includes
Mortgage Securities, the entity that services and administers such Mortgage
Securities on behalf of the holders of such Certificates may be referred to as
the "Manager", if so specified in the related Prospectus Supplement. References
herein to advances to be made and other actions to be taken by the Master
Servicer in connection with the Residential Loans may include such advances made
and other actions taken pursuant to the terms of such Mortgage Securities.
If so specified in the related Prospectus Supplement, certain
Residential Loans may contain provisions prohibiting prepayments for a specified
period after their origination date (a "Lockout Period"), prohibiting
prepayments entirely or requiring the payment of a prepayment penalty upon
prepayment in full or in part.
If so specified in the related Prospectus Supplement, the Trust Fund
Assets in the related Trust Fund may include Residential Loans that are
delinquent, sub-performing or non-performing. The inclusion of such Residential
Loans in the Trust Fund for a Series may cause the rate of defaults and
prepayments on the Residential Loans to increase and, in turn, may cause losses
to exceed the available credit enhancement for such Series and affect the yield
on the Certificates of such Series.
MORTGAGE LOANS
The Mortgage Loans will be evidenced by promissory notes (the "Mortgage
Notes") secured by mortgages or deeds of trust (the "Mortgages") creating first
or junior liens on the Mortgaged Properties. The Mortgage Loans will be secured
by one- to four-family residences, including detached and attached dwellings,
townhouses, rowhouses, individual condominium units, individual units in
planned-unit developments and individual units in DE MINIMIS planned-unit
developments. If so provided in the related Prospectus Supplement, the Mortgage
Loans will be insured by the FHA ("FHA Loans") or partially guaranteed by the VA
("VA Loans"). See "The Trust Funds-Residential Loans-FHA Loans and VA Loans" and
"Description of Primary Insurance Coverage-FHA Insurance and VA Guarantees".
Certain of the Mortgage Loans may be secured by junior liens, and the
related senior liens ("Senior Liens") may not be included in the mortgage pool.
The primary risk to holders of Mortgage Loans secured by junior liens is the
possibility that adequate funds will not be received in connection with a
foreclosure of the related Senior Liens to satisfy fully both the Senior Liens
and the Mortgage Loan. In the event that a holder of a Senior Lien forecloses on
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a Mortgaged Property, the proceeds of the foreclosure or similar sale will be
applied first to the payment of court costs and fees in connection with the
foreclosure, second to real estate taxes, third in satisfaction of all
principal, interest, prepayment or acceleration penalties, if any, and any other
sums due and owing to the holder of the Senior Liens. The claims of the holders
of Senior Liens will be satisfied in full out of proceeds of the liquidation of
the Mortgage Loan, if such proceeds are sufficient, before the Trust Fund as
holder of the junior lien receives any payments in respect of the Mortgage Loan.
If the Master Servicer were to foreclose on any Mortgage Loan, it would do so
subject to any related Senior Liens. In order for the debt related to the
Mortgage Loan to be paid in full at such sale, a bidder at the foreclosure sale
of such Mortgage Loan would have to bid an amount sufficient to pay off all sums
due under the Mortgage Loan and the Senior Liens or purchase the Mortgaged
Property subject to the Senior Liens. In the event that such proceeds from a
foreclosure or similar sale of the related Mortgaged Property are insufficient
to satisfy all Senior Liens and the Mortgage Loan in the aggregate, the Trust
Fund, as the holder of the junior lien, and, accordingly, holders of one or more
classes of the Certificates bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (ii) the risk of loss
if the deficiency judgment is not realized upon. Moreover, deficiency judgments
may not be available in certain jurisdictions. In addition, a junior mortgagee
may not foreclose on the property securing a junior mortgage unless it
forecloses subject to the senior mortgages.
Liquidation expenses with respect to defaulted junior mortgage loans do
not vary directly with the outstanding principal balance of the loan at the time
of default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted junior mortgage loan having a small remaining principal balance
as it would in the case of a defaulted junior mortgage loan having a large
remaining principal balance, the amount realized after expenses of liquidation
would be smaller as a percentage of the outstanding principal balance of the
small junior mortgage loan than would be the case with the defaulted junior
mortgage loan having a large remaining principal balance. Because the average
outstanding principal balance of the Mortgage Loans is smaller relative to the
size of the average outstanding principal balance of the loans in a typical pool
of conventional first priority mortgage loans, liquidation proceeds may also be
smaller as a percentage of the principal balance of a Mortgage Loan than would
be the case in a typical pool of conventional first priority mortgage loans.
MULTIFAMILY LOANS
The Multifamily Loans will be evidenced by Mortgage Notes secured by
Mortgages creating first or junior liens on rental apartment buildings or
projects containing five or more dwelling units. Unless otherwise specified in
the related Prospectus Supplement, Multifamily Loans will have had original
terms to stated maturity of not more than 30 years. If so provided in the
related Prospectus Supplement, the Multifamily Loans will be FHA Loans.
Mortgaged Properties which secure Multifamily Loans may include high-rise,
mid-rise and garden apartments. See "The Trust Funds-Residential Loans-FHA Loans
and VA Loans" and "Description of Primary Insurance Coverage-FHA Insurance and
VA Guarantees".
If so provided in the related Prospectus Supplement, the Multifamily
Loans may contain provisions containing a Lockout Period, prohibiting
prepayments entirely or requiring the payment of a prepayment penalty upon
prepayment in full or in part. In the event that
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Certificateholders will be entitled to all or a portion of any prepayment
penalties collected in respect of the related Multifamily Loans, the related
Prospectus Supplement will specify the method or methods by which the prepayment
penalties are calculated.
HOME IMPROVEMENT CONTRACTS
The Home Improvement Contracts will either be unsecured or secured by
Mortgages on one- to four-family, multifamily properties or manufactured housing
which Mortgages are generally subordinate to other mortgages on the same
property. Except as otherwise specified in the related Prospectus Supplement,
the Home Improvement Contracts will be fully amortizing and may have fixed or
adjustable rates of interest and may provide for other payment characteristics.
Except as specified in the related Prospectus Supplement, the home improvements
relating to the Home Improvement Contracts may include replacement windows,
house siding, new roofs, swimming pools, satellite dishes, kitchen and bathroom
remodeling and solar heating panels. If so provided in the related Prospectus
Supplement certain of the Home Improvement Contracts may be FHA Loans. See "The
Trust Funds-Residential Loans-FHA Loans and VA Loans" and "Description of
Primary Insurance Coverage-FHA Insurance and VA Guarantees".
COOPERATIVE LOANS
The Cooperative Loans will be evidenced by promissory notes (the
"Cooperative Notes") secured by security interests in shares issued by
Cooperatives and in the related proprietary leases or occupancy agreements
granting exclusive rights to occupy specific Cooperative Units in the related
buildings.
MANUFACTURED HOUSING CONTRACTS
The Manufactured Housing Contracts will consist of manufactured housing
conditional sales contracts and installment loan agreements each secured by a
Manufactured Home, or in the case of a Land Contract, by a lien on the real
estate to which the Manufactured Home is deemed permanently affixed and, in some
cases, the related Manufactured Home which is not real property under the
applicable state law. The Manufactured Homes securing the Manufactured Housing
Contracts will generally consist of manufactured homes within the meaning of 42
United States Code, Section 5402(6), which defines a "manufactured home" as "a
structure, transportable in one or more sections, which in the traveling mode,
is eight body feet or more in width or forty body feet or more in length, or,
when erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air conditioning, and electrical systems
contained therein; except that such term shall include any structure which meets
all the requirements of this paragraph except the size requirements and with
respect to which the manufacturer voluntarily files a certification required by
the Secretary of Housing and Urban Development and complies with the standards
established under this chapter".
If so provided in the related Prospectus Supplement, the Manufactured
Housing Contracts may be FHA Loans or VA Loans. See "The Trust Funds-Residential
Loans-FHA Loans and
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VA Loans" and "Description of Primary Insurance Coverage-FHA Insurance and VA
Guarantees".
BUYDOWN LOANS
If provided in the related Prospectus Supplement, certain of the
Residential Loans may be subject to temporary buydown plans ("Buydown Loans"),
pursuant to which the monthly payments made by the borrower in the early years
of the Buydown Loan (the "Buydown Period") will be less than the scheduled
payments on the Buydown Loan, the resulting difference to be made up from (i) an
amount contributed by the borrower, the seller of the Residential Property or
another source and placed in a custodial account and (ii) unless otherwise
specified in the related Prospectus Supplement, investment earnings on the
buydown funds. Generally, the borrower under each Buydown Loan will be qualified
at a reduced interest rate. Accordingly, the repayment of a Buydown Loan is
dependent on the ability of the borrower to make larger monthly payments after
the buydown funds have been depleted and, for certain Buydown Loans, during the
Buydown Period. See "Residential Loan Program-Underwriting Standards".
FHA LOANS AND VA LOANS
FHA Loans will be insured by the FHA as authorized under the National
Housing Act of 1934, as amended (the "Housing Act"), and the United States
Housing Act of 1937, as amended. One- to four-family FHA Loans will be insured
under various FHA programs including the standard FHA 203-b programs to finance
the acquisition of one- to four-family housing units and the FHA 245 graduated
payment mortgage program. Such FHA Loans generally require a minimum down
payment of approximately 5% of the original principal amount of the FHA Loan. No
FHA Loan may have an interest rate or original principal balance exceeding the
applicable FHA limits at the time of origination of such FHA Loan. See
"Description of Primary Insurance Coverage-FHA Insurance and VA Guarantees".
Home Improvement Contracts and Manufactured Housing Contracts that are
FHA Loans are insured by the FHA (as described in the related Prospectus
Supplement, up to an amount equal to 90% of the sum of the unpaid principal of
the FHA Loan, a portion of the unpaid interest and certain other liquidation
costs) pursuant to Title I of the Housing Act.
There are two primary FHA insurance programs that are available for
Multifamily FHA Loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow
HUD to insure multifamily loans that are secured by newly constructed and
substantially rehabilitated multifamily rental projects. Section 244 of the
Housing Act provides for co-insurance of such loans made under Sections
221(d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the
term of such a multifamily loan may be up to 40 years and the ratio of the loan
amount to property replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure multifamily
loans made for the purchase or refinancing of existing apartment projects that
are at least three years old. Section 244 also provides for co-insurance of
mortgage loans made under Section 223(f). Under Section 223(f), the loan
proceeds cannot be used for substantial rehabilitation work, but repairs may be
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made for up to, in general, the greater of 15% of the value of the project and a
dollar amount per apartment unit established from time to time by HUD. In
general the loan term may not exceed 35 years and a loan-to-value ratio of no
more than 85% is required for the purchase of a project and 70% for the
refinancing of a project.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act"). The
Servicemen's Readjustment Act permits a veteran (or in certain instances the
spouse of a veteran) to obtain a mortgage loan guarantee by the VA covering
mortgage financing of the purchase of a one- to four-family dwelling unit at
interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchasers and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no VA Loan will have an
original principal amount greater than five times the partial VA guarantee for
such VA Loan. The maximum guarantee that may be issued by the VA under this
program will be set forth in the related Prospectus Supplement. See "Description
of Primary Insurance Coverage-FHA Insurance and VA Guarantees".
LOAN-TO-VALUE RATIO
The "Loan-to-Value Ratio" of a Residential Loan at any given time is
the ratio, expressed as a percentage, of the then outstanding principal balance
of the Residential Loan, plus, in the case of a Mortgage Loan secured by a
junior lien, the outstanding principal balance of the related Senior Liens, to
the Collateral Value of the related Residential Property. The "Collateral Value"
of a Residential Property or Cooperative Unit, other than with respect to
Refinance Loans, is the lesser of (a) the appraised value determined in an
appraisal obtained by the originator at origination of such loan and (b) the
sales price for such property. "Refinance Loans" are loans made to refinance
existing loans or loans made to a borrower who was a tenant in a building prior
to its conversion to cooperative ownership. The "Collateral Value" of the
Residential Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. Unless otherwise specified in the related Prospectus Supplement, for
purposes of calculating the Loan-to-Value Ratio of a Manufactured Housing
Contract relating to a new Manufactured Home, the Collateral Value is no greater
than the sum of a fixed percentage of the list price of the unit actually billed
by the manufacturer to the dealer (exclusive of freight to the dealer site)
including "accessories" identified in the invoice (the "Manufacturer's Invoice
Price"), plus the actual cost of any accessories purchased from the dealer, a
delivery and set-up allowance, depending on the size of the unit, and the cost
of state and local taxes, filing fees and up to three years prepaid hazard
insurance premiums. Unless otherwise specified in the related Prospectus
Supplement, with respect to used Manufactured Homes, the Collateral Value is the
least of the sales price, appraised value, and National Automobile Dealer's
Association book value plus prepaid taxes and hazard insurance premiums. The
appraised value of a Manufactured Home is based upon the age and condition of
the manufactured housing unit and the quality and condition of the mobile home
park in which it is situated, if applicable.
Residential Properties may be subject to subordinate financing at the
time of origination. As is customary in residential lending, subordinate
financing may be obtained with respect to a Residential Property after the
origination of the Residential Loan without the lender's consent.
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No assurance can be given that values of the Residential Properties
have remained or will remain at their historic levels on the respective dates of
origination of the related Residential Loans. If the residential real estate
market were to experience an overall decline in property values such that the
outstanding principal balances of the Residential Loans, and any other financing
on the related Residential Properties, become equal to or greater than the value
of the Residential Properties, the actual rates of delinquencies, foreclosures
and losses may be higher than those now generally experienced in the mortgage
lending industry. In addition, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by borrowers of
scheduled payments of principal and interest on the Residential Loans and,
accordingly, the actual rates of delinquencies, foreclosures and losses. To the
extent that such losses are not covered by the applicable insurance policies and
other forms of credit support described herein and in the related Prospectus
Supplement, such losses will be borne, at least in part, by the holders of one
or more classes of the Certificates of the related Series. See "Description of
the Certificates" and "Description of Credit Support".
AGENCY SECURITIES
The Agency Securities will consist of any combination of "fully
modified pass-through" mortgage-backed certificates guaranteed by the GNMA
("GNMA Certificates"), guaranteed mortgage pass-through securities issued by the
FNMA ("FNMA Certificates") and mortgage participation certificates issued by the
FHLMC ("FHLMC Certificates").
GNMA
GNMA is a wholly-owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. Section 306(g) of Title
III of the Housing Act authorizes GNMA to guarantee the timely payment of the
principal of and interest on certificates that are based on and backed by a pool
of FHA Loans, VA Loans or by pools of other eligible residential loans.
Section 306(g) of the Housing Act provides that "the full faith and
credit of the United States is pledged to the payment of all amounts which may
be required to be paid under any guaranty under this subsection". In order to
meet its obligations under such guaranty, GNMA is authorized, under Section
306(d) of the Housing Act, to borrow from the United States Treasury with no
limitations as to amount, to perform its obligations under its guarantee.
GNMA CERTIFICATES
Each GNMA Certificate will be a "fully modified pass-through"
mortgage-backed certificate issued and serviced by an issuer approved by GNMA or
FNMA as a seller-servicer of FHA Loans or VA Loans, except as described below
with respect to Stripped Agency Securities (as defined below). The loans
underlying GNMA Certificates may consist of FHA Loans, VA Loans and other loans
eligible for inclusion in loan pools underlying GNMA Certificates. GNMA
Certificates may be issued under either or both of the GNMA I program and the
GNMA II program, as described in the related Prospectus Supplement. The
Prospectus Supplement for Certificates of each Series evidencing interests in a
Trust Fund including GNMA Certificates will set forth additional information
regarding the GNMA guaranty program, the
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characteristics of the pool underlying such GNMA Certificates, the servicing of
the related pool, the payment of principal and interest on GNMA Certificates to
the extent not described herein and other relevant matters with respect to the
GNMA Certificates.
Except as otherwise specified in the related Prospectus Supplement or
as described below with respect to Stripped Agency Securities, each GNMA
Certificate will provide for the payment, by or on behalf of the issuer, to the
registered holder of such GNMA Certificate of monthly payments of principal and
interest equal to the holder's proportionate interest in the aggregate amount of
the monthly principal and interest payments on each related FHA Loan or VA Loan,
less servicing and guaranty fees aggregating the excess of the interest on such
FHA Loan or VA Loan over the GNMA Certificates pass-through rate. In addition,
each payment to a holder of a GNMA Certificate will include proportionate
pass-through payments to such holder of any prepayments of principal of the FHA
Loans or VA Loans underlying the GNMA Certificate and the holder's proportionate
interest in the remaining principal balance in the event of a foreclosure or
other disposition of any such FHA Loan or VA Loan.
The GNMA Certificates do not constitute a liability of, or evidence any
recourse against, the issuer of the GNMA Certificates, the Depositor or any
affiliates thereof, and the only recourse of a registered holder, such as the
Trustee, is to enforce the guaranty of GNMA.
GNMA will have approved the issuance of each of the GNMA Certificates
included in a Trust Fund in accordance with a guaranty agreement or contract
between GNMA and the issuer of such GNMA Certificates. Pursuant to such
agreement, such issuer, in its capacity as servicer, is required to perform
customary functions of a servicer of FHA Loans and VA Loans, including
collecting payments from borrowers and remitting such collections to the
registered holder, maintaining escrow and impoundment accounts of borrowers for
payments of taxes, insurance and other items required to be paid by the
borrower, maintaining primary hazard insurance, and advancing from its own funds
in order to make timely payments of all amounts due on the GNMA Certificate,
even if the payments received by such issuer on the loans backing the GNMA
Certificate are less than the amounts due thereon. If the issuer is unable to
make payments on a GNMA Certificate as they become due, it must promptly notify
GNMA and request GNMA to make such payment. Upon such notification and request,
GNMA will make such payments directly to the registered holder of the GNMA
Certificate. In the event no payment is made by the issuer and the issuer fails
to notify and request GNMA to make such payment, the registered holder of the
GNMA Certificate has recourse against only GNMA to obtain such payment. The
Trustee or its nominee, as registered holder of the GNMA Certificates included
in a Trust Fund, is entitled to proceed directly against GNMA under the terms of
the guaranty agreement or contract relating to such GNMA Certificates for any
amounts that are not paid when due under each GNMA Certificate.
The GNMA Certificates included in a Trust Fund may have other
characteristics and terms, different from those described above so long as such
GNMA Certificates and underlying residential loans meet the criteria of the
Rating Agency or Agencies. Such GNMA Certificates and underlying residential
loans will be described in the related Prospectus Supplement.
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FNMA
FNMA is a federally chartered and stockholder-owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended (the "Charter Act"). FNMA was originally established in 1938 as
a United States government agency to provide supplemental liquidity to the
mortgage market and was transformed into a stockholder-owned and privately
managed corporation by legislation enacted in 1968.
FNMA provides funds to the mortgage market by purchasing mortgage loans
from lenders. FNMA acquires funds to purchase loans from many capital market
investors, thereby expanding the total amount of funds available for housing.
Operating nationwide, FNMA helps to redistribute mortgage funds from
capital-surplus to capital-short areas. In addition, FNMA issues mortgage-backed
securities primarily in exchange for pools of mortgage loans from lenders. FNMA
receives fees for its guaranty of timely payment of principal and interest on
its mortgage-backed securities.
FNMA CERTIFICATES
FNMA Certificates are Guaranteed Mortgage Pass-Through Certificates
typically issued pursuant to a prospectus which is periodically revised by FNMA.
FNMA Certificates represent fractional undivided interests in a pool of mortgage
loans formed by FNMA. Each mortgage loan must meet the applicable standards of
the FNMA purchase program. Mortgage loans comprising a pool are either provided
by FNMA from its own portfolio or purchased pursuant to the criteria of the FNMA
purchase program. Mortgage loans underlying FNMA Certificates included in a
Trust Fund will consist of conventional mortgage loans, FHA Loans or VA Loans.
The Prospectus Supplement for Certificates of each Series evidencing interests
in a Trust Fund including FNMA Certificates will set forth additional
information regarding the FNMA program, the characteristics of the pool
underlying such FNMA Certificates, the servicing of the related pool, payment of
principal and interest on the FNMA Certificates to the extent not described
herein and other relevant matters with respect to the FNMA Certificates.
Except as described below with respect to Stripped Agency Securities,
FNMA guarantees to each registered holder of a FNMA Certificate that it will
distribute amounts representing such holder's proportionate share of scheduled
principal and interest at the applicable pass-through rate provided for by such
FNMA Certificate on the underlying mortgage loans, whether or not received, and
such holder's proportionate share of the full principal amount of any prepayment
or foreclosed or other finally liquidated mortgage loan, whether or not such
principal amount is actually recovered.
The obligations of FNMA under its guarantees are obligations solely of
FNMA and are not backed by, nor entitled to, the full faith and credit of the
United States. If FNMA were unable to satisfy such obligations, distributions to
the holders of FNMA Certificates would consist solely of payments and other
recoveries on the underlying loans and, accordingly, monthly distributions to
the holders of FNMA Certificates would be affected by delinquent payments and
defaults on such loans.
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FNMA Certificates evidencing interests in pools of mortgage loans
formed on or after May 1, 1985 (other than FNMA Certificates backed by pools
containing graduated payment mortgage loans or multifamily loans) are available
in book-entry form only. With respect to a FNMA Certificate issued in book-entry
form, distributions thereon will be made by wire, and with respect to a fully
registered FNMA Certificate, distributions thereon will be made by check.
The FNMA Certificates included in a Trust Fund may have other
characteristics and terms, different from those described above, so long as such
FNMA Certificates and underlying mortgage loans meet the criteria of the Rating
Agency or Rating Agencies rating the Certificates of such Series. Such FNMA
Certificates and underlying mortgage loans will be described in the related
Prospectus Supplement.
FHLMC
FHLMC is a corporate instrumentality of the United States created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended (the
"FHLMC Act"). FHLMC was established primarily for the purpose of increasing the
availability of mortgage credit for the financing of needed housing. It seeks to
provide an enhanced degree of liquidity for residential mortgage investments
primarily by assisting in the development of secondary markets for conventional
mortgages. The principal activity of FHLMC currently consists of the purchase of
first lien, conventional residential mortgage loans or participation interests
in such mortgage loans and the resale of the mortgage loans so purchased in the
form of mortgage securities, primarily FHLMC Certificates. FHLMC is confined to
purchasing, so far as practicable, mortgage loans and participation interests
therein which it deems to be of such quality, type and class as to meet
generally the purchase standards imposed by private institutional mortgage
investors.
FHLMC CERTIFICATES
Each FHLMC Certificate represents an undivided interest in a pool of
residential loans that may consist of first lien conventional residential loans,
FHA Loans or VA Loans ("FHLMC Certificate Group"). Each such mortgage loan must
meet the applicable standards set forth in the FHLMC Act. A FHLMC Certificate
Group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and/or participations comprising another
FHLMC Certificate Group. The Prospectus Supplement for Certificates of each
Series evidencing interests in a Trust Fund including FHLMC Certificates will
set forth additional information regarding the FHLMC guaranty program, the
characteristics of the pool underlying such FHLMC Certificate, the servicing of
the related pool, payment of principal and interest on the FHLMC Certificate to
the extent not described herein and other relevant matters with respect to the
FHLMC Certificates.
Except as described below with respect to Stripped Agency Securities,
FHLMC guarantees to each registered holder of a FHLMC Certificate the timely
payment of interest on the underlying mortgage loans to the extent of the
applicable pass-through rate on the registered holder's pro rata share of the
unpaid principal balance outstanding on the underlying mortgage loans in the
FHLMC Certificate Group represented by such FHLMC Certificate, whether or not
received. FHLMC also guarantees to each registered holder of a FHLMC Certificate
collection
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by such holder of all principal on the underlying mortgage loans, without any
offset or deduction, to the extent of such holder's pro rata share thereof, but
does not, except if and to the extent specified in the related Prospectus
Supplement, guarantee the timely payment of scheduled principal. Pursuant to its
guarantees, FHLMC also guarantees ultimate collection of scheduled principal
payments, prepayments of principal and the remaining principal balance in the
event of a foreclosure or other disposition of a mortgage loan. FHLMC may remit
the amount due on account of its guarantee of collection of principal at any
time after default on an underlying mortgage loan, but not later than 30 days
following the latest of (i) foreclosure sale, (ii) payment of the claim by any
mortgage insurer and (iii) the expiration of any right of redemption, but in any
event no later than one year after demand has been made upon the mortgagor for
accelerated payment of principal. In taking actions regarding the collection of
principal after default on the mortgage loans underlying FHLMC Certificates,
including the timing of demand for acceleration, FHLMC reserves the right to
exercise its servicing judgment with respect to the mortgage loans in the same
manner as for mortgage loans which it has purchased but not sold. The length of
time necessary for FHLMC to determine that a mortgage loan should be accelerated
varies with the particular circumstances of each mortgagor, and FHLMC has not
adopted servicing standards that require that the demand be made within any
specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such Mortgage Loans.
The FHLMC Certificates included in a Trust Fund may have other
characteristics and terms, different from those described above, so long as such
FHLMC Certificates and underlying mortgage loans meet the criteria of the Rating
Agency or Rating Agencies rating the Certificates of such Series. Such FHLMC
Certificates and underlying mortgage loans will be described in the related
Prospectus Supplement.
STRIPPED AGENCY SECURITIES
The GNMA Certificates, FNMA Certificates or FHLMC Certificates may be
issued in the form of certificates ("Stripped Agency Securities") which
represent an undivided interest in all or part of either the principal
distributions (but not the interest distributions) or the interest distributions
(but not the principal distributions), or in some specified portion of the
principal or interest distributions (but not all of such distributions), on an
underlying pool of mortgage loans or certain other GNMA Certificates, FNMA
Certificates or FHLMC Certificates. GNMA, FNMA or FHLMC, as applicable, will
guarantee each Stripped Agency Security to the same extent as such entity
guarantees the underlying securities backing such Stripped Agency Securities or
to the extent described above with respect to a Stripped Agency Security backed
by a pool of mortgage loans, unless otherwise specified in the related
Prospectus Supplement. The Prospectus Supplement for Certificates of each Series
evidencing interests in a Trust Fund
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including Stripped Agency Securities will set forth additional information
regarding the characteristics of the assets underlying such Stripped Agency
Securities, the payments of principal and interest on the Stripped Agency
Securities and other relevant matters with respect to the Stripped Agency
Securities.
ADDITIONAL INFORMATION CONCERNING THE TRUST FUNDS
Each Prospectus Supplement relating to a Series of Certificates will
contain information, as of the date of such Prospectus Supplement, if applicable
and to the extent specifically known to the Depositor, with respect to the
Residential Loans or Agency Securities contained in the related Trust Fund,
including (i) the aggregate outstanding principal balance and the average
outstanding principal balance of the Trust Fund Assets as of the applicable
Cut-off Date, (ii) the types of related Residential Properties (e.g., one- to
four-family dwellings, multifamily residential properties, shares in
Cooperatives and the related proprietary leases or occupancy agreements,
condominiums and planned-unit development units, vacation and second homes and
new or used Manufactured Homes), (iii) the original terms to maturity, (iv) the
outstanding principal balances, (v) the origination dates, (vi) with respect to
Multifamily Loans, the Lockout Periods and prepayment penalties, (vii) the
loan-to-value ratios or, with respect to Residential Loans secured by a junior
lien, the combined loan-to-value ratios at origination, (viii) the Interest
Rates or range of Interest Rates borne by the Residential Loans or residential
loans underlying the Agency Securities, (ix) the geographical distribution of
the Residential Properties on a state-by-state basis, (x) the fixed Certificate
Interest Rate, or the initial Certificate Interest Rate in the case of a Series
or class of Certificates with a variable or adjustable Certificate Interest
Rate, (xi) the number and aggregate principal balance of Buydown Loans, if any,
(xii) the Retained Interest, if any, (xiii) with respect to ARM Loans, the
adjustment dates, the highest, lowest and weighted average margin, and the
maximum Interest Rate variations at the time of adjustments and over the lives
of the ARM Loans, and (xiv) information as to the payment characteristics of the
Residential Loans. If specific information respecting the Trust Fund Assets is
not known to the Depositor at the time a Series of Certificates is initially
offered, more general information of the nature described above will be provided
in the related Prospectus Supplement, and specific information will be set forth
in a report made available at or before the issuance of such Certificates, which
information will be included in a report on Form 8-K which will be available to
purchasers of the related Certificates at or before the initial issuance thereof
and will be filed with the Commission within fifteen days after the initial
issuance of such Certificates. If Mortgage Loans are added to or deleted from a
Trust Fund after the date of the related Prospectus Supplement, such addition or
deletion will be noted in a report on Form 8-K.
The Depositor will cause the Residential Loans comprising each Trust
Fund (or Mortgage Securities evidencing interests therein) to be assigned to the
Trustee for the benefit of the holders of the Certificates of the related
Series. The Master Servicer will service the Residential Loans comprising any
Trust Fund, either directly or through other servicing institutions (each, a
"Sub-Servicer"), pursuant to a Pooling and Servicing Agreement among itself, the
Depositor and the Trustee (the "Pooling and Servicing Agreement"), and will
receive a fee for such services. See "Residential Loan Program" and "Description
of the Certificates". With respect to Residential Loans serviced through a
Sub-Servicer, the Master Servicer will remain liable for
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its servicing obligations under the related Pooling and Servicing Agreement as
if the Master Servicer alone were servicing such Residential Loans.
The Depositor will assign the Residential Loans to the related Trustee
on a non-recourse basis. Unless otherwise specified in the related Prospectus
Supplement, the obligations of the Depositor with respect to the Residential
Loans will be limited to certain representations and warranties made by it. See
"Description of the Certificates-Assignment of Trust Fund Assets". The
obligations of the Master Servicer with respect to the Residential Loans will
consist principally of its contractual servicing obligations under the related
Pooling and Servicing Agreement (including its obligation to enforce certain
purchase and other obligations of Sub-Servicers or Unaffiliated Sellers, or
both, as more fully described herein under "Residential Loan
Program-Representations by Unaffiliated Sellers; Repurchases"; "-Sub-Servicing"
and "Description of the Certificates-Assignment of Trust Fund Assets") and,
unless otherwise provided in the related Prospectus Supplement, its obligation
to make certain cash advances in the event of delinquencies in payments on or
with respect to the Residential Loans in amounts described herein under
"Description of the Certificates-Advances" or pursuant to the terms of any
Mortgage Securities. Any obligation of the Master Servicer to make advances may
be subject to limitations, to the extent provided herein and in the related
Prospectus Supplement.
The Depositor will cause the Agency Securities comprising each Trust
Fund to be registered in the name of the Trustee or its nominee on the books of
the issuer or guarantor or its agent or, in the case of Agency Securities issued
only in book-entry form, through the Federal Reserve System, in accordance with
the procedures established by the issuer or guarantor for registration of such
certificates with a member of the Federal Reserve System, and distributions on
such securities to which the Trust Fund is entitled will be made directly to the
Trustee. The Trustee will administer the Trust Fund Assets comprising any Trust
Fund including Agency Securities pursuant to a Trust Agreement between the
Depositor and the Trustee, and will receive a fee for such service. The Agency
Securities and any moneys attributable to distributions on such Agency
Securities will not be subject to any right, charge, security interest, lien or
claim of any kind in favor of the Trustee or any person claiming through it. The
Trustee will not have the power or authority to assign, transfer, pledge or
otherwise dispose of any assets of any Trust Fund to any person, except to a
successor trustee, to the Depositor or the Certificateholders to the extent they
are entitled thereto or to such other persons as may be specified in the related
Prospectus Supplement and except for its power and authority to invest assets of
the Trust Fund in Permitted Instruments (as hereinafter defined) in compliance
with the Trust Agreement. The Trustee will have no responsibility for
distributions on the Certificates, other than to pass through all distributions
received with respect to the Agency Securities to the holders of the related
Certificates without deduction, other than for any applicable trust
administration fee payable to the Trustee, certain expenses of the Trustee, if
any, in connection with legal actions relating to the Agency Securities, any
applicable withholding tax required to be withheld by the Trustee and as
otherwise described in the related Prospectus Supplement.
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USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds
from the sale of each Series of Certificates for one or more of the following
purposes: (i) to purchase the related Trust Fund Assets, (ii) to repay
indebtedness which has been incurred to obtain funds to acquire such Trust Fund
Assets, (iii) to establish any Reserve Funds described in the related Prospectus
Supplement and (iv) to pay costs of structuring, guaranteeing and issuing such
Securities, including the costs of obtaining credit support, if any. If so
specified in the related Prospectus Supplement, the purchase of the Trust Fund
Assets for a Series may be effected by an exchange of Certificates with the
seller of such Trust Fund Assets.
YIELD CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, each
monthly or other periodic interest payment on a Trust Fund Asset is calculated
as one-twelfth of the applicable interest rate multiplied by the unpaid
principal balance thereof. The amount of such interest payment distributed (or
accrued in the case of Accrual Certificates) to Certificateholders (other than
holders of Strip Certificates) with respect to each Trust Fund Asset will be
similarly calculated for the applicable period, based on the applicable
Certificate Interest Rate. In the case of Strip Certificates, except as
otherwise described in the related Prospectus Supplement, such distributions of
Stripped Interest will be made in the manner and amount described in the related
Prospectus Supplement. The Certificates of each Series may bear a fixed,
variable or adjustable Certificate Interest Rate.
The effective yield to Certificateholders will be below the yield
otherwise produced by the applicable Certificate Interest Rate (or as to a Strip
Certificate, the distributions of interest thereon ("Stripped Interest")) and
purchase price paid by the investors, because while interest will accrue on each
Trust Fund Asset from the first day of each month (unless otherwise provided in
the related Prospectus Supplement), the distribution of such interest (or the
accrual thereof in the case of Accrual Certificates) will not be made until the
Distribution Date occurring in the month or other periodic interval (as
specified in the related Prospectus Supplement) following the month or other
period of accrual in the case of Residential Loans, and in later months in the
case of Agency Securities and in the case of a Series of Certificates having
Distribution Dates occurring at intervals less frequently than monthly.
Unless otherwise provided in the related Prospectus Supplement, when a
full prepayment is made on a Residential Loan, the borrower is charged interest
only for the number of days actually elapsed from the due date of the preceding
monthly payment up to the date of such prepayment, instead of for a full month
and accordingly, the effect of such prepayments is to reduce the aggregate
amount of interest collected that is available for distribution to
Certificateholders. However, if so provided in the related Prospectus
Supplement, certain of the Residential Loans may contain provisions limiting
prepayments thereof or requiring the payment of a prepayment penalty upon
prepayment in full or in part. Unless otherwise provided in the Prospectus
Supplement, the prepayment penalty collected with respect to the Residential
Loans will be applied to offset such shortfalls in interest collections on the
related Distribution Date. Holders of Agency Securities are entitled to a full
month's interest in connection with prepayments in full of the underlying
residential loans. Unless otherwise specified in the related
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Prospectus Supplement, partial principal prepayments are applied on the first
day of the month following receipt, with no resulting reduction in interest
payable by the borrower for the month in which the partial principal prepayment
is made. Unless provided otherwise in the related Prospectus Supplement, neither
the Trustee, the Master Servicer nor the Depositor will be obligated to fund
shortfalls in interest collections resulting from full prepayments. Full and
partial prepayments collected during the applicable Prepayment Period will be
available for distribution to Certificateholders on the related Distribution
Date. Unless otherwise provided in the related Prospectus Supplement, a
"Prepayment Period" in respect of any Distribution Date will commence in the
case of Distribution Dates that occur monthly, on the first day of the preceding
calendar month and, in the case of Distribution Dates that occur less frequently
than monthly, on the first day of the month in which the immediately preceding
Distribution Date occurred (or, with respect to the first Prepayment Period, the
Cut-off Date) and will end in both cases on the last day of the preceding
calendar month. See "Maturity and Prepayment Considerations" and "Description of
the Certificates".
Even assuming that the Mortgaged Properties provide adequate security
for the Mortgage Loans, substantial delays could be encountered in connection
with the liquidation of defaulted Mortgaged Loans and corresponding delays in
the receipt of related proceeds by Certificateholders could occur. An action to
foreclose on a Mortgaged Property securing a Mortgaged Loan is regulated by
state statutes and rules and is subject to many of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a property.
In the event of a default by a borrower, these restrictions among other things,
may impede the ability of the Master Servicer to foreclose on or sell the
Mortgaged Property or to obtain liquidation proceeds sufficient to repay all
amounts due on the related Mortgaged Loan. In addition, the Master Servicer will
be entitled to deduct from related liquidation proceeds all expenses reasonably
incurred in attempting to recover amounts due on defaulted Mortgaged Loans and
not yet reimbursed, including payments to senior lienholders, legal fees and
costs of legal action, real estate taxes and maintenance and preservation
expenses.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the remaining principal balance of the small mortgage
loan than would be the case with the other defaulted mortgage loan having a
large remaining principal balance.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of certain
originators and servicers of Residential Loans. In addition, most have other
laws, public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive practices and practices which may apply to
the origination, servicing and collection of the Residential Loans. Depending on
the provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Residential Loans, may entitle the borrower to a refund of
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amounts previously paid and, in addition, could subject to the Trustee or Master
Servicer to damages and administrative sanctions which could reduce the amount
of distributions available to holders of the Certificates.
The Prospectus Supplement for each Series of Certificates may set forth
additional information regarding yield considerations.
MATURITY AND PREPAYMENT CONSIDERATIONS
The original terms to maturity of the Trust Fund Assets in a given
Trust Fund may vary depending upon the type of Residential Loans or the
residential loans underlying the Agency Securities included therein. Each
Prospectus Supplement will contain information with respect to the type and
maturities of the Trust Fund Assets in the related Trust Fund. Unless otherwise
specified in the related Prospectus Supplement, the Residential Loans or
residential loans underlying the Agency Securities may be prepaid in full or in
part at any time without penalty. The prepayment experience on the Residential
Loans or residential loans underlying the Agency Securities will affect the life
of the related Certificates. The average life of a Certificate refers to the
average amount of time that will elapse from the date of issuance of a
Certificate until the principal amount of such Certificate has been reduced to
zero. The average life of the Certificates will be affected by, among other
things, the rate at which principal on the related Residential Loans is paid,
which may be in the form of scheduled amortization payments or unscheduled
prepayments and liquidations due to default, casualty, insurance, condemnation
and similar sources. If substantial principal prepayments on the Residential
Loans are received, the actual average life of the Certificates may be
significantly shorter than would otherwise be the case. As to any Series of
Certificates, based on the public information with respect to the residential
lending industry, it may be anticipated that a significant number of the related
Residential Loans will be paid in full prior to stated maturity.
Prepayments on residential loans are commonly measured relative to a
prepayment standard or model. For certain Series of Certificates comprised of
more than one class, or as to other types of Series where applicable, the
Prospectus Supplement will describe the prepayment standard or model used in
connection with the offering of such Series and, if applicable, will contain
tables setting forth the projected weighted average life of the Certificates of
such Series and the percentage of the initial Certificate Principal Balance that
would be outstanding on specified Distribution Dates based on the assumptions
stated in the Prospectus Supplement, including assumptions that prepayments on
the related Residential Loans or residential loans underlying the Agency
Securities are made at rates corresponding to various percentages of the
prepayment standard or model specified in the Prospectus Supplement.
It is unlikely that prepayment of the Trust Fund Assets will conform to
any model specified in the related Prospectus Supplement. The rate of principal
prepayments on pools of residential loans is influenced by a variety of
economic, social, geographic, demographic and other factors, including homeowner
mobility, economic conditions, enforceability of due-on-sale clauses, market
interest rates and the availability of funds,the existence of lockout provisions
and prepayment penalties, the inclusion of delinquent, non-performing or
sub-performing Residential Loans in the Trust Fund Assets, the relative tax
benefits associated with the ownership of
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property and, in the case of Multifamily Loans, the quality of management of the
property. The rate of prepayments of conventional residential loans has
fluctuated significantly in recent years. In general, however, if prevailing
interest rates fall significantly below the interest rates on the Trust Fund
Assets, such Trust Fund Assets are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the interest rates borne
by such Trust Fund Assets.
Generally, Residential Loans that are junior liens and Home Improvement
Contracts are not viewed by borrowers as permanent financing. Accordingly, such
loans may experience a higher rate of prepayment than traditional mortgage loans
secured by a first lien.
Other factors that might be expected to affect the prepayment rate of
Certificates backed by junior lien mortgage loans or Home Improvement Contracts
include the amounts of, and interest rates on, the underlying senior mortgage
loans, and the use of first mortgage loans as long-term financing for home
purchase and subordinate mortgage loans as shorter-term financing for a variety
of purposes, including home improvement, education expenses and purchases of
consumer durables such as automobiles. In addition, any future limitations on
the right of borrowers to deduct interest payments on junior liens that are home
equity loans for federal income tax purposes may increase the rate of
prepayments on such Residential Loans.
In addition, acceleration of payments on the Residential Loans or
residential loans underlying the Agency Securities as a result of certain
transfers of the underlying properties is another factor affecting prepayment
rates. Unless otherwise provided in the related Prospectus Supplement, all
Residential Loans, except for FHA Loans and VA Loans, will contain "due-on-sale"
provisions permitting the lender to accelerate the maturity of the Residential
Loan upon sale or certain transfers by the borrower with respect to the
underlying Residential Property. Conventional residential loans that underlie
FHLMC Certificates and FNMA Certificates may contain, and in certain cases must
contain, "due-on-sale" clauses permitting the lender to accelerate the unpaid
balance of the loan upon transfer of the property by the borrower. FHA Loans and
VA Loans and all residential loans underlying GNMA Certificates contain no such
clause and may be assumed by the purchaser of the property. In addition,
Multifamily Loans may contain "due-on-encumbrance" clauses permitting the lender
to accelerate the maturity of the Multifamily Loan upon further encumbrance by
the borrower of the underlying Residential Property. In general, where a
"due-on-sale" or "due-on-encumbrance" clause is contained in a conventional
residential loan under a FHLMC or the FNMA program, the lender's right to
accelerate the maturity of the residential loan upon transfer or further
encumbrance of the property must be exercised, so long as such acceleration is
permitted under applicable law.
With respect to a Series of Certificates evidencing interests in a
Trust Fund including Residential Loans, unless otherwise provided in the related
Prospectus Supplement, the Master Servicer generally will enforce any provision
limiting prepayments and any due-on-sale or due-on-encumbrance clause, to the
extent it has knowledge of the conveyance or encumbrance or the proposed
conveyance or encumbrance of the underlying Residential Property and reasonably
believes that it is entitled to do so under applicable law; provided, however,
that the Master Servicer will not take any enforcement action that would impair
or threaten to impair any recovery under any related insurance policy. See
"Description of the Certificates-Collection and
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Other Servicing Procedures" and "Certain Legal Aspects of Residential
Loans-Enforceability of Certain Provisions" and "-Prepayment Charges and
Prepayments" for a description of certain provisions of each Pooling and
Servicing Agreement and certain legal developments that may affect the
prepayment experience on the Residential Loans. See also "Description of the
Certificates-Termination" for a description of the possible early termination of
any Series of Certificates. See also "Residential Loan Program-Representations
by Unaffiliated Sellers; Repurchases" and "Description of the
Certificates-Assignment of Trust Fund Assets" for a description of the
obligation of the Unaffiliated Sellers, the Master Servicer and the Depositor to
repurchase Residential Loans under certain circumstances.
With respect to a Series of Certificates evidencing interests in a
Trust Fund including Agency Securities, principal prepayments may also result
from guaranty payments and from the exercise by the issuer or guarantor of the
related Agency Securities of any right to repurchase the underlying residential
loans. The Prospectus Supplement relating to each Series of Certificates will
describe the circumstances and the manner in which such optional repurchase
right, if any, may be exercised.
In addition, certain Mortgage Securities included in the Trust Fund may
be backed by underlying Residential Loans having differing interest rates.
Accordingly, the rate at which principal payments are received on the related
Certificates will, to a certain extent, depend on the interest rates on such
underlying Residential Loans.
The Prospectus Supplement for each Series of Certificates may set forth
additional information regarding related maturity and prepayment considerations.
THE DEPOSITOR
PaineWebber Mortgage Acceptance Corporation IV, the Depositor, is a
Delaware corporation organized on April 23, 1987, as a wholly-owned limited
purpose finance subsidiary of PaineWebber Group Inc. The Depositor maintains its
principal office at 1285 Avenue of the Americas, New York, New York. Its
telephone number is (212) 713-2000.
The Depositor does not have, nor is it expected in the future to have,
any significant assets. It is not expected that the Depositor will have any
business operations other than acquiring and pooling residential loans and
agency securities, offering Certificates of the type described herein or other
mortgage- or asset-related securities, and related activities.
Neither the Depositor nor any of the Depositor's affiliates will insure
or guarantee distributions on the Certificates of any Series.
RESIDENTIAL LOAN PROGRAM
The Residential Loans will have been purchased by the Depositor, either
directly or through affiliates, from sellers. Unless otherwise specified in the
related Prospectus Supplement, all Residential Loans will have been originated
in general accordance with the criteria specified below. The underwriting
standards applicable to Residential Loans underlying Mortgage Securities may
vary substantially from the underwriting standards set forth below.
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UNDERWRITING STANDARDS
Unless otherwise specified in the related Prospectus Supplement, each
seller will represent and warrant that all Residential Loans originated and/or
sold by it to the Depositor or one of its affiliates will have been underwritten
in general accordance with standards consistent with those utilized by mortgage
lenders generally during the period of origination for similar types of loans.
As to any Residential Loan insured by the FHA or partially guaranteed by the VA,
the seller will represent that it has complied with underwriting policies of the
FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the value and
adequacy of the Residential Property as collateral. In general, a prospective
borrower applying for a Residential Loan is required to fill out a detailed
application designed to provide to the underwriting officer pertinent credit
information, including the principal balance and payment history with respect to
any senior mortgage, if any. Unless otherwise specified in the related
Prospectus Supplement, a verification of the borrower's income will be obtained
from an independent source and, as part of the description of the borrower's
financial condition, the borrower generally is required to provide a current
list of assets and liabilities and a statement of income and expenses, as well
as an authorization to apply for a credit report which summarizes the borrower's
credit history with local merchants and lenders and any record of bankruptcy.
Unless otherwise specified in the related Prospectus Supplement, an employment
verification is obtained from an independent source (typically the borrower's
employer) which verification reports the length of employment with that
organization, the current salary, and whether it is expected that the borrower
will continue such employment in the future. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand, savings or brokerage
accounts.
In determining the adequacy of the property to be used as collateral,
an appraisal will generally be made of each property considered for financing.
The appraiser is generally required to inspect the property, issue a report on
its condition and, if applicable, verify that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes, the
estimated rental income (if considered applicable by the appraiser) and the cost
of replacing the home.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (generally determined on the
basis of the monthly payments due in the year of origination) and other expenses
related to the property (such as property taxes and hazard insurance) and (ii)
to meet monthly housing expenses and other financial obligations and monthly
living expenses. The underwriting standards applied by Sellers, particularly
with respect to the level of loan documentation and the mortgagor's income and
credit history, may be varied in appropriate cases where factors such as low
loan-to-value ratios, or combined-loan-to-value ratios, as applicable, or other
favorable and compensating credit factors exist.
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The underwriting guidelines with respect to some Unaffiliated Sellers'
loan programs may be less stringent than those of FNMA or FHLMC, primarily in
that they generally may permit the borrower to have a higher debt-to-income
ratio and a larger number of derogatory credit items than do the guidelines of
FNMA or FHLMC. These underwriting guidelines are intended to provide for the
origination of single family mortgage loans for non-conforming credits. A
mortgage loan made to a "non-conforming credit" means a mortgage loan that is
ineligible for purchase by FNMA or FHLMC due to borrower credit characteristics
that do not meet FNMA or FHLMC underwriting guidelines, including a loan made to
a borrower whose creditworthiness and repayment ability do not satisfy such FNMA
or FHLMC underwriting guidelines or a borrower who may have a record of major
derogatory credit items such as default on a prior mortgage loan, credit
write-offs, outstanding judgments and prior bankruptcies. Accordingly, Mortgage
Loans underwritten pursuant to these guidelines are likely to experience rates
of delinquency and foreclosure that are higher, and may be substantially higher,
than mortgage loans originated in accordance with FNMA or FHLMC underwriting
guidelines.
QUALIFICATIONS OF UNAFFILIATED SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller will be required to satisfy the qualifications set forth
herein. Each Unaffiliated Seller must be an institution experienced in
originating and servicing the types of residential loans sold by it for
inclusion in a Trust Fund in accordance with accepted practices and prudent
guidelines, and must maintain satisfactory facilities to originate and service
those loans. Unless otherwise specified in the related Prospectus Supplement,
each Unaffiliated Seller must be a seller/servicer approved by either FNMA or
FHLMC, and must be a mortgagee approved by the FHA or an institution the deposit
accounts in which are insured by the Bank Insurance Fund ("BIF") or Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
(the "FDIC"). In addition, each Unaffiliated Seller must satisfy certain
criteria as to financial stability evaluated on a case by case basis by the
Depositor.
REPRESENTATIONS BY UNAFFILIATED SELLERS; REPURCHASES
Each Unaffiliated Seller will have made representations and warranties
in respect of the Residential Loans sold by such Unaffiliated Seller. Unless
otherwise provided in the related Prospectus Supplement, such representations
and warranties include, among other things: (i) that title insurance (or in the
case of Residential Properties located in areas where such policies are
generally not available, an attorney's certificate of title) and any FHA
insurance, VA guarantee and any required hazard and primary credit insurance was
effective at the origination of each Residential Loan, and that each policy (or
certificate of title) remained in effect on the date of purchase of the
Residential Loan from the Unaffiliated Seller by or on behalf of the Depositor;
(ii) that the Unaffiliated Seller had good title to each such Residential Loan
and such Residential Loan was subject to no offsets, defenses, counterclaims or
rights of rescission except to the extent that any buydown agreement described
herein may forgive certain indebtedness of a borrower; (iii) if the Trust Fund
includes Mortgage Loans, that each Mortgage constituted a valid lien on the
Mortgaged Property (subject only to permissible title insurance exceptions and
Senior Liens, if any); (iv) if the Trust Fund includes Manufactured Housing
Contracts, each Manufactured Housing Contract creates a valid, subsisting and
enforceable first priority security interest in the Manufactured Home covered
thereby; (v) that the Residential Property was free
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from damage and was in good repair; (vi) that there were no delinquent tax or
assessment liens against the Residential Property; (vii) that each Residential
Loan was current as to all required payments; and (viii) that each Residential
Loan was made in compliance with, and is enforceable under, all applicable
local, state and federal laws and regulations in all material respects.
In certain cases, the representations and warranties of an Unaffiliated
Seller in respect of a Residential Loan may have been made as of the date on
which such Unaffiliated Seller sold the Residential Loan to the Depositor or its
affiliate. A substantial period of time may have elapsed between such date and
the date of initial issuance of the Series of Certificates evidencing an
interest in such Residential Loan. Since the representations and warranties of
an Unaffiliated Seller do not address events that may occur following the sale
of a Residential Loan by such Unaffiliated Seller, its repurchase obligation
described below will not arise if the relevant event that would otherwise have
given rise to such an obligation occurs after the date of such sale to or on
behalf of the Depositor.
The only representations and warranties, if any, to be made for the
benefit of holders of Certificates in respect of any Residential Loan relating
to the period commencing on the date of sale of such Residential Loan to the
Depositor or its affiliates will be certain limited representations of the
Depositor and of the Master Servicer described below under "Description of the
Certificates-Assignment of Trust Fund Assets". If the Master Servicer is also an
Unaffiliated Seller of Residential Loans with respect to a particular Series,
such representations will be in addition to the representations and warranties
made by the Master Servicer in its capacity as an Unaffiliated Seller.
The Master Servicer will promptly notify the relevant Unaffiliated
Seller of any breach of any representation or warranty made by it in respect of
a Residential Loan which materially and adversely affects the interests of the
Certificateholders in such Residential Loan. If such Unaffiliated Seller cannot
cure such breach within 60 days (or such other time period set forth in the
related Prospectus Supplement) from the date on which the Unaffiliated Seller
was notified of such breach, then such Unaffiliated Seller will be obligated to
repurchase such Residential Loan from the Trustee within 90 days (or such other
time period set forth in the related Prospectus Supplement) from the date on
which the Unaffiliated Seller was notified of such breach, at the Purchase Price
therefor. As to any Residential Loan, unless otherwise specified in the related
Prospectus Supplement, the "Purchase Price" is equal to the sum of (i) the
unpaid principal balance thereof, (ii) unpaid accrued interest on the Stated
Principal Balance (as defined below) from the date as to which interest was last
paid by the borrower to the end of the calendar month in which the purchase is
to occur at a rate equal to the Net Mortgage Rate minus the rate at which the
Sub-Servicer's servicing fee is calculated if the Sub-Servicer is the purchaser,
(iii) any unpaid servicing fees and certain unreimbursed servicing expenses
payable or reimbursable to the Master Servicer with respect to such Residential
Loan, (iv) any unpaid Retained Interest with respect to such Residential Loan,
(v) any Realized Losses incurred with respect to such Residential Loan, as
described below under "Description of the Certificates-Subordination", and (vi)
if applicable, any expenses reasonably incurred or to be incurred by the Master
Servicer or the Trustee in respect of the breach or defect giving rise to a
purchase obligation. If so provided in the related Prospectus Supplement, an
Unaffiliated Seller, rather than repurchase a Residential Loan as to which a
breach has occurred, will have the option, within a specified period after
initial issuance of the related Series of Certificates,
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to cause the removal of such Residential Loan from the Trust Fund and substitute
in its place one or more other Residential Loans, in accordance with the
standards described in the related Prospectus Supplement. The Master Servicer or
the Trustee, unless otherwise specified in the related Prospectus Supplement,
will be required under the applicable Pooling and Servicing Agreement to use its
best efforts to enforce such obligations of the Unaffiliated Seller for the
benefit of the Trustee and the holders of the Certificates, following the
practices it would employ in its good faith business judgment were it the owner
of such Residential Loan. Unless otherwise specified in the related Prospectus
Supplement, this repurchase or substitution obligation will constitute the sole
remedy available to holders of Certificates or the Trustee for a breach of
representation by an Unaffiliated Seller. For each Series with respect to which
a REMIC election is to be made, unless the related Prospectus Supplement
provides otherwise, the Master Servicer will be obligated to pay any prohibited
transaction tax which may arise in connection with such repurchase or
substitution. See "Description of the Certificates-General".
The "Stated Principal Balance" of any Mortgage Loan as of any date of
determination is equal to the principal balance thereof as of the Cut-off Date,
after application of all scheduled principal payments due on or before the
Cut-off Date, whether or not received, reduced by all amounts, including
advances by the Master Servicer, allocable to principal that are distributed to
Certificateholders on or before the date of determination, and as further
reduced to the extent that any Realized Loss (as hereinafter defined) thereon
has been (or, if it had not been covered by any form of credit support, would
have been) allocated to one or more class of Certificates on or before the date
of determination.
Neither the Depositor nor the Master Servicer (unless the Master
Servicer is an Unaffiliated Seller) will be obligated to purchase or substitute
for a Residential Loan if an Unaffiliated Seller defaults on its obligation to
do so, and no assurance can be given that Unaffiliated Sellers will carry out
such obligations with respect to Residential Loans. To the extent that a breach
of the representations and warranties of an Unaffiliated Seller also constitutes
a breach of a representation made by the Depositor, the Depositor may have a
repurchase or substitution obligation as described below under "Description of
the Certificates-Assignment of Trust Fund Assets". Any Residential Loan that is
not repurchased or substituted for shall remain in the related Trust Fund and
any losses thereon shall be borne by Certificateholders, to the extent not
covered by credit enhancement.
SUB-SERVICING
Any Master Servicer may delegate its servicing obligations in respect
of a Residential Loan to Sub-Servicers pursuant to a sub-servicing agreement (a
"Sub-Servicing Agreement"), which will be consistent with the terms of the
Pooling and Servicing Agreement relating to the Trust Fund that includes such
Residential Loan. Although each Sub-Servicing Agreement will be a contract
solely between the Master Servicer and the Sub-Servicer, the Pooling and
Servicing Agreement pursuant to which a Series of Certificates is issued will
provide that, if for any reason the Master Servicer for such Series of
Certificates is no longer acting in such capacity, the Trustee or any successor
Master Servicer must recognize the Sub-Servicer's rights and obligations under
such Sub-Servicing Agreement.
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With the approval of the Master Servicer, a Sub-Servicer may delegate
its servicing obligations to third-party servicers, but such Sub-Servicer will
remain primarily liable for such obligations under the related Sub-Servicing
Agreement. Each Sub-Servicer will be required to perform the customary functions
of a servicer of residential loans, including collecting payments from borrowers
and remitting such collections to the Master Servicer; maintaining FHA
insurance, any VA guarantee, and primary hazard and credit insurance as
described herein and in any related Prospectus Supplement, and filing and
settling claims thereunder, subject in certain cases to the right of the Master
Servicer to approve in advance any such settlement; maintaining escrow or
impoundment accounts of borrowers for payment of taxes, insurance and other
items required to be paid by the borrower pursuant to the Residential Loan;
processing assumptions or substitutions, although, unless otherwise specified in
the related Prospectus Supplement, the Master Servicer generally is required to
exercise due-on-sale and due-on-encumbrance clauses to the extent such exercise
is permitted by law and would not adversely affect insurance coverage;
attempting to cure delinquencies; effecting foreclosures or repossessions;
inspecting and managing Residential Properties under certain circumstances; and
maintaining accounting records relating to the Residential Loans. The Master
Servicer will be responsible for filing and settling claims in respect of
Residential Loans in a particular Trust Fund under any applicable pool insurance
policy, bankruptcy bond, special hazard insurance policy or letter of credit.
See "Description of Credit Support". To the extent specified in the related
Prospectus Supplement, a Sub-Servicer will also be obligated to make advances in
respect of delinquent installments of principal and interest on Residential
Loans, as described more fully under "Description of the Certificates-Payments
on Residential Loans" and "-Deposits to Certificate Account", and in respect of
certain taxes and insurance premiums not paid on a timely basis by borrowers.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the related Residential Loan
payment has been collected) in the amount set forth in the related Prospectus
Supplement. Each Sub-Servicer is also entitled to collect and retain, as part of
its servicing compensation late charges provided in the Mortgage Note,
Cooperative Note or Manufactured Housing Contract or related instruments. If so
provided in the related Prospectus Supplement, a Sub-Servicer may be entitled to
any prepayment penalties and a Retained Interest in certain Residential Loans.
Each Sub-Servicer will be reimbursed by the Master Servicer for certain
expenditures which it makes, generally to the same extent the Master Servicer
would be reimbursed under a Pooling and Servicing Agreement. See "Description of
the Certificates-Retained Interest, Administration Compensation and Payment of
Expenses".
Each Sub-Servicer may be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its servicing
capacity. Unless otherwise provided in the related Prospectus Supplement, each
Sub-Servicer is required to maintain a fidelity bond and an errors and omissions
policy with respect to its officers, employees and other persons acting on its
behalf or on behalf of the Master Servicer.
DESCRIPTION OF THE CERTIFICATES
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The Certificates of each Series evidencing interests in a Trust Fund
including Residential Loans will be issued pursuant to a separate Pooling and
Servicing Agreement among the Depositor, the Master Servicer and the Trustee and
the Certificates of each Series evidencing interests in a Trust Fund including
Agency Securities will be issued pursuant to a separate Trust Agreement ("Trust
Agreement") between the Depositor and the Trustee (each Pooling and Servicing
Agreement and Trust Agreement, an "Agreement"). Forms of each of the Agreements
are filed as exhibits to the Registration Statement of which this Prospectus is
a part. The Agreement relating to each Series of Certificates will be filed as
an exhibit to a report on Form 8-K to be filed with the Commission within
fifteen days after the initial issuance of such Certificates and a copy thereof
will be available for inspection at the corporate trust office of the Trustee
specified in the related Prospectus Supplement (the "Corporate Trust Office").
The following summaries describe certain provisions of the Agreements. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Agreement for each
Trust Fund and the related Prospectus Supplement.
GENERAL
The Certificates of each Series (including any class of Certificates
not offered hereby) will be issued in fully registered form only and will
represent the entire beneficial ownership interest in the Trust Fund created
pursuant to the related Agreement. As to each Series, the Certificates will be
issued in authorized denominations evidencing a portion of all of the
Certificates of such Series (a "Percentage Interest"), as set forth in the
related Prospectus Supplement. Each Trust Fund will consist of (i) such
Residential Loans (including any Mortgage Securities) or Agency Securities
(exclusive of any portion of interest payments relating thereto retained by the
Depositor, any of its affiliates or its predecessor in interest (the "Retained
Interest") and exclusive of principal and interest due on or before the Cut-off
Date) as from time to time are subject to the Agreement; (ii) such funds or
assets as from time to time are deposited in the Certificate Account described
below and any other account held for the benefit of Certificateholders; (iii)
with respect to Trust Funds that include Residential Loans, (a) property
acquired by foreclosure or deed in lieu of foreclosure of Mortgage Loans on
behalf of the Certificateholders, or, in the case of Manufactured Housing
Contracts that are not Land Contracts, by repossession; (b) any Primary Credit
Insurance Policies and Primary Hazard Insurance Policies (as defined under
"Description of Primary Insurance Coverage"); (c) any combination of a Pool
Insurance Policy, a Bankruptcy Bond, a special hazard insurance policy or other
type of credit support (as defined under "Description of Credit Support"); and
(d) the rights of the Trustee to any cash advance reserve fund or surety bond as
described under "Advances"; (iv) if specified in the related Prospectus
Supplement, the Reserve Fund and (v) any other assets as described in the
related Prospectus Supplement. The Certificates will be transferable and
exchangeable for Certificates of the same class and Series in authorized
denominations at the Corporate Trust Office. No service charge will be made for
any registration of exchange or transfer of Certificates on the Certificate
Register maintained by the Certificate Registrar, but the Depositor may require
payment of a sum sufficient to cover any tax or other governmental charge.
Each Series of Certificates may consist of either (i) a single class of
Certificates; (ii) two or more classes of Certificates, one or more classes of
which ("Senior Certificates") will be senior in right of payment to one or more
of the other classes ("Subordinate Certificates") to the
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extent described in the related Prospectus Supplement (any such Series, a
"Senior/Subordinate Series"); (iii) two or more classes of Certificates, one or
more classes of which will be entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions or (b) interest
distributions, with disproportionate, nominal or no principal distributions
("Strip Certificates"); (iv) two or more classes of Certificates that differ as
to the timing, sequential order or amount of distributions of principal or
interest or both, which may include one or more classes of Certificates
("Accrual Certificates") with respect to which accrued interest will not be
distributed but rather will be added to the Certificate Principal Balance
thereof on each Distribution Date for the period described in the related
Prospectus Supplement; or (v) other types of classes of Certificates, as
described in the related Prospectus Supplement. Credit support for each Series
of Certificates evidencing interests in a Trust Fund that includes Residential
Loans will be provided by a Pool Insurance Policy, a special hazard insurance
policy, a Bankruptcy Bond, a letter of credit, a Reserve Fund or a similar
credit support instrument as described under "Description of Credit Support", by
the subordination of one or more classes of Certificates as described under
"Description of the Certificates-Subordination", or by any combination of the
foregoing.
Each class of Certificates (other than certain Strip Certificates) will
have a Certificate Principal Balance and, unless otherwise provided in the
related Prospectus Supplement, will be entitled to payments of interest thereon
based on a specified Certificate Interest Rate. See "Principal and Interest on
the Certificates" below. The Certificate Interest Rates of the various classes
of Certificates of each Series may differ, and as to some classes may be in
excess of the lowest Net Interest Rate in a Trust Fund; however, the weighted
average of the Certificate Interest Rates on the Certificates based on their
respective Certificate Principal Balances will not exceed the lowest Net
Interest Rate. The specific percentage ownership interests of each class of
Certificates and the minimum denomination per Certificate will be set forth in
the related Prospectus Supplement. As to any Mortgage Loan, the "Net Interest
Rate" is equal to the Interest Rate minus the sum of the Administration Fee Rate
and the rate at which the Retained Interest, if any is calculated (the "Retained
Interest Rate").
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund, or designated portions
thereof, as a "real estate mortgage investment conduit" (a "REMIC") as defined
in the Code. If such an election is made with respect to a Series, one of the
classes will be designated as evidencing all "residual interests" in the related
REMIC as defined under the Code. All other classes of Certificates in such a
Series will constitute "regular interests" in the related REMIC as defined in
the Code. As to each Series, all of the Certificates of each class offered
hereby will be rated in one of the four highest rating categories by one or more
Rating Agencies. As to each Series of Certificates as to which a REMIC election
is to be made, the Trustee or the Master Servicer, if any, will be obligated to
take all actions required in order to comply with applicable laws and
regulations and, unless otherwise specified in the related Prospectus
Supplement, will be obligated to pay any prohibited transaction taxes or
contribution taxes arising out of a breach of its obligations with respect to
such compliance without any right of reimbursement therefor from the Trust Fund
or from any Certificateholder. Unless otherwise provided in the related
Prospectus Supplement, a prohibited transaction tax or contribution tax
resulting from any other cause will be charged against the related Trust Fund,
resulting in a reduction in amounts otherwise
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distributable to Certificateholders. See "Certain Federal Income Tax
Consequences-REMIC-Prohibited Transactions and Other Possible REMIC Taxes".
ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of each Series of Certificates, the Depositor
will cause the assets comprising the related Trust Fund or Mortgage Securities
being included in the related Trust Fund to be assigned to the Trustee, together
with all principal and interest received by or on behalf of the Depositor with
respect to the Trust Fund Assets after the applicable Cut-off Date, other than
principal and interest due on or before the applicable Cut-off Date and other
than any Retained Interest. The Residential Loan or Agency Security documents
described below will be delivered to the Trustee (or to the custodian
hereinafter referred to). The Trustee will, concurrently with such assignment,
deliver the Certificates to the Depositor in exchange for the Trust Fund Assets.
Each Trust Fund Asset will be identified in a schedule appearing as an exhibit
to the related Agreement. Such schedule will include, among other things,
information as to the outstanding principal balance of each Trust Fund Asset
after application of payments due on or before the Cut-off Date, the maturity of
the Mortgage Note, Cooperative Note, Manufactured Housing Contract or Agency
Securities, the Net Interest Rate, any Retained Interest, with respect to a
Series of Certificates evidencing interests in a Trust Fund including Agency
Securities, the pass-through rate on the Agency Securities, and with respect to
a Series of Certificates evidencing interests in Residential Loans, information
respecting the Interest Rate, the current scheduled payment of principal and
interest, the original Loan-to-Value Ratio and certain other information.
MORTGAGE LOANS AND MULTIFAMILY LOANS
The Depositor will, as to each Mortgage Loan (other than Mortgage Loans
underlying any Mortgage Securities) and Multifamily Loan, deliver or cause to be
delivered to the Trustee (or to the custodian) the mortgage file for each
Mortgage Loan, containing legal documents relating to such Mortgage Loan,
including the Mortgage Note endorsed without recourse to the order of the
Trustee, the Mortgage with evidence of recording indicated thereon (except for
any Mortgage not returned from the public recording office, in which case the
Depositor will deliver or cause to be delivered a copy of such Mortgage
certified by the related Unaffiliated Seller that it is a true and complete copy
of the original of such Mortgage submitted for recording) and an assignment in
recordable form of the Mortgage to the Trustee. Unless otherwise provided in the
related Prospectus Supplement, the Depositor will promptly cause the assignment
of each related Mortgage Loan and Multifamily Loan to be recorded in the
appropriate public office for real property records, except in states where, in
the opinion of counsel acceptable to the Trustee, such recording is not required
to protect the Trustee's interest in the Mortgage Loan or Multifamily Loan
against the claim of any subsequent transferee or any successor to or creditor
of the Depositor or the originator of such Mortgage Loan.
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HOME IMPROVEMENT CONTRACTS
Unless otherwise provided in the related Prospectus Supplement, the
Depositor will, as to each Home Improvement Contract, deliver or cause to be
delivered to the Trustee (or to the custodian) the note endorsed to the order of
the Trustee, with respect to secured Home Improvement Contracts, the Mortgage
with evidence of recording indicated thereon (except for any Mortgage not
returned from the public recording office, in which case the Depositor will
deliver or cause to be delivered a copy of such Mortgage certified by the
related Unaffiliated Seller that it is a true and complete copy of the original
of such Mortgage submitted for recording) and, with respect to secured Home
Improvement Contracts, an assignment in recordable form of the Mortgage to the
Trustee. Unless otherwise provided in the related Prospectus Supplement, the
Depositor will promptly cause the assignment of each related secured Home
Improvement Contract to be recorded in the appropriate public office for real
property records, except in states where, in the opinion of counsel acceptable
to the Trustee, such recording is not required to protect the Trustee's interest
in the Home Improvement Contract against the claim of any subsequent transferee
or any successor to or creditor of the Depositor or the originator of such Home
Improvement Contract. With respect to unsecured Home Improvement Contracts, the
Depositor or Unaffiliated Seller, under the related Agreement, will transfer
physical possession of the Home Improvement Contracts to the Trustee or a
designated custodian or, in the case of an Unaffiliated Seller, may retain
possession of the Home Improvement Contracts as custodian for the Trustee. In
addition, the Depositor will cause to be made, an appropriate filing of a UCC-1
financing statement in the appropriate states to give notice of the Trustee's
ownership of the Home Improvement Contracts. Unless otherwise specified in the
related Prospectus Supplement, the Home Improvement Contracts will not be
stamped or otherwise marked to reflect their assignment from the Unaffiliated
Seller or the Depositor, as the case may be, to the Trustee. Therefore, if
through negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the contracts without notice of such assignment, the
Trustee's interest in the contracts could be defeated.
COOPERATIVE LOANS
The Depositor will, as to each Cooperative Loan, deliver or cause to be
delivered to the Trustee (or to the custodian) the related Cooperative Note, the
original security agreement, the proprietary lease or occupancy agreement, the
related stock certificate and related stock powers endorsed in blank, and a copy
of the original filed financing statement together with an assignment thereof to
the Trustee in a form sufficient for filing. The Depositor will promptly cause
the assignment and financing statement of each related Cooperative Loan to be
filed in the appropriate public office, except in states where in the opinion of
counsel acceptable to the Trustee, such filing is not required to protect the
Trustee's interest in the Cooperative Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor or the originator of
such Cooperative Loan.
MANUFACTURED HOUSING CONTRACTS
Unless otherwise provided in the related Prospectus Supplement, the
Depositor will, as to each Manufactured Housing Contract, deliver or cause to be
delivered to the Trustee (or to the custodian) the original Manufactured Housing
Contract endorsed to the order of the Trustee
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and copies of documents and instruments related to each Manufactured Housing
Contract and the security interest in the Manufactured Home securing each
Manufactured Housing Contract, together with a blanket assignment to the Trustee
of the Manufactured Housing Contracts in the related Trust Fund and such
documents and instruments. Unless otherwise provided in the related Prospectus
Supplement, in order to give notice of the right, title and interest of the
Certificateholders to the Manufactured Housing Contracts, the Depositor will
cause to be executed and delivered to the Trustee a UCC-1 financing statement
identifying the Trustee as the secured party and identifying all Manufactured
Housing Contracts as collateral of the Trust Fund.
AGENCY SECURITIES
Agency Securities will be registered in the name of the Trustee or its
nominee on the books of the issuer or guarantor or its agent or, in the case of
Agency Securities issued only in book-entry form, through the Federal Reserve
System, in accordance with the procedures established by the issuer or guarantor
for registration of such certificates with a member of the Federal Reserve
System, and distributions on such securities to which the Trust Fund is entitled
will be made directly to the Trustee.
REVIEW OF RESIDENTIAL LOANS
The Trustee (or the custodian) will review the Residential Loan
documents within 45 days (or such other period specified in the Prospectus
Supplement) after receipt thereof, and the Trustee (or such custodian) will hold
such documents in trust for the benefit of the Certificateholders. Unless
otherwise specified in the related Prospectus Supplement, if any such document
is found to be missing or defective in any material respect, the Trustee (or
such custodian) shall immediately notify the Master Servicer and the Depositor,
and the Master Servicer shall immediately notify the applicable Unaffiliated
Seller. If the Unaffiliated Seller cannot cure the omission or defect within 90
days (or such other period specified in the Prospectus Supplement) after receipt
of such notice, the Unaffiliated Seller will be obligated to repurchase the
related Residential Loan from the Trustee at the Purchase Price or, in certain
cases, substitute for such Residential Loan. There can be no assurance that an
Unaffiliated Seller will fulfill this repurchase or substitution obligation.
Although the Master Servicer or Trustee is obligated to enforce such obligation
to the extent described above under "Residential Loan Program-Representations by
Unaffiliated Sellers; Repurchases", neither the Master Servicer nor the
Depositor will be obligated to repurchase or substitute for such Residential
Loan if the Unaffiliated Seller defaults on its obligation. Unless otherwise
specified in the related Prospectus Supplement, this repurchase or substitution
obligation, if applicable, constitutes the sole remedy available to the
Certificateholders or the Trustee for omission of, or a material defect in, a
constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and review the documents relating
to the Residential Loans as agent of the Trustee.
Unless otherwise provided in the related Prospectus Supplement, with
respect to Residential Loans, except as to Mortgage Loans underlying any
Mortgage Securities, in a Trust
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Fund, the Depositor will make representations and warranties as to the types and
geographical distribution of such Residential Loans and as to the accuracy in
all material respects of certain identifying information furnished to the
Trustee in respect of each such Residential Loan (e.g., original Loan-to-Value
Ratio, principal balance as of the Cut-off Date, Interest Rate and maturity). In
addition, unless otherwise provided in the related Prospectus Supplement, the
Depositor will represent and warrant that, as of the Cut-off Date for the
related Series of Certificates, no Residential Loan was currently more than 30
days delinquent as to payment of principal and interest and no Residential Loan
was 30 days or more delinquent more than once during the previous 12 months.
Upon a breach of any such representation of the Depositor that materially and
adversely affects the interests of the Certificateholders in a Residential Loan,
the Depositor will be obligated either to cure the breach in all material
respects, repurchase the Residential Loan at the Purchase Price or, if provided
in the related Prospectus Supplement, substitute for such Residential Loan.
With respect to any Series of Certificates evidencing interests in a
Trust Fund including Residential Loans as to which credit support is provided by
means of a pool insurance policy, in addition to making the representations and
warranties described above, the Depositor or the Unaffiliated Seller will, to
the extent required by the Rating Agency or Agencies, represent and warrant to
the Trustee for such Series of Certificates that no action, inaction or event
has occurred and no state of facts exists or has existed on or prior to the date
of the initial issuance of the Certificates that has resulted or will result in
the exclusion from, denial of or defense to coverage under any applicable
primary credit insurance policy, pool insurance policy, special hazard insurance
policy or bankruptcy bond, irrespective of the cause of such failure of coverage
but excluding any failure of an insurer to pay by reason of the insurer's own
breach of its insurance policy or its financial inability to pay (such
representation being referred to herein as the "insurability representation").
See "Description of Primary Insurance Coverage" and "Description of Credit
Support" herein and in the related Prospectus Supplement for information
regarding the extent of coverage under the aforementioned insurance policies. As
described in the related Prospectus Supplement, upon a breach of the
insurability representation that materially and adversely affects the interests
of the Certificateholders in a Residential Loan, the Depositor or the
Unaffiliated Seller may be obligated either to cure the breach in all material
respects or to purchase such Residential Loan at the Purchase Price, subject to
the limitations specified in the related Prospectus Supplement. The related
Prospectus Supplement may provide that the performance of the Depositor of its
obligation to repurchase Residential Loans following a breach of its
insurability representation will be ensured in the manner specified therein.
The related Prospectus Supplement may provide that, the obligation to
repurchase or, other than with respect to the insurability representation, if
applicable, to substitute Residential Loans as described above constitutes the
sole remedy available to the Certificateholders or the Trustee for any breach of
the Depositor's representations.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Pooling and Servicing Agreement. Upon the
occurrence of an Event of Default under the related Pooling and Servicing
Agreement for which the Master Servicer is responsible, the Master Servicer will
be obligated to remedy such Event of Default within the time period set forth in
the related Pooling and Servicing Agreement or be subject to termination
pursuant thereto. See
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"Description of the Certificates - Events of Default" and " - Rights Upon Event
of Default" herein.
DEPOSITS TO THE CERTIFICATE ACCOUNT
The Master Servicer or the Trustee shall, as to each Trust Fund,
establish and maintain or cause to be established and maintained a separate
Certificate Account or Certificate Accounts for the collection of payments on
the related Trust Fund Assets, which must either be (i) maintained with a
federal or state chartered depository institution, and in a manner, satisfactory
to each Rating Agency rating the Certificates of such Series at the time any
amounts are held on deposit therein or (ii) maintained with a federal or state
chartered depository institution, the deposits in which are insured by the BIF
or the SAIF (to the limits established by the FDIC) and any uninsured deposits
in which are otherwise secured such that the Certificateholders have a claim
with respect to the funds in the Certificate Account or a perfected first
priority security interest against any collateral securing such funds that is
superior to the claims of any other depositors or general creditors of the
depository institution with which the Certificate Account is maintained. The
collateral eligible to secure amounts in the Certificate Account is limited to
United States government securities and other high quality investments
("Permitted Instruments"). A Certificate Account may be maintained as an
interest bearing or non-interest bearing account, or the funds held therein may
be invested pending the distribution on each succeeding Distribution Date in
Permitted Instruments. Unless otherwise provided in the related Prospectus
Supplement, the Trustee or the Master Servicer will be entitled to receive any
such interest or other income earned on funds in the Certificate Account as
additional compensation for administration of the Trust Fund Assets. In respect
of any Series of Certificates having Distribution Dates occurring less
frequently than monthly, the Master Servicer may obtain from an obligor named in
the related Prospectus Supplement a guaranteed investment contract to assure a
specified rate of return on funds held in the Certificate Account. If permitted
by each Rating Agency rating the Certificates of such Series, a Certificate
Account may contain funds relating to more than one Series of Certificates.
In the event that a Sub-Servicer is servicing one or more Residential
Loans in a Trust Fund, the Sub-Servicer will establish and maintain a separate
account or accounts (a "Sub-Servicing Account"), which may be interest bearing
or non-interest bearing and which shall comply with the standards for
Certificate Accounts set forth above, and which is otherwise acceptable to the
Master Servicer. The Sub-Servicer is required to credit to the related
Sub-Servicing Account on a daily basis the amount of all proceeds of Residential
Loans received by the Sub-Servicer, less its servicing compensation, its
Retained Interest, if any, and unreimbursed expenses and advances to which it is
entitled pursuant to the related Sub-Servicing Agreement. As specified in the
related Prospectus Supplement, the Sub-Servicer shall remit to the Master
Servicer all funds held in the Sub-Servicing Account with respect to each
Residential Loan and any amount required to be advanced pursuant to the related
Sub-Servicing Agreement on a monthly basis.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Master
Servicer will establish and maintain a Pre-Funding Account, in the name of the
related Trustee on behalf of the related
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Certificateholders, into which the Depositor will deposit the Pre-Funded Amount
on the related Closing Date. The Pre-Funded Amount will be used by the related
Trustee to purchase Subsequent Loans from the Depositor from time to time during
the Funding Period. The Funding Period, if any, for a Trust Fund will begin on
the related Closing Date and will end on the date specified in the related
Prospectus Supplement, which in no event will be later than the date that is
three months after the Closing Date. Any amounts remaining in the Pre-Funding
Account at the end of the Funding Period will be distributed to the related
Certificateholders in the manner and priority specified in the related
Prospectus Supplement, as a prepayment of principal of the related Certificates.
PAYMENTS ON RESIDENTIAL LOANS
The Master Servicer will deposit or cause to be deposited in the
Certificate Account for each Trust Fund including Residential Loans as and when
received (or, in the case of Advances on or before the applicable Distribution
Date), unless otherwise provided in the related Agreement, the following
payments and collections received or made by or on behalf of the Master Servicer
subsequent to the Cut-off Date (other than payments due on or before the Cut-off
Date and exclusive of any amounts representing a Retained Interest):
(i) all payments on account of principal, including principal
prepayments, on the Residential Loans;
(ii) all payments on account of interest on the Residential
Loans, exclusive of any portion thereof representing interest in excess
of the Net Interest Rate (unless such excess amount is required to be
deposited pursuant to the related Agreement) and, if provided in the
related Prospectus Supplement, prepayment penalties;
(iii) all proceeds of any Primary Hazard Insurance Policies
and any special hazard insurance policy (to the extent such proceeds
are not applied to the restoration of the property or released to the
borrower in accordance with the Master Servicer's normal servicing
procedures), any Primary Credit Insurance Policy, any FHA Insurance, VA
Guarantee, any Bankruptcy Bond and any Pool Insurance Policy (as
hereinafter defined) (collectively, "Insurance Proceeds"), other than
proceeds that represent reimbursement of the Master Servicer's costs
and expenses incurred in connection with presenting claims under the
related insurance policies, and all other cash amounts received, by
foreclosure, eminent domain, condemnation or otherwise, in connection
with the liquidation of defaulted Residential Loans included in the
related Trust Fund ("Liquidation Proceeds"), together with the net
proceeds on a monthly basis with respect to any properties acquired for
the benefit of Certificateholders by deed in lieu of foreclosure or
repossession;
(iv) any Advances made as described below under "Advances";
(v) all amounts required to be transferred to the Certificate
Account from a Reserve Fund, if any, as described below under
"Subordination";
(vi) all proceeds of any Residential Loan or property in
respect thereof purchased by the Master Servicer, the Depositor, any
Sub-Servicer or any Unaffiliated Seller as
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described under "Residential Loan Program-Representations by
Unaffiliated Sellers; Repurchases" and "Description of the
Certificates-Assignment of Trust Fund Assets" above, exclusive of the
Retained Interest, if any, in respect of such Residential Loan, and all
proceeds of any Residential Loan repurchased as described under
"Termination" below;
(vii) all payments required to be deposited in the Certificate
Account with respect to any deductible clause in any blanket insurance
policy described under "Description of Primary Insurance
Coverage-Primary Hazard Insurance Policies";
(viii) any amount required to be deposited by the Trustee or
the Master Servicer in connection with losses realized on investments
of funds held in the Certificate Account;
(ix) any amounts required to be transferred to the Certificate
Account pursuant to any guaranteed investment contract;
(x) any distributions received on any Mortgage Securities
included in the related Trust Fund; and
(xi) any other amount required to be deposited in the
Certificate Account pursuant to the Agreement.
PAYMENTS ON AGENCY SECURITIES
The Agency Securities included in a Trust Fund will be registered in
the name of the Trustee so that all distributions thereon will be made directly
to the Trustee. The Trustee will deposit or cause to be deposited into the
Certificate Account for each Trust Fund including Agency Securities as and when
received, unless otherwise provided in the related Trust Agreement, all
distributions received by the Trustee with respect to the related Agency
Securities (other than payments due on or before the Cut-off Date and exclusive
of any trust administration fee and amounts representing the Retained Interest,
if any).
DISTRIBUTIONS
Distributions of principal and interest on the Certificates of each
Series will be made by or on behalf of the Trustee or the Master Servicer on the
dates (each, a "Distribution Date") and at the intervals (which may be monthly,
quarterly, semi-annual or other intervals) specified in the related Prospectus
Supplement, to the persons in whose names the Certificates are registered at the
close of business on the record date ("Record Date") specified in the Prospectus
Supplement. The amount of each distribution will be determined as of the close
of business on each Determination Date specified in the related Prospectus
Supplement. Distributions will be made either by wire transfer in immediately
available funds to the account of a Certificateholder at a bank or other entity
having appropriate facilities therefor, if such Certificateholder has so
notified the Trustee or the Master Servicer and holds Certificates in any
requisite amount specified in the related Prospectus Supplement, or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register; provided, however, that the final
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distribution in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Certificate Registrar specified in the notice to Certificateholders of such
final distribution. Unless otherwise specified in the Prospectus Supplement, all
distributions made to the holders of Certificates of any Series on each
Distribution Date will be made on a pro rata basis among the Certificateholders
of record on the next preceding Record Date (other than in respect of the final
distribution), based on the aggregate Percentage Interest represented by their
respective Certificates.
FINAL DISTRIBUTION DATE
With respect to any Series consisting of classes having sequential
priorities for distributions of principal, the "Final Distribution Date" for
each such class of Certificates is the latest Distribution Date on which the
Certificate Principal Balance thereof is expected to be reduced to zero, based
on certain assumptions, including the assumption that no prepayments or defaults
occur with respect to the related Trust Fund Assets, as further or as otherwise
specified in the related Prospectus Supplement. Since the rate of distribution
of principal of any such class of Certificates will depend upon, among other
things, the rate of payment (including prepayments) of the principal of the
Trust Fund Assets, the actual last Distribution Date for any class of
Certificates could occur significantly earlier than its Final Distribution Date.
The rate of payments on the Trust Fund Assets for any Series of Certificates
will depend upon their particular characteristics, as well as on the prevailing
level of interest rates from time to time and other economic factors, and no
assurance can be given as to the actual prepayment experience of the Trust Fund
Assets. See "Maturity and Prepayment Considerations". In addition, substantial
losses on the Trust Fund Assets in a given period, even though within the limits
of the protection afforded by the instruments described under "Description of
Credit Support", or by the Subordinate Certificates in the case of a
Senior/Subordinate Series, may cause the actual last Distribution Date of
certain classes of Certificates to occur after their Final Distribution Date.
SPECIAL DISTRIBUTIONS
With respect to any Series of Certificates with Distribution Dates
occurring at intervals less frequently than monthly, the Certificates may be
subject to special distributions under the circumstances and in the manner
described below if and to the extent provided in the related Prospectus
Supplement. If applicable, the Master Servicer will be required to make or cause
to be made special distributions allocable to principal and interest on
Certificates of a Series out of, and to the extent of, the amount available
therefor in the related Certificate Account, on the day specified in the related
Prospectus Supplement, in the amount described below if, as a result of
substantial payments of principal on the Trust Fund Assets, low rates then
available for reinvestment of payments on such Trust Fund Assets, substantial
Realized Losses or some combination thereof, and based on the assumptions
specified in the related Agreement, it is determined that the amount anticipated
to be on deposit in the Certificate Account on the next Distribution Date or on
some intervening date as provided in the related Prospectus Supplement, together
with, if applicable, the amount available to be withdrawn from any related
Reserve Fund, may be insufficient to make required distributions on the
Certificates of such Series on such Distribution Date or such intervening date
as may be provided in the related Prospectus Supplement. The amount of any
special distribution that is allocable to principal will not exceed
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the amount that would otherwise be distributed as principal on the next
Distribution Date from amounts then on deposit in the Certificate Account. All
special distributions will include interest at the applicable Certificate
Interest Rate on the amount of the special distribution allocable to principal
to the date specified in the related Prospectus Supplement.
All special distributions of principal will be made in the same
priority and manner as distributions in respect of principal on the Certificates
on a Distribution Date. Special distributions of principal with respect to
Certificates of the same class will be made on a pro rata basis. Notice of any
special distributions will be given by the Master Servicer or Trustee prior to
the special distribution date.
PRINCIPAL AND INTEREST ON THE CERTIFICATES
Each class of Certificates (other than certain classes of Strip
Certificates) may have a different Certificate Interest Rate, which may be a
fixed, variable or adjustable Certificate Interest Rate. The related Prospectus
Supplement will specify the Certificate Interest Rate for each class, or in the
case of a variable or adjustable Certificate Interest Rate, the method for
determining the Certificate Interest Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
As to each Series of Certificates, with respect to each Distribution
Date, interest accruing with respect to each Certificate (the "Accrued
Certificate Interest"), other than a Strip Certificate, will be equal to
interest on the outstanding Certificate Principal Balance thereof immediately
prior to the Distribution Date, at the applicable Certificate Interest Rate, for
a period of time corresponding to the intervals between the Distribution Dates
for such Series. As to each Strip Certificate, the Stripped Interest with
respect to any Distribution Date will equal the amount described in the related
Prospectus Supplement for the related period. Unless otherwise specified in the
related Prospectus Supplement, the Accrued Certificate Interest on each
Certificate of a Series will be reduced, in the event of shortfalls in
collections of interest resulting from prepayments of Residential Loans that are
not covered by payments by the Master Servicer out of its servicing fees or by
application of prepayment penalties, with such shortfall allocated among all of
the Certificates of that Series in proportion to the respective amounts of
Accrued Certificate Interest that would have been payable thereon absent such
reductions and absent any delinquencies or losses. See "Yield Considerations"
and "Maturity and Prepayment Considerations". Unless otherwise provided in the
related Prospectus Supplement, neither the Trustee, the Master Servicer nor the
Depositor will be obligated to fund shortfalls in interest collections resulting
from prepayments. Unless otherwise specified in the related Prospectus
Supplement, distributions of Accrued Certificate Interest that would otherwise
be payable on any class of Accrual Certificates of a Series will be added to the
Certificate Principal Balance thereof on each Distribution Date until the
Certificate Principal Balance of the Certificates of all other classes of such
Series having a Final Distribution Date prior to the Final Distribution Date of
such class of Accrual Certificates has been reduced to zero, and actual payments
of interest on the Accrual Certificates will be made thereafter. See "Final
Distribution Date".
Unless the related Prospectus Supplement provides otherwise, each
Certificate will have a "Certificate Principal Balance" that, at any time, will
equal the maximum amount that the
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holder will be entitled to receive in respect of principal out of the future
cash flow on the Trust Fund Assets and other assets included in the related
Trust Fund. With respect to each such Certificate, distributions generally will
be applied to accrued and currently payable interest thereon, and thereafter to
principal. The outstanding Certificate Principal Balance of a Certificate will
be reduced to the extent of distributions in respect of principal thereon, and
in the case of Certificates evidencing interests in a Trust Fund that includes
Residential Loans, by the amount of any Realized Losses, as defined below,
allocated thereto.
Unless the related Prospectus Supplement provides otherwise, the
initial aggregate Certificate Principal Balance of all classes of Certificates
of a Series will equal the aggregate outstanding principal balance of the
related Trust Fund Assets as of the applicable Cut-off Date. The initial
aggregate Certificate Principal Balance of a Series and each class thereof will
be specified in the related Prospectus Supplement. Alternatively, the initial
Certificate Principal Balance for a Series of Certificates may equal the initial
aggregate "Cash Flow Value" of the related Trust Fund Assets as the applicable
Cut-off Date. The aggregate Cash Flow Value of the Trust Fund Assets will be the
Certificate Principal Balance of the Certificates of such Series which, based on
certain assumptions (including the assumption that no defaults occur on the
Trust Fund Assets), can be supported by either the future scheduled payments on
the Trust Fund Assets (with the interest thereon adjusted to the Net Interest
Rate), or the proceeds of the prepayment of such Trust Fund Assets, together
with reinvestment earnings thereon, if any, at the applicable Assumed
Reinvestment Rate, and amounts available to be withdrawn from any Reserve Fund
for such Series, as further or as otherwise specified in the Prospectus
Supplement relating to a Series of Certificates. The "Assumed Reinvestment Rate"
for a Series of Certificates will be the highest rate permitted by the Rating
Agency or Agencies, or a rate insured pursuant to a guaranteed investment
contract or similar arrangement satisfactory to such Rating Agency or Agencies.
If the Assumed Reinvestment Rate is so insured, the Prospectus Supplement
relating to a Series of Certificates will set forth the terms of such
arrangement. The aggregate of the initial Cash Flow Values of the Trust Fund
Assets included in the Trust Fund for a Series of Certificates will be at least
equal to the aggregate Certificate Principal Balance of the Certificates of such
Series at the date of initial issuance thereof.
With respect to any Series as to which the initial Certificate
Principal Balance is calculated on the basis of Cash Flow Values of the Trust
Fund Assets, the amount of principal distributed for such Series on each
Distribution Date will generally be calculated on the basis of (i) the decline
in the aggregate Cash Flow Values of the Trust Fund Assets during the related
Due Period, calculated in the manner prescribed in the related Agreement, minus
(ii) with respect to any Realized Loss incurred during the related Due Period
and not covered by any of the instruments described under "Description of Credit
Support", the portion of the Cash Flow Value of the Trust Fund Assets
corresponding to such Realized Loss; or as otherwise provided in the related
Prospectus Supplement as to any such Series which is a Senior/Subordinate
Series. Unless the related Prospectus Supplement provides otherwise, the "Due
Period" applicable to any Distribution Date will commence on the second day of
the month in which the immediately preceding Distribution Date occurs, or on the
day after the Cut-off Date in the case of the first Due Period, and will end on
the first day of the month of the related Distribution Date.
Unless otherwise provided in the related Prospectus Supplement,
distributions in respect of principal will be made on each Distribution Date to
the class or classes of Certificates entitled
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thereto until the Certificate Principal Balance of such class has been reduced
to zero. In the case of a Series of Certificates that include two or more
classes of Certificates, the timing, sequential order and amount of
distributions (including distributions among multiple classes of Senior
Certificates or Subordinate Certificates) in respect of principal on each such
class shall be as provided in the related Prospectus Supplement. Distributions
in respect of principal of any class of Certificates will be made on a pro rata
basis among all of the Certificates of such class.
AVAILABLE DISTRIBUTION AMOUNT
Unless otherwise specified in the related Prospectus Supplement, all
distributions on the Certificates of each Series on each Distribution Date will
be made from the following amounts (collectively, the "Available Distribution
Amount"):
(i) the total amount of all cash on deposit in the related
Certificate Account as of the corresponding Determination Date
exclusive of:
(a) all monthly payments collected but due during a
Due Period subsequent to the applicable Due Period;
(b) all prepayments and any related prepayment
penalties, and other unscheduled recoveries of principal and
related payments of interest thereon, received subsequent to
the related Prepayment Period; and
(c) all other amounts in the Certificate Account
which are payable or reimbursable to the Depositor, the Master
Servicer or the Trustee with respect to such Distribution
Date;
(ii) if so provided in the related Prospectus Supplement, any
Advances made with respect to such Distribution Date;
(iii) if so provided in the related Prospectus Supplement, any
payments in respect of interest shortfalls resulting from principal
prepayments;
(iv) if so provided in the related Prospectus Supplement, all
net income received in connection with the operation of any Residential
Property acquired on behalf of the Certificateholders through deed in
lieu of foreclosure or repossession; and
(v) if the related Prospectus Supplement so provides, interest
or reinvestment income on amounts on deposit in the Certificate Account
(which may include income provided under a guaranteed investment
contract).
On each Distribution Date for a Series of Certificates, the Trustee or
the Master Servicer will withdraw or cause to be withdrawn from the Certificate
Account the entire Available Distribution Amount and distribute the same or
cause the same to be distributed to the related Certificateholders in the manner
set forth herein and in the Prospectus Supplement.
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SUBORDINATION
A Senior/Subordinate Series will consist of one or more classes of
Senior Certificates and one or more classes of Subordinate Certificates, as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, only the Senior Certificates will be offered
hereby. Subordination of the Subordinate Certificates of any Series will be
effected by either of the two following methods, or by any other alternative
method as may be described in the related Prospectus Supplement.
SHIFTING INTEREST SUBORDINATION
With respect to any Series of Certificates as to which credit support
is provided by shifting interest subordination, in the event of any Realized
Losses on Residential Loans not in excess of the limitations described below,
the rights of the Subordinate Certificateholders to receive distributions with
respect to the Residential Loans will be subordinate to the rights of the Senior
Certificateholders. With respect to any defaulted Residential Loan that is
finally liquidated, through foreclosure sale, disposition of the related
Residential Property if acquired on behalf of the Certificateholders by deed in
lieu of foreclosure, repossession, or otherwise, the amount of loss realized, if
any (a "Realized Loss"), will equal the portion of the unpaid principal balance
remaining after application of all principal amounts recovered (net of amounts
reimbursable to the Master Servicer for related expenses). With respect to
certain Residential Loans the principal balances of which have been reduced in
connection with bankruptcy proceedings, the amount of such reduction will be
treated as a Realized Loss.
All Realized Losses will be allocated to the Subordinate Certificates
of the related Series, until the Certificate Principal Balance of the
Subordinate Certificates thereof has been reduced to zero. Any additional
Realized Losses will be allocated to the Senior Certificates (or, if such Series
includes more than one class of Senior Certificates, either on a pro rata basis
among all of the Senior Certificates in proportion to their respective
outstanding Certificate Principal Balances or as otherwise provided in the
related Prospectus Supplement). With respect to certain Realized Losses
resulting from physical damage to Residential Properties which are generally of
the same type as are covered under a special hazard insurance policy ("Special
Hazard Losses"), the amount thereof that may be allocated to the Subordinate
Certificates of the related Series may be limited to an amount (the "Special
Hazard Subordination Amount") specified in the related Prospectus Supplement.
See "Description of Credit Support-Special Hazard Insurance Policies". If so,
any Special Hazard Losses in excess of the Special Hazard Subordination Amount
will be allocated among all outstanding classes of Certificates of the related
Series, either on a pro rata basis in proportion to their outstanding
Certificate Principal Balances, regardless of whether any Subordinate
Certificates remain outstanding, or as otherwise provided in the related
Prospectus Supplement.
Any allocation of a Realized Loss to a Certificate will be made by
reducing the Certificate Principal Balance thereof as of the Distribution Date
following the Prepayment Period in which such Realized Loss was incurred. If so
provided in the related Prospectus Supplement, in the event of a Realized Loss,
the Senior Certificateholders may be entitled to receive a distribution in
respect of principal, to be paid from and to the extent of funds otherwise
distributable to the Subordinate Certificateholders, equal to the amount, if
any, by which (i) the
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then applicable Senior Percentage (as defined below) times the Scheduled
Principal Balance (as defined below) of the related Residential Loan exceeds
(ii) the total amount of the related unscheduled recovery which is allocable to
principal (the "Unrecovered Senior Portion"). Payments to the Senior
Certificateholders in respect of any Unrecovered Senior Portion on any
Distribution Date will only be made with respect to Realized Losses incurred in
connection with Residential Loans that were finally liquidated during the
preceding Prepayment Period and will not be made as to any Special Hazard Losses
in excess of the Special Hazard Subordination Amount, if applicable. As with any
other distribution in respect of principal, any payment to the holders of Senior
Certificates attributable to an Unrecovered Senior Portion will be applied to
reduce the Certificate Principal Balance thereof. At any given time, the
percentage corresponding to the ratio of the Certificate Principal Balance of
the Senior Certificates to the Certificate Principal Balances of all of the
Certificates is the "Senior Percentage", determined in the manner set forth in
the related Prospectus Supplement. As specified in the related Prospectus
Supplement, the "Scheduled Principal Balance" of any Residential Loan as of any
date of determination is equal to the unpaid principal balance thereof as of the
date of determination, reduced by the principal portion of all monthly payments
due but unpaid as of the date of determination.
As set forth above, the rights of holders of the various classes of
Certificates of any Series to receive distributions of principal and interest is
determined by the aggregate Certificate Principal Balance of each such class.
The Certificate Principal Balance of any Certificate will be reduced by all
amounts previously distributed on such Certificate in respect of principal, and
by any Realized Losses allocated thereto. However, to the extent so provided in
the related Prospectus Supplement, holders of Senior Certificates may be
entitled to receive a disproportionately larger amount of prepayments received
in certain circumstances, which will have the effect (in the absence of
offsetting losses) of accelerating the amortization of the Senior Certificates
and increasing the respective percentage ownership interest evidenced by the
Subordinate Certificates in the related Trust Fund (with a corresponding
decrease in the Senior Percentage), as well as preserving the availability of
the subordination provided by the Subordinate Certificates. In addition, as set
forth above, Realized Losses will be first allocated to Subordinate Certificates
by reduction of the Certificate Principal Balance thereof, which will have the
effect of increasing the respective ownership interest evidenced by the Senior
Certificates in the related Trust Fund. If there were no Realized Losses or
prepayments of principal on any of the Residential Loans, the respective rights
of the holders of Certificates of any Series to future distributions would not
change.
CASH FLOW SUBORDINATION
With respect to any Series of Certificates as to which credit support
is provided by cash flow subordination, in the event of losses on the
Residential Loans not in excess of the Available Subordination Amount, the
rights of the Subordinate Certificateholders to receive distributions of
principal and interest with respect to the Residential Loans will be subordinate
to the rights of the Senior Certificateholders. The Available Subordination
Amount at any time is equal to the difference between the then applicable
Maximum Subordination Amount and the "Cumulative Subordination Payments" at such
time. At the time of any determination, Cumulative Subordination Payments equal
the aggregate of amounts paid to the Senior Certificateholders that, but for the
subordination provisions, would otherwise have been payable to the Subordinate
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Certificateholders. The Available Subordination Amount will decrease whenever
amounts otherwise payable to the Subordinate Certificateholders are paid to the
Senior Certificateholders (including amounts withdrawn from the Reserve Fund and
paid to the Senior Certificateholders), and will increase whenever there is
distributed to the Subordinate Certificateholders amounts in respect of which
subordination payments have previously been paid to the Senior
Certificateholders (which will occur only when subordination payments in respect
of delinquencies and certain other deficiencies have been recovered). The
"Maximum Subordination Amount" initially will equal a fixed percentage amount
specified in the related Prospectus Supplement of the aggregate initial
principal balance of the Residential Loans in the related Trust Fund, and will
periodically be adjusted in accordance with a formula specified in the
Prospectus Supplement.
The protection afforded to the Senior Certificateholders from the
subordination provisions described herein will be effected both by the
preferential right of the Senior Certificateholders to receive current
distributions from the Trust Fund (subject to the limitations described herein)
and by the establishment and maintenance of a cash reserve fund (the "Reserve
Fund"). The Reserve Fund may be funded by an initial cash deposit on the date of
the initial issuance of the related Series of Certificates (the "Initial
Deposit") and by deposits of amounts otherwise due on the Subordinate
Certificates to the extent set forth in the related Prospectus Supplement.
Amounts in the Reserve Fund (other than earnings thereon) will be
withdrawn for distribution to Senior Certificateholders as may be necessary to
make full distributions to such holders on a particular Distribution Date, as
described above. If on any Distribution Date, after giving effect to the
distributions to the Senior Certificateholders on such date, the amount of the
Reserve Fund exceeds the amount required to be held therein (the "Specified
Reserve Fund Balance"), such excess will be withdrawn and distributed in the
manner specified in the related Prospectus Supplement.
In the event the Reserve Fund is depleted before the Available
Subordination Amount is reduced to zero, the Senior Certificateholders will
nevertheless have a preferential right to receive current distributions from the
Trust Fund to the extent of the then Available Subordination Amount. However,
under these circumstances, should current distributions be insufficient, the
Senior Certificateholders could suffer shortfalls of amounts due to them. The
Senior Certificateholders will bear their proportionate share of any losses
realized on the Trust Fund in excess of the Available Subordination Amount.
Amounts remaining in the Reserve Fund after the Available Subordination
Amount is reduced to zero will no longer be subject to any claims or rights of
the Senior Certificateholders of such Series.
Funds in the Reserve Fund may be invested as provided in the related
Agreement in Permitted Instruments that mature according to a schedule set forth
in the related Agreement. The earnings or losses on such investments will be
applied in the manner described in the related Prospectus Supplement.
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The time necessary for the Reserve Fund to reach the Specified Reserve
Fund Balance will be affected by the prepayment, foreclosure, and delinquency
experience of the Residential Loans and therefore cannot accurately be
predicted.
SUBORDINATION AND CASH FLOW VALUES
In the event that the Certificate Principal Balances of the various
classes of Certificates comprising a Senior/Subordinate Series are based upon
the Cash Flow Value of the Residential Loans, a shortfall in amounts
distributable to Senior Certificateholders on any Distribution Date will occur
to the extent that the Senior Percentage of the decline in the Cash Flow Value
of the Residential Loans during the related Deposit Period exceeds all
collections and, if so provided in the related Prospectus Supplement, Advances
in respect of the Residential Loans, minus Accrued Certificate Interest on the
Certificate Principal Balances of the Senior Certificates for such Distribution
Date. The loss attributable to any liquidated Residential Loan shall be equal to
the excess, if any, of the Cash Flow Value of such Residential Loan over all net
proceeds recovered and allocable to principal. The "Deposit Period" with respect
to any Distribution Date is the period commencing on the day following the
Determination Date immediately preceding the related Determination Date and
ending on the related Determination Date.
Because the Cash Flow Value of a Residential Loan will never exceed the
outstanding principal balance thereof, prepayments in full and liquidations of
the Residential Loans may result in proceeds attributable to principal in excess
of the corresponding Cash Flow Value decline. Any excess will be applied to
offset losses realized during the related Deposit Period (as such losses are
described in the immediately preceding paragraph) in respect of other liquidated
Residential Loans without affecting the remaining subordination, and such excess
may, if so provided in the related Prospectus Supplement, be deposited in a
Reserve Fund for future distributions.
ADVANCES
With respect to any Series of Certificates evidencing interests in a
Trust Fund that includes Residential Loans, other than a Senior/Subordinate
Series, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer will be obligated to advance on or before each Distribution
Date, from its own funds, or from amounts held for future distribution in the
Certificate Account that are not included in the Available Distribution Amount
for such Distribution Date (any such advance, an "Advance"), in an amount equal
to the aggregate of payments of principal and interest (adjusted to the
applicable Net Interest Rate) that were due during the related Due Period and
that were delinquent (and not advanced by any Sub-Servicer) on the Determination
Date. Any amounts held for future distribution and so used shall be replaced by
the Master Servicer on or before any future Distribution Date to the extent that
funds in the Certificate Account on such Distribution Date shall be less than
payments to Certificateholders required to be made on such date. Unless
otherwise specified in a Prospectus Supplement relating to a Series of
Certificates, the obligation of the Master Servicer to make Advances will be
subject to the good faith determination of the Master Servicer that such
advances will be reimbursable from related late collections, Insurance Proceeds
or Liquidation Proceeds. See "Description of Credit Support". As specified in
the related Prospectus Supplement with respect to any Series of Certificates as
to which the Trust Fund includes
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Mortgage Securities, the Master Servicer's advancing obligations, if any, will
be pursuant to the terms of such Mortgage Securities, as may be supplemented by
the terms of the applicable Pooling and Servicing Agreement.
With respect to a Senior/Subordinate Series in which subordination is
effected through the "shifting interest" method, previously described herein,
unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will make an Advance on each Distribution Date from its own funds or
from funds held in the Certificate Account that are not included in the
Available Distribution Amount for such Distribution Date, in an aggregate amount
equal to the lesser of (a) the total of all amounts required to be distributed
on each class of Senior Certificates on such Distribution Date that remain after
applying towards such payment the entire Available Distribution Amount,
including funds otherwise payable to the Subordinate Certificateholders, and (b)
the aggregate of payments of principal and interest (adjusted to the applicable
Net Interest Rate) that were due during the related Due Period but were
delinquent on the related Determination Date and were not advanced by any
Sub-Servicer. With respect to a Senior/Subordinated Series in which
subordination is effected through the "cash flow" method previously described
herein, unless otherwise provided in the related Prospectus Supplement, the
Master Servicer may be obligated to make Advances in the manner provided in the
preceding paragraph. In either case, so long as the Certificate Principal
Balance of the Subordinate Certificates in the case of subordination effected
through the "shifting interest" method, or the Available Subordination Amount in
the case of subordination effected through the "cash flow" method, has not been
reduced to zero, the Master Servicer will be obligated to make such Advances
regardless of recoverability from the related Residential Loans. Thereafter,
such Advances are required to be made only to the extent they are deemed by the
Master Servicer to be recoverable from related late collections, Insurance
Proceeds, Liquidation Proceeds, or otherwise, unless otherwise specified in the
related Prospectus Supplement. See "Description of Primary Insurance Coverage"
and "Description of Credit Support".
If Distribution Dates for any Series of Certificates occur less
frequently than each month, Advances shall be made on the intervening dates
specified in the related Prospectus Supplement.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to Certificateholders, rather than to guarantee or insure
against losses. Unless otherwise specified in a Prospectus Supplement relating
to a Series of Certificates, Advances will be reimbursable to the Master
Servicer, without interest, out of related recoveries on the Residential Loans
respecting which such amounts were advanced, or, to the extent that the Master
Servicer shall determine that any such Advance previously made will not be
ultimately recoverable from Insurance Proceeds or Liquidation Proceeds (a
"Nonrecoverable Advance"), from any cash available in the Certificate Account.
If so specified in the related Prospectus Supplement, the obligations of the
Master Servicer to make Advances may be secured by a cash advance reserve fund
or a surety bond. Information regarding the characteristics of, and the identity
of any obligor of, any such surety bond, will be set forth in the related
Prospectus Supplement.
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STATEMENTS TO CERTIFICATEHOLDERS
Unless otherwise provided in the related Prospectus Supplement, on each
Distribution Date, the Master Servicer or the Trustee will forward or cause to
be forwarded to each Certificateholder of the related Series and to the
Depositor a statement including the following information (in the case of
information furnished pursuant to (i), (ii) and (iii) below, the amounts shall
be expressed as a dollar amount per minimum denomination Certificate):
(i) the amount of such distribution, if any, allocable to
principal, separately identifying the aggregate amount of principal
prepayments and, if applicable, related prepayment penalties received
during the related Prepayment Period;
(ii) the amount of such distribution, if any, allocable to
interest;
(iii) the amount of administration and servicing compensation
received by or on behalf of the Trustee, Master Servicer and any
Sub-Servicer with respect to such Distribution Date and such other
customary information as the Master Servicer or the Trustee deems
necessary or desirable to enable Certificateholders to prepare their
tax returns or which a Certificateholder reasonably requests for such
purpose;
(iv) if applicable, the aggregate amount of any Advances
included in such distribution and the aggregate amount of any
unreimbursed Advances as of the close of business on such Distribution
Date;
(v) the Certificate Principal Balance of a minimum
denomination Certificate, and the aggregate Certificate Principal
Balance of all of the Certificates of that Series, after giving effect
to the amounts distributed on such Distribution Date;
(vi) the number and aggregate principal balance of any
Residential Loans in the related Trust Fund (a) delinquent one month,
(b) delinquent two or more months and (c) as to which repossession or
foreclosure proceedings have been commenced;
(vii) with respect to any Residential Property acquired
through foreclosure, deed in lieu of foreclosure or repossession during
the preceding calendar month, the loan number and principal balance of
the related Residential Loan as of the close of business on the
Distribution Date in such month and the date of acquisition thereof;
(viii) the book value of any Residential Property acquired
through foreclosure, deed in lieu of foreclosure or repossession as of
the close of business on the last business day of the calendar month
preceding the Distribution Date;
(ix) the aggregate Scheduled Principal Balance and Stated
Principal Balance of the Mortgage Loans at the close of business on
such Distribution Date;
(x) in the case of Certificates with a variable Certificate
Interest Rate, the Certificate Interest Rate applicable to such
Distribution Date, as calculated in accordance with the method
specified in the Prospectus Supplement relating to such Series;
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(xi) in the case of Certificates with an adjustable
Certificate Interest Rate, for statements to be distributed in any
month in which an adjustment date occurs, the adjusted Certificate
Interest Rate applicable to the next succeeding Distribution Date;
(xii) as to any Series including one or more classes of
Accrual Certificates, the interest accrued on each such class with
respect to such Distribution Date and added to the Certificate
Principal Balance thereof;
(xiii) the amount deposited in the Reserve Fund, if any, on
such Distribution Date;
(xiv) the amount remaining in the Reserve Fund, if any, as of
the close of business on such Distribution Date, after giving effect to
distributions made on such Distribution Date;
(xv) as to any Series that includes credit support, the amount
of remaining coverage of each Insurance Instrument (as defined under
"Collection and Other Servicing Procedures") included therein as of the
close of business on such Distribution Date, or, in the case of a
Senior/Subordinate Series, information as to the remaining amount of
protection against losses afforded to the Senior Certificateholders by
the subordination provisions and information regarding any shortfalls
in payments to the Senior Certificateholder which remain outstanding;
and
(xvi) with respect to any Series of Certificates as to which
the Trust Fund includes Mortgage Securities, certain additional
information as required under the related Pooling and Servicing
Agreement or Trust Agreement, as applicable.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee will furnish or cause to be furnished a
report to every person who was a holder of record of a Certificate at any time
during such calendar year setting forth the aggregate of amounts reported
pursuant to (i), (ii) and (iii) above for such calendar year or in the event
such person was a holder of record during a portion of such calendar year, for
the applicable portion of such year.
The related Prospectus Supplement may provide that additional
information with respect to a Series of Certificates will be included in such
statements. In addition, the Master Servicer or the Trustee shall file with the
Internal Revenue Service and furnish to holders of Certificates such statements
or information as may be required by the Code or applicable procedures of the
Internal Revenue Service.
BOOK-ENTRY REGISTRATION OF CERTIFICATES
As described in the Prospectus Supplement, if not issued in fully
registered form, each class of Certificates will be registered as book-entry
certificates (the "Book-Entry Certificates"). Persons acquiring beneficial
ownership interests in the Certificates ("Security Owners") will hold their
Certificates through the Depository Trust Company ("DTC") in the United States,
or CEDEL or Euroclear (in Europe) if they are participants ("Participants") of
such systems, or
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indirectly through organizations which are Participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates which equal
the aggregate principal balance of the Certificates and will initially be
registered in the name of Cede & Co., the nominee of DTC. CEDEL and Euroclear
will hold omnibus positions on behalf of their Participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC. Citibank,
N.A. will act as depositary for CEDEL and the Brussels, Belgium branch of Morgan
Guarantee Trust Company of New York ("Morgan") will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Except as described below, no
Security Owner will be entitled to receive a physical certificate representing
such Certificate (a "Definitive Certificate"). Unless and until Definitive
Certificates are issued, it is anticipated that the only "Certificateholders" of
the Certificates will be Cede & Co., as nominee of DTC. Security Owners are only
permitted to exercise their rights indirectly through Participants and DTC.
The Security Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Security Owner's account for such purpose. In turn, the Financial Intermediary's
ownership of such Book-Entry Certificate will be recorded on the records of DTC
(or of a participating firm that acts as agent for the Financial Intermediary,
whose interest will in turn be recorded on the records of DTC, if the Security
Owner's Financial Intermediary is not a Participant and on the records of CEDEL
or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Certificates from the Trustee through DTC and Participants.
While the Certificates are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Certificates and
is required to receive and transmit distributions of principal of, and interest
on, the Certificates. Participants and indirect participants with whom Security
Owners have accounts with respect to securities are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Security Owners. Accordingly, although Security Owners will not
possess certificates, the Rules provide a mechanism by which Security Owners
will receive distributions and will be able to transfer their interest.
Security Owners will not receive or be entitled to receive certificates
representing their respective interests in the Certificates, except under the
limited circumstances described below. Unless and until Definitive Certificates
are issued, Security Owners who are not Participants may transfer ownership of
Certificates only through Participants and indirect participants by instructing
such Participants and indirect participants to transfer Certificates, by
book-entry transfer, through DTC for the account of the purchasers of such
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Similarly, the
Participants and indirect participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing Security
Owners.
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Because of time zone differences, credits of Certificates received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
Certificates settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of Certificates by or through a CEDEL Participant
(as defined herein) or Euroclear Participant (as defined herein) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlement in DTC.
Transfers between Participants will occur in accordance with the Rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
the Rules on behalf of the relevant European international clearing system by
the Relevant Depositary; however, such cross market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to the Relevant Depositary to take action to
effect final settlement on its behalf by delivering or receiving Certificates to
DTC, and making or receiving payment in accordance with normal procedures for
same day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars.
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Euroclear includes various other services, including securities lending and
borrowing and interfaces with domestic markets in several countries generally
similar to the arrangements for cross-market transfers with DTC described above.
Euroclear is operated by the Brussels, Belgium office of Morgan, under contract
with Euroclear Clearance Systems S.C., a Belgium cooperative corporation (the
"Euroclear Cooperative"). All operations are conducted by Morgan, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Euroclear Cooperative. The Euroclear
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear through
or maintain a custodial relationship with a Euroclear Participant, either
directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is
a member bank of the Federal Reserve System. As such, it is regulated and
examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede & Co. Distributions with
respect to Certificates held through CEDEL or Euroclear will be credited to the
cash accounts of CEDEL Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with the relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences-- Foreign Investors" herein. Because
DTC can only act on behalf of Financial Intermediaries, the ability of a
beneficial owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may by limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance of
the Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market since certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
Unless otherwise specified in the related Prospectus Supplement,
monthly and annual reports on the Trust Fund will be provided to Cede & Co., as
nominee of DTC, and may be made available by Cede & Co. to beneficial owners
upon request, in accordance with the rules,
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regulations and procedures creating and affecting the Depository, and to the
Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of
such beneficial owners are credited.
It is the Depositor's understanding that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the applicable Agreement only at
the direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. CEDEL or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the applicable
Agreement on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability of
the Relevant Depositary to effect such actions on its behalf through DTC. DTC
may take actions, at the direction of the related Participants, with respect to
some Certificates which conflict with actions taken with respect to other
Certificates.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
None of the Master Servicer, the Depositor or the Trustee will have any
responsibility for any aspect of the records relating, to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
COLLECTION AND OTHER SERVICING PROCEDURES
RESIDENTIAL LOANS
The Master Servicer, directly or through Sub-Servicers, will make
reasonable efforts to collect all required payments under the Residential Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to the servicing of residential loans that are comparable to
the Residential Loans and held for its own account, provided such procedures are
consistent with the related Agreement and any insurance policy, bond or other
instrument described under "Description of Primary Insurance Coverage" or
"Description of Credit Support" (any such instrument providing, or insofar as it
provides, coverage as to losses resulting from physical damage, a "Hazard
Insurance Instrument", any such instrument providing, or insofar as it provides,
coverage as to credit or other risks, a "Credit Insurance
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Instrument", and collectively, an "Insurance Instrument"). With respect to any
Series of Certificates as to which the Trust Fund includes Mortgage Securities,
the Master Servicer's servicing and administration obligations, if any, will be
pursuant to the terms of such Mortgage Securities.
In any case in which a Residential Property has been, or is about to
be, conveyed, or in the case of a multifamily Residential Property, encumbered,
by the borrower, the Master Servicer will, to the extent it has knowledge of
such conveyance, encumbrance, or proposed conveyance or encumbrance, exercise or
cause to be exercised its rights to accelerate the maturity of such Residential
Loan under any due-on-sale or due-on-encumbrance clause applicable thereto, but
only if the exercise of such rights is permitted by applicable law and will not
impair or threaten to impair any recovery under any related Insurance
Instrument. If these conditions are not met or if the Master Servicer or
Sub-Servicer reasonably believes it is unable under applicable law to enforce
such due-on-sale or due-on-encumbrance clause, the Master Servicer or
Sub-Servicer will enter into or cause to be entered into an assumption and
modification agreement with the person to whom such property has been conveyed,
encumbered or is proposed to be conveyed or encumbered, pursuant to which such
person becomes liable under the Mortgage Note, Cooperative Note, Home
Improvement Contract or Manufactured Housing Contract and, to the extent
permitted by applicable law, the borrower remains liable thereon and provided
that coverage under any Insurance Instrument with respect to such Residential
Loan is not adversely affected. The Master Servicer is also authorized to enter
into a substitution of liability agreement with such person, pursuant to which
the original borrower is released from liability and such person is substituted
as the borrower and becomes liable under the Mortgage Note, Cooperative Note or
Contract. In connection with any such assumption, the Interest Rate, the amount
of the monthly payment or any other term affecting the amount or timing of
payment on the Residential Loan may not be changed. Any fee collected by or on
behalf of the Master Servicer for entering into an assumption agreement will be
retained by or on behalf of the Master Servicer as additional compensation for
administering of the Trust Fund Assets. See "Certain Legal Aspects of
Residential Loans-Enforceability of Certain Provisions" and "-Prepayment Charges
and Prepayments". The Master Servicer shall notify the Trustee and any custodian
that any such assumption or substitution agreement has been completed.
AGENCY SECURITIES
The Trust Agreement will require the Trustee, if it has not received a
distribution with respect to any Agency Security by the fifth business day after
the date on which such distribution was due and payable pursuant to the terms of
such Agency Security, to request the issuer or guarantor, if any, of such Agency
Security to make such payment as promptly as possible and legally permitted and
to take such legal action against such issuer or guarantor as the Trustee deems
appropriate under the circumstances, including the prosecution of any claims in
connection therewith. The reasonable legal fees and expenses incurred by the
Trustee in connection with the prosecution of any such legal action will be
reimbursable to the Trustee out of the proceeds of any such action and will be
retained by the Trustee prior to the deposit of any remaining proceeds in the
Certificate Account pending distribution thereof to Certificateholders of the
related Series. In the event that the proceeds of any such legal action may be
insufficient to reimburse the Trustee for its legal fees and expenses, the
Trustee will be entitled to withdraw
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from the Certificate Account an amount equal to such expenses incurred by it, in
which event the Trust Fund may realize a loss up to the amount so charged.
REALIZATION UPON DEFAULTED RESIDENTIAL LOANS
As servicer of the Residential Loans, the Master Servicer, on behalf of
itself, the Trustee and the Certificateholders, will present claims to the
insurer under each Insurance Instrument, to the extent specified in the related
Prospectus Supplement, and will take such reasonable steps as are necessary to
receive payment or to permit recovery thereunder with respect to defaulted
Residential Loans. As set forth above, all collections by or on behalf of the
Master Servicer under any Insurance Instrument, other than amounts to be applied
to the restoration of a Residential Property or released to the borrower, are to
be deposited in the Certificate Account for the related Trust Fund, subject to
withdrawal as heretofore described. Unless otherwise provided in the Prospectus
Supplement relating to a Series of Certificates, the Master Servicer will not
receive payment under any letter of credit included as an Insurance Instrument
with respect to a defaulted Residential Loan unless all Liquidation Proceeds and
Insurance Proceeds which it deems to be finally recoverable have been realized;
however, the Master Servicer will be entitled to reimbursement for any
unreimbursed advances and reimbursable expenses thereunder.
If any property securing a defaulted Residential Loan is damaged and
proceeds, if any, from the related Hazard Insurance Instrument are insufficient
to restore the damaged property to a condition sufficient to permit recovery
under the related Credit Insurance Instrument, if any, the Master Servicer is
not required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Residential Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted Residential Loan under any related Credit
Insurance Instrument is not available for the reasons set forth in the preceding
paragraph, or for any other reason, the Master Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary, and appropriate for the type of defaulted Residential
Loan, or advisable to realize upon the defaulted Residential Loan. If the
proceeds of any liquidation of the property securing the defaulted Residential
Loan are less than the outstanding principal balance of the defaulted
Residential Loan (or the Cash Flow Value of such Mortgage Loan in the event that
Certificate Principal Balances are based upon Cash Flow Values) plus interest
accrued thereon at the Net Interest Rate plus the aggregate amount of expenses
incurred by the Master Servicer in connection with such proceedings and which
are reimbursable under the related Agreement, the Trust Fund will realize a loss
in the amount of such difference. If the Master Servicer recovers Insurance
Proceeds which, when added to any related Liquidation Proceeds and after
deduction of certain expenses reimbursable to the Master Servicer, exceed the
outstanding principal balance of the defaulted Residential Loan together with
accrued interest at the Net Interest Rate, the Master Servicer will be entitled
to withdraw or cause to be withdrawn from the Certificate Account amounts
representing its normal administration compensation on such Residential Loan. In
the event that the Master Servicer has expended its own funds to restore damaged
property and such funds have not been
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reimbursed under any Insurance Instrument, it will be entitled to withdraw from
the Certificate Account out of related Liquidation Proceeds or Insurance
Proceeds an amount equal to such expenses incurred by it, in which event the
Trust Fund may realize a loss up to the amount so charged. Because Insurance
Proceeds cannot exceed deficiency claims and certain expenses incurred by the
Master Servicer, no such payment or recovery will result in a recovery to the
Trust Fund which exceeds the principal balance of the defaulted Residential Loan
together with accrued interest thereon at the Net Interest Rate. In addition,
when property securing a defaulted Residential Loan can be resold for an amount
exceeding the outstanding principal balance of the related Residential Loan
together with accrued interest and expenses, it may be expected that, if
retention of any such amount is legally permissible, the insurer will exercise
its right under any related pool insurance policy to purchase such property and
realize for itself any excess proceeds. See "Description of Primary Insurance
Coverage" and "Description of Credit Support".
With respect to collateral securing a Cooperative Loan, any prospective
purchaser will generally have to obtain the approval of the board of directors
of the relevant Cooperative before purchasing the shares and acquiring rights
under the proprietary lease or occupancy agreement securing that Cooperative
Loan. See "Certain Legal Aspects of Residential Loans-Foreclosure on
Cooperatives". This approval is usually based on the purchaser's income and net
worth and numerous other factors. The necessity of acquiring such approval could
limit the number of potential purchasers for those shares and otherwise limit
the Master Servicer's ability to sell, and realize the value of, those shares.
RETAINED INTEREST, ADMINISTRATION COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in any of the Trust Fund Assets. If
so, the Retained Interest will be established on a loan-by-loan or
security-by-security basis and will be specified in the related Agreement or in
an exhibit to the related Agreement. A Retained Interest in a Trust Fund Asset
represents a specified portion of the interest payable thereon. The Retained
Interest will be deducted from related payments as received and will not be part
of the related Trust Fund. Unless otherwise provided in the related Prospectus
Supplement, any partial recovery of interest on a Residential Loan, after
deduction of all applicable administration fees, will be allocated between
Retained Interest, if any, and interest at the Net Interest Rate on a pro rata
basis.
Unless otherwise specified in the related Prospectus Supplement, the
primary administration compensation of the Master Servicer (or in the case of a
Trust Fund consisting of Agency Securities, the Trustee) with respect to a
Series of Certificates will come from the monthly payment to it, with respect to
each interest payment on a Trust Fund Asset, at a rate equal to one-twelfth of
the difference between the Interest Rate and the sum of the Net Interest Rate
and the Retained Interest Rate, if any (the "Administration Fee Rate"), times
the scheduled principal balance of such Trust Fund Asset. Notwithstanding the
foregoing, with respect to a Series of Certificates as to which the Trust Fund
includes Mortgage Securities, the compensation payable to the Master Servicer or
Manager for servicing and administering such Mortgage Securities on behalf of
the holders of such Certificates may be based on a percentage per annum
described in the related Prospectus Supplement of the outstanding balance of
such Mortgage Securities and may be retained from distributions thereon, if so
specified in the related
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Prospectus Supplement. Any Sub-Servicer will receive a portion of the Master
Servicer's primary compensation as its sub-servicing compensation. Since any
Retained Interest and the primary compensation of the Master Servicer (or the
Trustee) are percentages of the outstanding principal balance of each Trust Fund
Asset, such amounts will decrease as the Trust Fund Assets amortize.
As additional compensation in connection with a Series of Certificates
relating to Residential Loans, the Master Servicer or the Sub-Servicers, if any,
will retain all assumption fees and late payment charges, if any, to the extent
collected from borrowers, and, if so provided in the related Prospectus
Supplement, any prepayment fees collected from the borrowers and any excess
recoveries realized upon liquidation of a defaulted Residential Loan. Unless
otherwise provided in the related Prospectus Supplement, any interest or other
income that may be earned on funds held in the Certificate Account pending
monthly, quarterly, semiannual or other periodic distributions, as applicable,
or any Sub-Servicing Account may be paid as additional compensation to the
Trustee, the Master Servicer or the Sub-Servicers, as the case may be.
With respect to a Series of Certificates relating to Residential Loans,
the Master Servicer will pay from its administration compensation certain
expenses incurred in connection with its servicing of the Residential Loans,
including, without limitation, amounts payable to any Sub-Servicer, payment of
the premiums and fees associated with any Pool Insurance Policy, special hazard
insurance policy, Bankruptcy Bond or, to the extent specified in the related
Prospectus Supplement, other insurance policy or credit support, payment of the
fees and disbursements of the Trustee and independent accountants, and payment
of expenses incurred in connection with distributions and reports to
Certificateholders, and payment of any other expenses as described in the
related Prospectus Supplement.
It is anticipated that the administration compensation will in all
cases exceed such expenses. The Master Servicer is entitled to reimbursement for
certain expenses incurred by it in connection with the liquidation of defaulted
Residential Loans, including under certain circumstances reimbursement of
expenditures incurred by it in connection with the restoration of Residential
Properties, such right of reimbursement being prior to the rights of
Certificateholders to receive any related Liquidation Proceeds. The Master
Servicer is also entitled to reimbursement from the Certificate Account for
Advances, if applicable. With respect to a Series of Certificates relating to
Agency Securities, the Trustee shall pay all expenses incurred in administration
thereof, subject to the limitations described in the related Prospectus
Supplement.
EVIDENCE AS TO COMPLIANCE
Each Agreement will generally provide that on or before a specified
date in each year, beginning with the first such date that occurs at least six
months after the Cut-off Date, the Master Servicer, in the case of a Pooling and
Servicing Agreement, or the Trustee, in the case of a Trust Agreement, at its
expense shall cause a firm of independent public accountants (who may also
render other services to the Master Servicer, the Depositor, the Trustee or any
affiliate thereof) which is a member of the American Institute of Certified
Public Accountants to furnish a statement to the Depositor and, in the case of a
Pooling and Servicing Agreement, to the
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Trustee, to the effect that such firm as part of their examination of the
financial statements of the Master Servicer or the Trustee, as the case may be,
has performed tests in accordance with generally accepted accounting principles
regarding the records and documents relating to residential loans or agency
securities serviced and that their examination disclosed no exceptions that, in
their opinion, were material. In rendering such statement, such firm may rely,
as to matters relating to direct servicing of Residential Loans by
Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with generally accepted accounting principles in the
residential loan servicing industry (rendered within one year of such statement)
of independent public accountants with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Depositor and, in
the case of a Pooling and Servicing Agreement, to the Trustee, on or before a
specified date in each year, of an annual statement signed by two officers of
the Master Servicer, in the case of a Pooling and Servicing Agreement, or of the
Trustee, in the case of a Trust Agreement, to the effect that, to the best of
such officers' knowledge, the Master Servicer or the Trustee, as the case may
be, has fulfilled its obligations under such Agreement throughout the preceding
year.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE
THE MASTER SERVICER
The Master Servicer under each Pooling and Servicing Agreement will be
identified in the related Prospectus Supplement. Each such Pooling and Servicing
Agreement will provide that the Master Servicer may resign from its obligations
and duties under the Pooling and Servicing Agreement with the prior written
approval of the Depositor and the Trustee and shall resign upon a determination
that its duties thereunder are no longer permissible under applicable law. No
such resignation will become effective until a successor master servicer meeting
the eligibility requirements set forth in the Pooling and Servicing Agreement
has assumed, in writing, the Master Servicer's obligations and responsibilities
under the Pooling and Servicing Agreement.
Each Pooling and Servicing Agreement will further provide that neither
the Master Servicer nor any director, officer, employee, or agent of the Master
Servicer shall be under any liability to the related Trust Fund or
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Pooling and Servicing Agreement, or for
errors in judgment; provided, however, that neither the Master Servicer nor any
such person shall be protected against any liability for any breach of
warranties or representations made in the Pooling and Servicing Agreement or
against any specific liability imposed on the Master Servicer by the terms of
the Pooling and Servicing Agreement or by reason of willful misfeasance, bad
faith or gross negligence in the performance of duties thereunder or by reason
of reckless disregard of obligations and duties thereunder. The Master Servicer
and any director, officer, employee or agent of the Master Servicer may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any person respecting any matters arising under the related Pooling
and Servicing Agreement. Each Pooling and Servicing Agreement will further
provide that the Master Servicer and any director, officer, employee or agent of
the Master Servicer will be entitled to indemnification by the Trust Fund and
will be held harmless against any loss, liability, or expense incurred in
connection with any legal action
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relating to the Pooling and Servicing Agreement or the Certificates, the Pool
Insurance Policy, the special hazard insurance policy and the Bankruptcy Bond,
if any, other than any loss, liability, or expense related to any specific
Residential Loan or Residential Loans (except any such loss, liability, or
expense otherwise reimbursable pursuant to the Pooling and Servicing Agreement)
and any loss, liability, or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties thereunder or by
reason of reckless disregard of obligations and duties thereunder. In addition,
each Pooling and Servicing Agreement will provide that the Master Servicer will
be under no obligation to appear in, prosecute, or defend any legal action which
is not incidental to its duties under the Pooling and Servicing Agreement and
which in its opinion may involve it in any expense or liability. The Master
Servicer may, however, in its discretion undertake any such action which it may
deem necessary or desirable with respect to the Pooling and Servicing Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund and the Master Servicer will be entitled to be
reimbursed therefor out of the Certificate Account, such right of reimbursement
being prior to the rights of Certificateholders to receive any amount in the
Certificate Account.
Any entity into which the Master Servicer may be merged, consolidated
or converted, or any entity resulting from any merger, consolidation or
conversion to which the Master Servicer is a party, or any entity succeeding to
the business of the Master Servicer, will be the successor of the Master
Servicer under each Pooling and Servicing Agreement, provided that the successor
or surviving entity meets the qualifications specified in the related Prospectus
Supplement.
If the Prospectus Supplement so provides, the Master Servicer's duties
may be terminated upon payment of a termination fee as specified therein, and
the Master Servicer may be replaced with a successor meeting the qualifications
specified in the Prospectus Supplement.
THE DEPOSITOR
Each Pooling and Servicing Agreement and Trust Agreement will provide
that neither the Depositor nor any director, officer, employee, or agent of the
Depositor shall be under any liability to the related Trust Fund or
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to such Agreement, or for errors in judgment;
provided, however, that neither the Depositor nor any such person shall be
protected against any liability for any breach of warranties or representations
made in the Agreement or against any specific liability imposed on the Depositor
by the terms of the Agreement or by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. The Depositor and any
director, officer, employee or agent of the Depositor may rely in good faith on
any document of any kind prima facie properly executed and submitted by any
person respecting any matters arising under the related Agreement. Each
Agreement will further provide that the Depositor and any director, officer,
employee or agent of the Depositor will be entitled to indemnification by the
Trust Fund and will be held harmless against any loss, liability, or expense
incurred in connection with any legal action relating to the Agreement or the
Certificates, the Pool Insurance Policy, the special hazard insurance policy and
the
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Bankruptcy Bond, if any, or the Agency Securities, if any, other than any loss,
liability, or expense related to any specific Residential Loan or Residential
Loans (except any such loss, liability, or expense otherwise reimbursable
pursuant to the Agreement) and any loss, liability, or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties thereunder or by reason of reckless disregard of obligations and
duties thereunder. In addition, each Agreement will provide that the Depositor
will be under no any obligation to appear in, prosecute, or defend any legal
action which is not incidental to its duties under such Agreement and which in
its opinion may involve it in any expense or liability. The Depositor may,
however, in its discretion undertake any such action which it may deem necessary
or desirable with respect to the related Agreement and the rights and duties of
the parties thereto and the interests of the Certificateholders thereunder. In
such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund,
and the Depositor will be entitled to be reimbursed therefor out of the
Certificate Account, such right of reimbursement being prior to the rights of
Certificateholders to receive any amount in the Certificate Account.
Any entity into which the Depositor may be merged, consolidated or
converted, or any entity resulting from any merger, consolidation or conversion
to which the Depositor is a party, or any entity succeeding to the business of
the Depositor will be the successor of the Depositor under each Agreement.
THE TRUSTEE
The Trustee for any Series of Certificates will be a corporation
possessing corporate trust powers having a combined capital and surplus of at
least $50,000,000 and subject to supervision or examination by federal or state
authority and identified in the related Prospectus Supplement. The commercial
bank or trust company serving as Trustee may have normal banking relationships
with the Depositor and its affiliates and the Master Servicer, if any, and its
affiliates. For the purpose of meeting the legal requirements of certain local
jurisdictions, the Depositor and the Trustee acting jointly shall have the power
to appoint co-trustees or separate trustees of all or any part of the Trust
Fund. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series shall be conferred or imposed upon the Trustee and such separate
trustee or co-trustee jointly, or, in any jurisdiction in which the Trustee
shall be incompetent or unqualified to perform certain acts, singly upon such
separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time, in which event the Depositor will
be obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent, incapable of acting or a receiver
or similar person shall be appointed to take control of its affairs. In such
circumstances, the Depositor will be obligated to appoint a successor Trustee.
The holders of Certificates evidencing not less than 51% of the Percentage
Interests of any Series of Certificates may at any time remove the Trustee and
appoint a successor Trustee by written instrument in accordance with additional
procedures set forth in the related Agreement. Any resignation or removal of the
Trustee and appointment of a successor Trustee does not become effective until
acceptance of the appointment by a successor Trustee.
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DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates, any Trust Fund Asset or related
document other than the certificate of authentication, and does not assume any
responsibility for their correctness. The Trustee under any Agreement is not
accountable for the use or application by or on behalf of the Master Servicer of
any funds paid to the Master Servicer in respect of the Certificates, the Trust
Fund Assets, or deposited into or withdrawn from the Certificate Account or any
other account by or on behalf of the Depositor or the Master Servicer. If no
Event of Default (as hereinafter defined) has occurred and is continuing, the
Trustee is required to perform only those duties specifically required under the
related Agreement. However, upon receipt of the various certificates, reports or
other instruments required to be furnished to it under an Agreement, the Trustee
is required to examine such documents and to determine whether they conform to
the requirements of the Agreement.
Each Agreement will further provide that neither the Trustee nor any
director, officer, employee, or agent of the Trustee shall be under any
liability to the related Trust Fund or Certificateholders for any action taken
or for refraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the
Trustee nor any such person shall be protected against specific liability
imposed on the Trustee by the terms of the Agreement or by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. The Trustee and any director, officer, employee or agent of the
Trustee may rely in good faith on any document of any kind prima facie properly
executed and submitted by any person respecting any matters arising under the
related Agreement. Each Agreement will further provide that the Trustee and any
director, officer, employee or agent of the Trustee will be entitled to
indemnification by the Trust Fund and will be held harmless against any loss,
liability, or expense incurred in connection with any legal action relating to
the Agreement, the Certificates or the Agency Securities, if any other than any
loss, liability, or expense incurred by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder.
DEFICIENCY EVENTS
With respect to each Series of Certificates with Distribution Dates
occurring at intervals less frequently than monthly, and with respect to each
Series of Certificates including two or more classes with sequential priorities
for distribution of principal, the following provisions will apply unless
otherwise specified in the related Prospectus Supplement.
A deficiency event (a "Deficiency Event") with respect to the
Certificates of any such Series is the inability to distribute to holders of one
or more classes of Certificates of such Series, in accordance with the terms
thereof and the related Agreement, any distribution of principal or interest
thereon when and as distributable, in each case because of the insufficiency for
such purpose of the funds then held in the related Trust Fund.
Upon the occurrence of a Deficiency Event, the Trustee or Master
Servicer, as set forth in the related Prospectus Supplement, will be required to
determine whether or not the
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application on a monthly basis (regardless of frequency of regular Distribution
Dates) of all future scheduled payments on the Residential Loans included in the
related Trust Fund and other amounts receivable with respect to such Trust Fund
towards payments on such Certificates in accordance with the priorities as to
distributions of principal and interest set forth in such Certificates will be
sufficient to make distributions of interest at the applicable Certificate
Interest Rates and to distribute in full the principal balance of each such
Certificate on or before the latest Final Distribution Date of any outstanding
Certificates of such Series.
The Trustee or Master Servicer will obtain and rely upon an opinion or
report of a firm of independent accountants of recognized national reputation as
to the sufficiency of the amounts receivable with respect to such Trust Fund to
make such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Prior to making any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
In the event that the Trustee or Master Servicer makes a positive
determination, the Trustee or Master Servicer will apply all amounts received in
respect of the related Trust Fund (after payment of expenses of the Trust Fund)
to distributions on the Certificates of such Series in accordance with their
terms, except that such distributions shall be made monthly and without regard
to the amount of principal that would otherwise be distributable on any
Distribution Date. Under certain circumstances following such positive
determination, the Trustee or Master Servicer may resume making distributions on
such Certificates expressly in accordance with their terms.
If the Trustee or Master Servicer is unable to make the positive
determination described above, the Trustee or Master Servicer will apply all
amounts received in respect of the related Trust Fund (after payment of
expenses) to monthly distributions on the Certificates of such Series pro rata,
without regard to the priorities as to distribution of principal set forth in
such Certificates, and such Certificates will, to the extent permitted by
applicable law, accrue interest at the highest Certificate Interest Rate borne
by any Certificate of such Series, or in the event any class of such Series
shall have an adjustable or variable Certificate Interest Rate, at the weighted
average Certificate Interest Rate, calculated on the basis of the maximum
Certificate Interest Rate applicable to the class having the initial Certificate
Principal Balance of the Certificates of that class. In such event, the holders
of Certificates evidencing a majority of the Voting Rights may direct the
Trustee to sell the related Trust Fund, any such direction being irrevocable and
binding upon the holders of all Certificates of such Series and upon the owners
of any residual interests in such Trust Fund. In the absence of such a
direction, the Trustee may not sell all or any portion of the Trust Fund.
EVENTS OF DEFAULT
Events of default ("Events of Default") under each Pooling and
Servicing Agreement will generally consist of (i) any failure by the Master
Servicer to distribute or cause to be distributed to Certificateholders any
required payment which continues unremedied for five days after the giving of
written notice of such failure to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer, the Depositor and the Trustee by the
holders of Certificates evidencing not less than 25% of the Percentage Interests
in the related Trust Fund; (ii) any
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failure by the Master Servicer duly to observe or perform in any material
respect any of its other covenants or agreements in the Agreement which
continues unremedied for sixty days after the giving of written notice of such
failure to the Master Servicer by the Trustee or the Depositor, or to the Master
Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Percentage Interests in the related Trust
Fund; and (iii) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings and certain actions by or on
behalf of the Master Servicer indicating its insolvency or inability to pay its
obligations. A default pursuant to the terms of any Mortgage Securities included
in any Trust Fund will not constitute an Event of Default under the related
Pooling and Servicing Agreement.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under a Pooling and Servicing Agreement
remains unremedied, the Depositor or the Trustee may, and at the direction of
holders of Certificates evidencing not less than 25% of the Percentage Interests
shall, by notice in writing to the Master Servicer terminate all of the rights
and obligations of the Master Servicer under the Pooling and Servicing Agreement
and in and to the Residential Loans and the proceeds thereof. Upon receipt by
the Master Servicer of such written notice, all authority and power of the
Master Servicer under this Pooling and Servicing Agreement shall pass to and be
vested in the Trustee, and the Trustee shall be authorized and empowered to
execute and deliver, on behalf of the Master Servicer, as attorney-in-fact, or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
termination. Upon receipt by the Master Servicer of notice of termination, the
Trustee will succeed to all the responsibilities, duties and liabilities of the
Master Servicer under the Pooling and Servicing Agreement (except that if the
Trustee is prohibited by law from obligating itself to make advances regarding
delinquent Residential Loans, then the Trustee will not be so obligated) and
will be entitled to similar compensation arrangements. In the event that the
Trustee is unwilling, it may, or if it is unable or if the holders of
Certificates evidencing not less than 25% of the Percentage Interests request in
writing, it shall appoint, or petition a court of competent jurisdiction for the
appointment of, a residential loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the Master Servicer under the Pooling
and Servicing Agreement. Pending such appointment, the Trustee is obligated to
act in such capacity. The Trustee and such successor may agree upon the
administration compensation to be paid, which in no event may be greater than
the compensation to the Master Servicer under the Pooling and Servicing
Agreement.
No Certificateholder will have the right under any Pooling and
Servicing Agreement to institute any proceeding with respect thereto unless: (i)
such holder previously has given to the Trustee written notice of an Event of
Default or of a default by the Depositor or the Trustee in the performance of
any obligation under the Pooling and Servicing Agreement, and of the continuance
thereof; (ii) the holders of Certificates evidencing not less than 25% of the
Percentage Interests have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred thereby; and (iii) the Trustee for sixty days after
receipt of such notice, request and offer of indemnity has neglected or refused
to institute any such proceeding. The Trustee, however, is under no obligation
to
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exercise any of the trusts or powers vested in it by any Pooling and Servicing
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct, or defend any litigation thereunder or in relation thereto
at the request, order or direction of any of the holders of Certificates covered
by such Pooling and Servicing Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
AMENDMENT
Each Agreement may be amended by the Depositor, the Trustee and, in the
case of a Pooling and Servicing Agreement, the Master Servicer, (i) to cure any
ambiguity, (ii) to correct or supplement any provision therein which may be
inconsistent with any other provision therein, (iii) to make any other
provisions with respect to matters or questions arising under the Agreement and
(iv) if such amendment, as evidenced by an opinion of counsel, is reasonably
necessary to comply with any requirements imposed by the Code (or any successor
or mandatory statutes) or any temporary or final regulation, revenue ruling,
revenue procedure or other written official announcement or interpretation
relating to federal income tax law or any proposed such action which, if made
effective, would apply retroactively to the Trust Fund at least from the
effective date of such amendment, each without the consent of any of the
Certificateholders of the related Series, provided that such action (other than
an amendment described in (iv) above) will not adversely affect in any material
respect the interests of any holder of the Certificates covered by the
Agreement. Each Agreement may also be amended, subject to certain restrictions
to continue favorable tax treatment of the entity by the Depositor, the Trustee
and, in the case of a Pooling and Servicing Agreement the Master Servicer, with
the consent of the holders of Certificates evidencing not less than 51% of the
Percentage Interests of the related Series for any purpose; provided, however,
that no such amendment may (a) reduce in any manner the amount of, or delay the
timing of, payments received on Trust Fund Assets which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, or (b) reduce the aforesaid percentage of Percentage Interests
required for the consent to any such amendment without the consent of the
holders of all Certificates of the related Series then outstanding.
TERMINATION
The obligations created by the Agreement for each Series of
Certificates will terminate upon payment to the Certificateholders of that
Series of all amounts held in the Certificate Account and required to be paid to
the Certificateholders pursuant to such Agreement, following the final payment
or other liquidation, including the disposition of all property acquired upon
foreclosure or repossession, of the last Trust Fund Asset remaining in the
related Trust Fund or, the purchase of all of the assets of the Trust Fund by
the party entitled to effect such termination, under the circumstances and in
the manner set forth in the related Prospectus Supplement, whichever occurs
first. In no event, however, will the trust created by the Agreement continue
beyond the period specified in the related Prospectus Supplement. Written notice
of termination of the Agreement will be given to each Certificateholder, and the
final distribution will be made only upon surrender and cancellation of the
Certificates at an office or agency appointed by the Trustee which will be
specified in the notice of termination.
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Any such purchase of assets of the Trust Fund shall be made at a price
equal to (a) in the case of a Series of Certificates evidencing interests in a
Trust Fund that includes Residential Loans, the sum of (i) 100% of the unpaid
principal balance of each outstanding Residential Loan (net of any unreimbursed
Advances attributable to principal) as of the date of such purchase plus accrued
interest thereon at the Net Interest Rate to the first day of the month of such
purchase, plus (ii) the appraised value of any property acquired in respect of
any defaulted Residential Loan (but not more than the unpaid principal balance
of that Residential Loan) together with accrued interest at the applicable Net
Interest Rate to the first day of the month of such purchase less the good faith
estimate of the Master Servicer of liquidation expenses to be incurred in
connection with its disposal thereof, and (b) in the case of a Series of
Certificates evidencing interests in a Trust Fund that includes Agency
Securities or Mortgage Securities, the sum of 100% of the unpaid principal
balance of each outstanding Trust Fund Asset as of the day of such purchase plus
accrued interest thereon at the Net Interest Rate to the first day of the month
of such purchase, or at such other price as may be specified in the related
Prospectus Supplement. The exercise of the right to purchase the assets of the
Trust Fund as set forth in the preceding paragraph will effect early retirement
of the Certificates of that Series.
VOTING RIGHTS
If so provided in the related Agreement, a provider of credit support
may be entitled to direct certain actions of the Master Servicer and the Trustee
or to exercise certain rights of the Master Servicer, the Trustee or the holders
of Certificates.
DESCRIPTION OF PRIMARY INSURANCE COVERAGE
If provided in the related Prospectus Supplement, each Residential Loan
will be covered by a Primary Hazard Insurance Policy (as defined herein) and, if
required as described in the related Prospectus Supplement, a Primary Credit
Insurance Policy. In addition, if provided in the related Prospectus Supplement,
a Trust Fund may include any combination of a Pool Insurance Policy, a special
hazard insurance policy, a Bankruptcy Bond or another form of credit support, as
described under "Description of Credit Support".
The following is only a brief description of certain insurance policies
and does not purport to summarize or describe all of the provisions of these
policies. Such insurance is subject to underwriting and approval of individual
Residential Loans by the respective insurers.
PRIMARY CREDIT INSURANCE POLICIES
If provided in the related Prospectus Supplement and as set forth under
"Description of the Certificates-Realization Upon Defaulted Residential Loans",
the Master Servicer will maintain or cause to be maintained in accordance with
the underwriting standards adopted by the Depositor a Primary Credit Insurance
Policy with respect to each Residential Loan (other than Multifamily Loans, FHA
Loans, and VA Loans) for which such insurance is required. While the terms and
conditions of Primary Credit Insurance Policies differ, each Primary Credit
Insurance Policy generally will cover losses up to an amount equal to the excess
of the outstanding principal balance of a defaulted Residential Loan (plus
accrued and unpaid interest
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thereon and certain approved expenses) over a specified percentage of the
Collateral Value of the related Residential Property.
The Master Servicer will cause to be paid the premium for each Primary
Credit Insurance Policy on a timely basis. The Master Servicer, or the related
Sub-Servicer, if any, will exercise its best reasonable efforts to be named the
insured or a loss payee under any Primary Credit Insurance Policy. The ability
to assure that insurance proceeds are appropriately applied may be dependent
upon its being so named, or upon the extent to which information in this regard
is furnished by borrowers. All amounts collected by the Master Servicer under
any such policy will be deposited in the Certificate Account. The Master
Servicer will not cancel or refuse to renew any such Primary Credit Insurance
Policy in effect at the time of the initial issuance of the Certificates that is
required to be kept in force under the related Agreement unless the Master
Servicer uses its best efforts to obtain a replacement Primary Credit Insurance
Policy for such canceled or nonrenewed policy maintained with an insurer the
claims-paying ability of which is acceptable to the Rating Agency or Agencies
for pass-through certificates having the same rating as the Certificates on
their date of issuance.
As conditions precedent to the filing or payment of a claim under a
Primary Credit Insurance Policy, the insured typically will be required, in the
event of default by the borrower, among other things, to: (i) advance or
discharge (a) hazard insurance premiums and (b) as necessary and approved in
advance by the insurer, real estate taxes (if applicable), protection and
preservation expenses and foreclosure and related costs; (ii) in the event of
any physical loss or damage to the Residential Property, have the Residential
Property restored to at least its condition at the effective date of the Primary
Credit Insurance Policy (ordinary wear and tear excepted); and (iii) tender to
the insurer good and merchantable title to, and possession of, the Residential
Property.
FHA INSURANCE AND VA GUARANTEES
Residential Loans designated in the related Prospectus Supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1934, as amended. Certain Residential Loans will be
insured under various FHA programs including the standard FHA 203(b) program to
finance the acquisition of one- to four-family housing units, the FHA 245
graduated payment mortgage program and the FHA Title I Program. These programs
generally limit the principal amount and interest rates of the mortgage loans
insured. The Prospectus Supplement for Certificates of each Series evidencing
interests in a Trust Fund including FHA Loans will set forth additional
information regarding the regulations governing the applicable FHA insurance
programs. Except as otherwise specified in the related Prospectus Supplement,
the following describes FHA insurance programs and regulations as generally in
effect with respect to FHA Loans.
The insurance premiums for FHA Loans are collected by lenders approved
by the Department of Housing and Urban Development ("HUD") or by the Master
Servicer or any SubServicer and are paid to the FHA. The regulations governing
FHA single-family mortgage insurance programs provide that insurance benefits
are payable either upon foreclosure (or other acquisition of possession) and
conveyance of the mortgaged premises to the United States of America or upon
assignment of the defaulted Loan to the United States of America. With respect
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to a defaulted FHA-insured Residential Loan, the Master Servicer or any
Sub-Servicer is limited in its ability to initiate foreclosure proceedings. When
it is determined, either by the Master Servicer or any Sub-Servicer or HUD, that
default was caused by circumstances beyond the mortgagor's control, the Master
Servicer or any Sub-Servicer is expected to make an effort to avoid foreclosure
by entering, if feasible, into one of a number of available forms of forbearance
plans with the mortgagor. Such plans may involve the reduction or suspension of
regular mortgage payments for a specified period, with such payments to be made
upon or before the maturity date of the mortgage, or the recasting of payments
due under the mortgage up to or, other than Residential Loans originated under
the Title I Program of the FHA, beyond the maturity date. In addition, when a
default caused by such circumstances is accompanied by certain other criteria,
HUD may provide relief by making payments to the Master Servicer or any
Sub-Servicer in partial or full satisfaction of amounts due under the
Residential Loan (which payments are to be repaid by the mortgagor to HUD) or by
accepting assignment of the loan from the Master Servicer or any Sub-Servicer.
With certain exceptions, at least three full monthly installments must be due
and unpaid under the FHA Loan, and HUD must have rejected any request for relief
from the mortgagor before the Master Servicer or any Sub-Servicer may initiate
foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Currently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures interest rate. Unless otherwise provided in the related Prospectus
Supplement, the Master Servicer or any Sub-Servicer of each FHA-insured single
family Loan will be obligated to purchase any such debenture issued in
satisfaction of such Residential Loan upon default for an amount equal to the
principal amount of any such debenture.
Other than in relation to the Title I Program of the FHA, the amount of
insurance benefits generally paid by the FHA is equal to the entire unpaid
principal amount of the defaulted Residential Loan adjusted to reimburse the
Master Servicer or Sub-Servicer for certain costs and expenses and to deduct
certain amounts received or retained by the Master Servicer or Sub-Servicer
after default. When entitlement to insurance benefits results from foreclosure
(or other acquisition of possession) and conveyance to HUD, the Master Servicer
or SubServicer is compensated for no more than two-thirds of its foreclosure
costs, and is compensated for interest accrued and unpaid prior to such date but
in general only to the extent it was allowed pursuant to a forbearance plan
approved by HUD. When entitlement to insurance benefits results from assignment
of the Residential Loan to HUD, the insurance payment includes full compensation
for interest accrued and unpaid to the assignment date. The insurance payment
itself, upon foreclosure of an FHA-insured Residential Loan, bears interest from
a date 30 days after the borrower's first uncorrected failure to perform any
obligation to make any payment due under the mortgage and, upon assignment, from
the date of assignment to the date of payment of the claim, in each case at the
same interest rate as the applicable HUD debenture interest rate as described
above.
Residential Loans designated in the related Prospectus Supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended (a "VA Guaranty Policy"). The
Serviceman's Readjustment Act of 1944, as
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amended, permits a veteran (or in certain instances the spouse of a veteran) to
obtain a mortgage loan guarantee by the VA covering mortgage financing of the
purchase of a one- to four-family dwelling unit at interest rates permitted by
the VA. The program has no mortgage loan limits, requires no down payment from
the purchaser and permits the guarantee of mortgage loans of up to 30 years'
duration. However, no Residential Loan guaranteed by the VA will have an
original principal amount greater than five times the partial VA guarantee for
such Residential Loan. The Prospectus Supplement for Certificates of each Series
evidencing interests in a Trust Fund including VA Loans will set forth
additional information regarding the regulations governing the applicable VA
insurance programs.
With respect to a defaulted VA guaranteed Residential Loan, the Master
Servicer or SubServicer is, absent exceptional circumstances, authorized to
announce its intention to foreclose only when the default has continued for
three months. Generally, a claim for the guarantee is submitted after
liquidation of the Residential Property.
The amount payable under the guarantee will be the percentage of the
VA-insured Residential Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in the VA
regulations. Payments under the guarantee will be equal to the unpaid principal
amount of the Residential Loan, interest accrued on the unpaid balance of the
Residential Loan to the appropriate date of computation and limited expenses of
the mortgagee, but in each case only to the extent that such amounts have not
been recovered through liquidation of the Residential Property. The amount
payable under the guarantee may in no event exceed the amount of the original
guarantee.
PRIMARY HAZARD INSURANCE POLICIES
Unless otherwise provided in the Prospectus Supplement in respect of a
Series, the related Pooling and Servicing Agreement will require the Master
Servicer to cause the borrower on each Residential Loan to maintain a hazard
insurance policy (a "Primary Hazard Insurance Policy") providing for coverage of
the standard form of fire insurance policy with extended coverage customary in
the state in which the Residential Property is located. Unless otherwise
specified in the related Prospectus Supplement, such coverage in general will
equal the lesser of the principal balance owing on such Residential Loan and the
amount necessary to fully compensate for any damage or loss to the improvements
on the Residential Property on a replacement cost basis, but in either case not
less than the amount necessary to avoid the application of any co-insurance
clause contained in the policy. The Master Servicer, or the related
Sub-Servicer, if any, will exercise its best reasonable efforts to be named as
an additional insured under any Primary Hazard Insurance Policy and under any
flood insurance policy referred to below. The ability to assure that hazard
insurance proceeds are appropriately applied may be dependent upon its being so
named, or upon the extent to which information in this regard is furnished by
borrowers. All amounts collected by the Master Servicer under any such policy
(except for amounts to be applied to the restoration or repair of the
Residential Property or released to the borrower in accordance with the Master
Servicer's normal servicing procedures, subject to the terms and conditions of
the related Mortgage and Mortgage Note) will be deposited in the Certificate
Account. Each Pooling and Servicing Agreement provides that the Master Servicer
may satisfy its obligation to cause each borrower to maintain such a hazard
insurance policy by the Master Servicer's maintaining a blanket policy insuring
against hazard losses on the
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Residential Loans. If such blanket policy contains a deductible clause, the
Master Servicer will deposit in the Certificate Account all sums which would
have been deposited therein but for such clause. The Master Servicer also is
required to maintain a fidelity bond and errors and omissions policy with
respect to its officers and employees that provides coverage against losses that
may be sustained as a result of an officer's or employee's misappropriation of
funds or errors and omissions in failing to maintain insurance, subject to
certain limitations as to amount of coverage, deductible amounts, conditions,
exclusions and exceptions.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Residential Loans will be
underwritten by different insurers under different state laws in accordance with
different applicable state forms, and therefore will not contain identical terms
and conditions, the basic terms thereof are dictated by respective state laws,
and most such policies typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and
mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or
domestic animals, theft, and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. When a Residential Property is located at origination in a
federally designated flood area, each Pooling and Servicing Agreement requires
the Master Servicer to cause the borrower to acquire and maintain flood
insurance in an amount equal in general to the lesser of (i) the amount
necessary to fully compensate for any damage or loss to the improvements which
are part of the Residential Property on a replacement cost basis and (ii) the
maximum amount of insurance available under the federal flood insurance program,
whether or not the area is participating in the program.
The hazard insurance policies covering the Residential Properties
typically contain a co-insurance clause that in effect requires the insured at
all times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause generally provides that the
insurer's liability in the event of partial loss does not exceed the greater of
(i) the replacement cost of the improvements less physical depreciation and (ii)
such proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of such improvements.
The Master Servicer will not require that a hazard or flood insurance
policy be maintained for any Cooperative Loan. Generally, the Cooperative is
responsible for maintenance of hazard insurance for the property owned by the
Cooperative, and the tenant-stockholders of that Cooperative do not maintain
individual hazard insurance policies. To the extent, however, that a Cooperative
and the related borrower on a Cooperative Note do not maintain such insurance or
do not maintain adequate coverage or any insurance proceeds are not applied to
the restoration of the damaged property, damage to such borrower's Cooperative
apartment or such Cooperative's building could significantly reduce the value of
the collateral securing such Cooperative Note.
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Since the amount of hazard insurance the Master Servicer will cause to
be maintained on the improvements securing the Residential Loans will decline as
the principal balances owing thereon decrease, and since residential properties
have historically appreciated in value over time, the effect of co-insurance in
the event of partial loss may be that hazard insurance proceeds may be
insufficient to restore fully the damaged property. Under the terms of the
Residential Loans, borrowers are required to present claims to insurers under
hazard insurance policies maintained on the Residential Properties. The Master
Servicer, on behalf of the Trustee and Certificateholders, is obligated to
present or cause to be presented claims under any blanket insurance policy
insuring against hazard losses on Residential Properties. The ability of the
Master Servicer to present or cause to be presented such claims is dependent
upon the extent to which information in this regard is furnished to the Master
Servicer by borrowers. However, if provided in the related Prospectus
Supplement, to the extent of the amount available to cover hazard losses under
the special hazard insurance policy for a Series, Certificateholders will not
suffer loss by reason of delinquencies or foreclosures following hazard losses,
whether or not subject to co-insurance claims.
DESCRIPTION OF CREDIT SUPPORT
If so provided in the related Prospectus Supplement, the Trust Fund
that includes Residential Loans for a Series of Certificates may include credit
support for such Series or for one or more classes of Certificates comprising
such Series, which credit support may consist of any combination of the
following separate components, any of which may be limited to a specified
percentage of the aggregate principal balance of the Residential Loans covered
thereby or a specified dollar amount: a Pool Insurance Policy, a special hazard
insurance policy, a Bankruptcy Bond, a reserve fund, or a similar credit support
instrument. Alternatively, if so specified in the Prospectus Supplement for a
Series of Certificates, credit support may be provided by subordination of one
or more classes of Certificates, in combination with or in lieu of any one or
more of the instruments set forth above. See "Description of the
Certificates-Subordination". The amount and type of credit support with respect
to a Series of Certificates or with respect to one or more classes of
Certificates comprising such Series, and the obligers on such credit support,
will be set forth in the related Prospectus Supplement.
To the extent provided in the related Prospectus Supplement and the
Agreement, credit support may be periodically reduced based on the aggregate
outstanding principal balance of the Residential Loans covered thereby.
POOL INSURANCE POLICIES
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Master Servicer will exercise its best reasonable efforts to
maintain or cause to be maintained a Pool Insurance Policy in full force and
effect, unless coverage thereunder has been exhausted through payment of claims.
The Pool Insurance Policy for any Series of Certificates will be issued by the
Pool Insurer named in the related Prospectus Supplement. Each Pool Insurance
Policy will, subject to the limitations described below, provide coverage in an
amount equal to a percentage (specified in the related Prospectus Supplement) of
the aggregate principal balance of the Residential Loans on the Cut-off Date.
The Master Servicer will pay the premiums for each Pool Insurance Policy on a
timely basis unless, as described in the related Prospectus
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Supplement, the payment of such fees is otherwise provided. The Master Servicer
will present or cause to be presented claims under each Pool Insurance Policy to
the Pool Insurer on behalf of itself, the Trustee and the Certificateholders.
Pool Insurance Policies, however, are not blanket policies against loss, since
claims thereunder may be made only upon satisfaction of certain conditions, as
described below and, if applicable, in the related Prospectus Supplement.
Pool Insurance Policies do not cover losses arising out of the matters
excluded from coverage under Primary Credit Insurance Policies, FHA Insurance or
VA Guarantees or losses due to a failure to pay or denial of a claim under a
Primary Credit Insurance Policy, FHA Insurance or VA Guarantee, irrespective of
the reason therefor.
Pool Insurance Policies in general provide that no claim may be validly
presented thereunder with respect to a residential loan unless (i) an acceptable
Primary Credit Insurance Policy, in the event that the initial Collateral Value
of the Residential Loan exceeded 80%, has been kept in force until such
Collateral Value is reduced to 80%; (ii) premiums on the Primary Hazard
Insurance Policy have been paid by the insured and real estate taxes (if
applicable) and foreclosure, protection and preservation expenses have been
advanced by or on behalf of the insured, as approved by the Pool Insurer; (iii)
if there has been physical loss or damage to the Residential Property, it has
been restored to its physical condition at the time the Residential Loan became
insured under the Pool Insurance Policy, subject to reasonable wear and tear;
and (iv) the insured has acquired good and merchantable title to the Residential
Property, free and clear of all liens and encumbrances, except permitted
encumbrances, including any right of redemption by or on behalf of the borrower,
and if required by the Pool Insurer, has sold the property with the approval of
the Pool Insurer.
Assuming the satisfaction of these conditions, the Pool Insurer
typically has the option to either (i) acquire the property securing the
defaulted Residential Loan for a payment equal to the principal balance thereof
plus accrued and unpaid interest at the Interest Rate to the date of acquisition
and certain expenses described above advanced by or on behalf of the insured, on
condition that the Pool Insurer must be provided with good and merchantable
title to the Residential Property (unless the property has been conveyed
pursuant to the terms of the applicable Primary Credit Insurance Policy) or (ii)
pay the amount by which the sum of the principal balance of the defaulted
Residential Loan and accrued and unpaid interest at the Interest Rate to the
date of the payment of the claim and such expenses exceeds the proceeds received
from a sale of the Residential Property that the Pool Insurer has approved. In
both (i) and (ii), the amount of payment under a Pool Insurance Policy will be
reduced by the amount of such loss paid under any Primary Credit Insurance
Policy.
Unless earlier directed by the Pool Insurer, a claim under a Pool
Insurance Policy generally must be filed (i) in the case when a Primary Credit
Insurance Policy is in force, within a specified number of days (typically, 60
days) after the claim for loss has been settled or paid thereunder, or after
acquisition by the insured or a sale of the property approved by the Pool
Insurer, whichever is later, or (ii) in the case when a Primary Credit Insurance
Policy is not in force, within a specified number of days (typically, 60 days)
after acquisition by the insured or a sale of the property approved by the Pool
Insurer. A claim must be paid within a specified period (typically, 30 days)
after the claim is made by the insured.
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Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates, the amount of coverage under each Pool Insurance Policy
will be reduced over the life of the Certificates of such Series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the Pool Insurer upon disposition of all acquired properties. The
amount of claims paid includes certain expenses incurred by the Master Servicer
as well as accrued interest on delinquent Residential Loans to the date of
payment of the claim. However, Certificateholders may experience a shortfall in
the amount of interest distributed in connection with the payment of claims
under a Pool Insurance Policy, because the Pool Insurer is required to remit
only unpaid interest through the date a claim is paid, rather than unpaid
interest through the end of the month in which such claim is paid. In addition,
Certificateholders may experience losses in connection with payments made under
a Pool Insurance Policy to the extent that the Master Servicer expends funds for
the purpose of enabling it to make a claim under such Pool Insurance Policy.
Such expenditures could include amounts necessary to cover real estate taxes and
to repair the related Residential Property. The Master Servicer will be
reimbursed for such expenditures from amounts that otherwise would be
distributed to Certificateholders, and such expenditures will not be covered by
payments made under the related Pool Insurance Policy. See "Certain Legal
Aspects of Residential Loans-Foreclosure on Mortgages" and "-Repossession with
respect to Manufactured Housing Contracts". Accordingly, if aggregate net claims
paid under a Pool Insurance Policy reach the applicable policy limit, coverage
under that Pool Insurance Policy will be exhausted and any further losses will
be borne by Certificateholders of the related Series.
In the event that a Pool Insurer ceases to be a Qualified Insurer (such
term being defined to mean a private mortgage guaranty insurance company duly
qualified as such under applicable laws and approved as an insurer by FHLMC,
FNMA, or any successor entity, and having a claims-paying ability acceptable to
the Rating Agency or Agencies), the Master Servicer will use its best reasonable
efforts to obtain or cause to be obtained from another Qualified Insurer a
replacement insurance policy comparable to the Pool Insurance Policy with a
total coverage equal to the then outstanding coverage of such Pool Insurance
Policy; provided, however, that, unless otherwise provided in the related
Prospectus Supplement, if the cost of the replacement policy is greater than the
cost of such Pool Insurance Policy, the coverage of the replacement policy may
be reduced to a level such that its premium rate does not exceed the premium
rate on such Pool Insurance Policy. However, in the event that the Pool Insurer
ceases to be a Qualified Insurer solely because it ceases to be approved as an
insurer by FHLMC, FNMA, or any successor entity, the Master Servicer will
review, or cause to be reviewed, the financial condition of the Pool Insurer
with a view towards determining whether recoveries under the Pool Insurance
Policy are jeopardized for reasons related to the financial condition of the
Pool Insurer. If the Master Servicer determines that recoveries are so
jeopardized, it will exercise its best reasonable efforts to obtain from another
Qualified Insurer a replacement policy as described above, subject to the same
cost limitation.
Because each Pool Insurance Policy will require that the property
subject to a defaulted Residential Loan be restored to its original condition
prior to claiming against the Pool Insurer, such policy will not provide
coverage against hazard losses. As set forth above, the Primary Hazard Insurance
Policies covering the Residential Loans typically exclude from coverage physical
damage resulting from a number of causes and, even when the damage is covered,
may afford recoveries that are significantly less than full replacement cost of
such losses. Further,
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a special hazard insurance policy will not cover all risks, and the coverage
thereunder will be limited in amount. Certain hazard risks will, as a result, be
uninsured and will therefore be borne by the Certificateholders.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the Prospectus Supplement with respect to a Series
of Certificates, the Master Servicer will obtain a special hazard insurance
policy for such Series, issued by the insurer specified in such Prospectus
Supplement (the "Special Hazard Insurer") covering any Special Hazard Amount (as
defined below). The Master Servicer will be obligated to exercise its best
reasonable efforts to keep or cause to be kept a special hazard insurance policy
in full force and effect, unless coverage thereunder has been exhausted through
payment of claims; provided, however, that the Master Servicer will be under no
obligation to maintain such policy in the event that a Pool Insurance Policy
covering such Series is no longer in effect or if otherwise provided in the
related Prospectus Supplement. The Master Servicer will be obligated to pay the
premiums on each special hazard insurance policy on a timely basis unless, as
described in the related Prospectus Supplement, payment of such premiums is
otherwise provided for. Claims under each special hazard insurance policy will
generally be limited to (i) a percentage set forth in the Prospectus Supplement
(expected to be not greater than 1%) of the aggregate principal balance as of
the Cut-off Date of the Residential Loans comprising the related Trust Fund,
(ii) twice the unpaid principal balance as of the Cut-off Date of the largest
Residential Loan in the Trust Fund, or (iii) the greatest aggregate principal
balance of Residential Loans secured by Residential Properties located in any
one California postal zip code area, whichever is the greatest (the "Special
Hazard Amount").
As more specifically provided in the related Prospectus Supplement,
each special hazard insurance policy will, subject to limitations of the kind
described below, typically protect holders of Certificates of the related Series
from (i) loss by reason of damage to Residential Properties caused by certain
hazards (including earthquakes and mudflows) not insured against under the
Primary Hazard Insurance Policies or a flood insurance policy if the property is
in a federally designated flood area and (ii) loss from partial damage caused by
reason of the application of the co-insurance clause contained in the Primary
Hazard Insurance Policies. Special hazard insurance policies will typically not
cover losses such as those occasioned by normal wear and tear, war, civil
insurrection, certain governmental actions, errors in design, faulty workmanship
or materials (except under certain circumstances), nuclear or chemical reaction
or contamination, flood (if the property is located in a federally designated
flood area) and certain other risks.
Subject to the foregoing limitations, each special hazard insurance
policy will typically provide that, when there has been damage to property
securing a defaulted Residential Loan acquired by the insured and to the extent
the damage is not covered by the related Primary Hazard Insurance Policy or
flood insurance policy, the insurer will pay the lesser of (i) the cost of
repair to the property and (ii) upon transfer of the property to the insurer,
the unpaid principal balance of such Residential Loan at the time of acquisition
of the property by foreclosure, deed in lieu of foreclosure or repossession,
plus accrued interest at the Interest Rate to the date of claim settlement and
certain expenses incurred by or on behalf of the Master Servicer with respect to
the property. The amount of coverage under the special hazard insurance policy
will be reduced by the sum of (a) the unpaid principal balance plus accrued
interest and certain
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expenses paid by the insurer, less any net proceeds realized by the insurer from
the sale of the property, plus (b) any amount paid as the cost of repair of the
property.
Typically, restoration of the property with the proceeds described
under clause (i) of the immediately preceding paragraph will satisfy the
condition under a Pool Insurance Policy that the property be restored before a
claim thereunder may be validly presented with respect to the defaulted
Residential Loan secured by such property. The payment described under clause
(ii) of the immediately preceding paragraph will render unnecessary presentation
of a claim in respect of such Residential Loan under a Pool Insurance Policy.
Therefore, so long as the Pool Insurance Policy remains in effect, the payment
by the insurer of either of the above alternative amounts will not affect the
total insurance proceeds paid to Certificateholders, but will affect the
relative amounts of coverage remaining under any special hazard insurance policy
and any Pool Insurance Policy.
The sale of a Residential Property must typically be approved by the
Special Hazard Insurer under any special hazard insurance policy and funds
received by the insured in excess of the unpaid principal balance of the
Residential Loan plus interest thereon to the date of sale plus certain expenses
incurred by or on behalf of the Master Servicer with respect to the property
(not to exceed the amount actually paid by the Special Hazard Insurer) must be
refunded to such Special Hazard Insurer and, to that extent, coverage under the
special hazard insurance policy will be restored. If aggregate claim payments
under a special hazard insurance policy reach the policy limit, coverage
thereunder will be exhausted and any further losses will be borne by the
Certificateholders.
A claim under a special hazard insurance policy generally must be filed
within a specified number of days (typically, 60 days) after the insured has
acquired good and merchantable title to the property, and a claim payment is
generally payable within a specified number of days (typically, 30 days) after a
claim is accepted by the Special Hazard Insurer. Special hazard insurance
policies generally provide that no claim may be paid unless Primary Hazard
Insurance Policy premiums, flood insurance premiums (if the property is located
in a federally designated flood area) and, as approved by the Special Hazard
Insurer, real estate property taxes (if applicable), property protection and
preservation expenses and foreclosure costs have been paid by or on behalf of
the insured, and unless the insured has maintained the Primary Hazard Insurance
Policy and, if the property is located in a federally designated flood area,
flood insurance, as required by the special hazard insurance policy.
If a special hazard insurance policy is canceled or terminated for any
reason (other than the exhaustion of total policy coverage), the Master Servicer
will be obligated to use its best reasonable efforts to obtain or cause to be
obtained from another insurer a replacement policy comparable to such special
hazard insurance policy with a total coverage that is equal to the then existing
coverage of such special hazard insurance policy; provided, however, that,
unless otherwise provided in the related Prospectus Supplement, if the cost of
the replacement policy is greater than the cost of such special hazard insurance
policy, the coverage of the replacement policy may be reduced to a level such
that its premium rate does not exceed the premium rate on such special hazard
insurance policy.
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Since each special hazard insurance policy is designed to permit full
recoveries under a Pool Insurance Policy in circumstances in which such
recoveries would otherwise be unavailable because property has been damaged by a
cause not insured against by a Primary Hazard Insurance Policy and thus would
not be restored, each Pooling and Servicing Agreement will provide that, if the
related Pool Insurance Policy shall have lapsed or terminated or been exhausted
through payment of claims, the Master Servicer will be under no further
obligation to maintain the special hazard insurance policy.
BANKRUPTCY BONDS
If so specified in the Prospectus Supplement with respect to a Series
of Certificates, the Master Servicer will obtain a Bankruptcy Bond for such
Series. The obligor on, and the amount of coverage of, any such Bankruptcy Bond
will be set forth in the related Prospectus Supplement. The Master Servicer will
exercise its best reasonable efforts to maintain or cause to be maintained the
Bankruptcy Bond in full force and effect, unless coverage thereunder has been
exhausted through payment of claims. The Master Servicer will pay or cause to be
paid the premiums for each Bankruptcy Bond on a timely basis, unless, as
described in the Prospectus Supplement, payment of such premiums is otherwise
provided for. Subject to the limit of the dollar amount of coverage provided,
each Bankruptcy Bond will cover certain losses resulting from an extension of
the maturity of a Residential Loan, or a reduction by the bankruptcy court of
the principal balance of or the Interest Rate on a Residential Loan, and the
unpaid interest on the amount of a principal reduction during the pendency of a
proceeding under the Bankruptcy Code. See "Certain Legal Aspects of Residential
Loans-Foreclosure on Mortgages" and "-Repossession with respect to Manufactured
Housing Contracts".
RESERVE FUNDS
If so provided in the related Prospectus Supplement, the Depositor will
deposit or cause to be deposited in an account (a "Reserve Fund") any
combination of cash, one or more irrevocable letters of credit or one or more
Permitted Instruments in specified amounts, or any other instrument satisfactory
to the Rating Agency or Agencies, which will be applied and maintained in the
manner and under the conditions specified in such Prospectus Supplement. In the
alternative or in addition to such deposit, to the extent described in the
related Prospectus Supplement, a Reserve Fund may be funded through application
of a portion of the interest payment on each Mortgage Loan or of all or a
portion of amounts otherwise payable on the Subordinate Certificates. Amounts in
a Reserve Fund may be distributed to Certificateholders, or applied to reimburse
the Master Servicer for outstanding Advances, or may be used for other purposes,
in the manner and to the extent specified in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, any such Reserve
Fund will not be deemed to be part of the related Trust Fund.
Amounts deposited in any Reserve Fund for a Series will be invested in
Permitted Instruments by, or at the direction of, the Master Servicer or any
other person named in the related Prospectus Supplement.
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CROSS-SUPPORT PROVISIONS
If so provided in the related Prospectus Supplement, the Residential
Loans for a Series of Certificates may be divided into separate groups, each
supporting a separate class or classes of Certificates of a Series, and credit
support may be provided by cross-support provisions requiring that distributions
be made on Certificates evidencing interests in one group of Mortgage Loans
prior to distributions on Certificates evidencing interests in a different group
of Mortgage Loans within the Trust Fund. The Prospectus Supplement for a Series
that includes a cross-support provision will describe the manner and conditions
for applying such provisions.
The coverage provided by one or more forms of credit support may apply
concurrently to two or more related Trust Funds. If applicable, the related
Prospectus Supplement will identify the Trust Funds to which such credit support
relates and the manner of determining the amount of the coverage provided
thereby and of the application of such coverage to the identified Trust Funds.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a Series of
Certificates, the Residential Loans in the related Trust Fund will be covered by
one or more letters of credit, issued by a bank or financial institution
specified in such Prospectus Supplement (the "L/C Bank"). Under a letter of
credit, the L/C Bank will be obligated to honor draws thereunder in an aggregate
fixed dollar amount, net of unreimbursed payments thereunder, equal to the
percentage specified in the related Prospectus Supplement of the aggregate
principal balance of the Residential Loans on the related Cut-off Date or one or
more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses. The amount available under the letter of credit will, in all
cases, be reduced to the extent of the unreimbursed payments thereunder.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Certificates of such Series will be covered
by insurance policies and/or surety bonds provided by one or more insurance
companies or sureties. Such instruments may cover, with respect to one or more
classes of Certificates of the related Series, timely distributions of interest
and/or full distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the related
Prospectus Supplement.
EXCESS SPREAD
If so provided in the Prospectus Supplement for a Series of
Certificates, a portion of the interest payment on each Mortgage Loan may be
applied to reduce the principal balance of one or more classes of Certificates
to provide or maintain a cushion against losses on the related Residential
Loans.
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CERTAIN LEGAL ASPECTS OF RESIDENTIAL LOANS
The following discussion contains general summaries of certain legal
aspects of loans secured by residential properties. Because such legal aspects
are governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor to reflect the laws of any
particular state, nor to encompass the laws of all states in which the security
for the Residential Loans is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing the
Residential Loans. In this regard, the following discussion does not fully
reflect federal regulations with respect to FHA Loans and VA Loans. See "The
Trust Funds-Residential Loans" and "Description of Primary Insurance
Coverage-FHA Insurance and VA Guarantees".
GENERAL
All of the Residential Loans, except as described below, are loans to
homeowners and all of the Mortgage Loans and Multifamily Loans are evidenced by
notes or bonds and secured by instruments which may be mortgages, deeds of
trust, security deeds or deeds to secure debt, depending upon the type of
security instrument customary to grant a security interest in real property in
the state in which the Residential Property is located. If specified in the
Prospectus Supplement relating to a Series of Certificates, a Trust Fund may
also contain (i) Home Improvement Contracts evidenced by promissory notes, which
may be secured by an interest in the related Mortgaged Property (ii) Cooperative
Loans evidenced by promissory notes secured by security interests in shares
issued by private, cooperative housing corporations and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the related buildings or (iii) Manufactured Housing
Contracts evidencing both (a) the obligation of the obligor to repay the loan
evidenced thereby and (b) the grant of a security interest in the related
Manufactured Home or with respect to Land Contracts, a lien on the real estate
(the "Mortgaged Property") to which the related Manufactured Homes are deemed to
be affixed, and including in some cases a security interest in the related
Manufactured Home, to secure repayment of such loan. Any of the foregoing types
of encumbrance will create a lien upon, or grant a title interest in, the
subject property, the priority of which will depend on the terms of the
particular security instrument, the knowledge of the parties to such
instruments, as well as the order of recordation or filing of the instrument in
the appropriate public office. Such a lien is generally not prior to the lien
for real estate taxes and assessments and other charges imposed under
governmental police powers.
MORTGAGE LOANS
The Mortgage Loans and Multifamily Loans will be secured by either
mortgages, deeds of trust, security deeds or deeds to secure debt depending upon
the type of security instrument customary to grant a security interest according
to the prevailing practice in the state in which the property subject to a
Mortgage Loan or Multifamily Loan is located. Any of the foregoing types of
encumbrance creates a lien upon or conveys title to the real property encumbered
by such instrument and represents the security for the repayment of an
obligation that is customarily evidenced by a promissory note. Such a lien is
generally not prior to the lien for real estate taxes and assessments and other
charges imposed under governmental police powers. Priority with respect to these
security instruments depends on their terms and generally on the order of
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recording with the applicable state, county or municipal office. There are two
parties to a mortgage, the mortgagor, who is the borrower and usually the owner
of the subject property or the land trustee (as described below), and the
mortgagee, who is the lender. Under the mortgage instrument, the mortgagor
delivers to the mortgagee a note or bond and the mortgage. (In the case of a
land trust, title to the property is held by a land trustee under a land trust
agreement, while the owner is the beneficiary of the land trust; at origination
of a mortgage loan, the borrower executes a separate undertaking to make
payments on the mortgage note.) Although a deed of trust is similar to a
mortgage, a deed of trust normally has three parties, the trustor (similar to a
mortgagor), who is the owner of the subject property and may or may not be the
borrower, the beneficiary (similar to a mortgagee), who is the lender, and the
trustee, a third-party grantee. Under a deed of trust, the trustor grants the
property, irrevocably until the debt is paid, in trust, generally with a power
of sale, to the trustee to secure payment of the obligation. A security deed and
a deed to secure debt are special types of deeds which indicate on their face
that they are granted to secure an underlying debt. By executing a security deed
or deed to secure debt, the grantor conveys title to, as opposed to merely
creating a lien upon, the subject property to the grantee until such time as the
underlying debt is repaid. The mortgagee's authority under a mortgage and the
trustee's authority under a deed of trust, security deed or deed to secure debt
are governed by the law of the state in which the real property is located, the
express provisions of the mortgage, deed of trust, security deed or deed to
secure debt and, in some cases, with respect to deeds of trust, the directions
of the beneficiary.
COOPERATIVE LOANS
The Cooperative owns all the real property or some interest therein
sufficient to permit it to own the building and all separate dwelling units
therein. The Cooperative is directly responsible for property management and, in
most cases, payment of real estate taxes, other governmental impositions 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,
or an underlying lease of the land, as is the case in some instances, the
Cooperative, as mortgagor, or lessee, as the case may be, is also responsible
for meeting these blanket mortgage or rental obligations. A blanket mortgage is
ordinarily incurred by the Cooperative in connection with either the
construction or purchase of the Cooperative's apartment building or the
obtaining of capital by the Cooperative. The interests of the occupants under
proprietary leases or occupancy agreements as to which the Cooperative is the
landlord are generally subordinate to the interests of the holder of the blanket
mortgage and to the interest of the holder of a land lease. If the Cooperative
is unable to meet the payment obligations (i) arising under its blanket
mortgage, the mortgagee holding the blanket mortgage could foreclose on that
mortgage and terminate all subordinate proprietary leases and occupancy
agreements or (ii) arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. Also, 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 final payment at final
maturity. The inability of the Cooperative to refinance such a mortgage and its
consequent inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the Cooperative to extend its term or, in the alternative, to purchase the
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land could lead to termination of the Cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
foreclosure by the holder of the blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender that financed the purchase by an individual
tenant-stockholder of Cooperative shares or, in the case of the Trust Fund, the
collateral securing the Cooperative Loans.
The Cooperative is owned by tenant-stockholders who, through ownership
of stock, shares or membership certificates in the corporation, receive
proprietary leases or occupancy agreements which confer exclusive rights to
occupy specific units. Generally, a tenant-stockholder of a Cooperative must
make a monthly payment to the Cooperative representing such tenant-stockholder's
pro rata share of the Cooperative's payments for its blanket mortgage, real
property taxes, maintenance expenses and other capital or ordinary expenses. An
ownership interest in a Cooperative and accompanying occupancy rights is
financed through a Cooperative share loan evidenced by a promissory note and
secured by an assignment of and a security interest in the occupancy agreement
or proprietary lease and a security interest in the related Cooperative shares.
The lender generally takes possession of the share certificate and a counterpart
of the proprietary lease or occupancy agreement and a financing statement
covering the proprietary lease or occupancy agreement and the Cooperative shares
is filed in the appropriate state and local offices to perfect the lender's
interest in its collateral. Subject to the limitations discussed below, upon
default of the tenant-stockholder, the lender may sue for judgment on the
promissory note, dispose of the collateral at a public or private sale or
otherwise proceed against the collateral or tenant-stockholder as an individual
as provided in the security agreement covering the assignment of the proprietary
lease or occupancy agreement and the pledge of Cooperative shares. See
"Foreclosure on Cooperative Shares" below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of
the Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Section 216(a) of the Code to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for its taxable year in which
such items are allowable as a deduction to the corporation, such section
requires, among other things, that at least 80% of the gross income of the
corporation be derived from its tenant-stockholders. By virtue of this
requirement, the status of a corporation for purposes of Section 216(b)(1) of
the Code must be determined on a year-to-year basis. Consequently, there can be
no assurance that cooperatives relating to the Cooperative Loans will qualify
under such section for any particular year. In the event that such a cooperative
fails to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
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MANUFACTURED HOUSING CONTRACTS OTHER THAN LAND CONTRACTS
Under the laws of most states, manufactured housing constitutes
personal property and is subject to the motor vehicle registration laws of the
state or other jurisdiction in which the unit is located. In a few states, where
certificates of title are not required for manufactured homes, security
interests are perfected by the filing of a financing statement under Article 9
of the UCC which has been adopted by all states except Louisiana. Such financing
statements are effective for five years and must be renewed at the end of each
five years. The certificate of title laws adopted by the majority of states
provide that ownership of motor vehicles and manufactured housing shall be
evidenced by a certificate of title issued by the motor vehicles department (or
a similar entity) of such state. In the states which have enacted certificate of
title laws, a security interest in a unit of manufactured housing, so long as it
is not attached to land in so permanent a fashion as to become a fixture, is
generally perfected by the recording of such interest on the certificate of
title to the unit in the appropriate motor vehicle registration office or by
delivery of the required documents and payment of a fee to such office,
depending on state law.
The Master Servicer will be required under the related Pooling and
Servicing Agreement to effect such notation or delivery of the required
documents and fees, and to obtain possession of the certificate of title, as
appropriate under the laws of the state in which any Manufactured Home is
registered. In the event the Master Servicer fails, due to clerical errors or
otherwise, to effect such notation or delivery, or files the security interest
under the wrong law (for example, under a motor vehicle title statute rather
than under the UCC, in a few states), the Trustee may not have a first priority
security interest in the Manufactured Home securing a Manufactured Housing
Contract. As manufactured homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes may, under certain circumstances,
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the home is located. These filings must
be made in the real estate records office of the county where the home is
located. Generally, Manufactured Housing Contracts will contain provisions
prohibiting the obligor from permanently attaching the Manufactured Home to its
site. So long as the obligor does not violate this agreement, a security
interest in the Manufactured Home will be governed by the certificate of title
laws or the UCC, and the notation of the security interest on the certificate of
title or the filing of a UCC financing statement will be effective to maintain
the priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home which is prior to the security
interest originally retained by the seller and transferred to the Depositor.
The Depositor will assign or cause to be assigned a security interest
in the Manufactured Homes to the Trustee, on behalf of the Certificateholders.
Unless otherwise specified in the related Prospectus Supplement, neither the
Depositor, the Master Servicer nor the Trustee will amend the certificates of
title to identify the Trustee, on behalf of the Certificateholders, as the
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new secured party and, accordingly, the Depositor or the Unaffiliated Seller
will continue to be named as the secured party on the certificates of title
relating to the Manufactured Homes. In most states, such assignment is an
effective conveyance of such security interest without amendment of any lien
noted on the related certificate of title and the new secured party succeeds to
the Depositor's rights as the secured party. However, in some states there
exists a risk that, in the absence of an amendment to the certificate of title,
such assignment of the security interest might not be held effective against
creditors of the Depositor or Unaffiliated Seller.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Depositor on
the certificate of title or delivery of the required documents and fees or, in
states where a security interest in manufactured homes is perfected pursuant to
Article 9 of the UCC, the filing of a financing statement will be sufficient to
protect the Trustee against the rights of subsequent purchasers of a
Manufactured Home or subsequent lenders who take a security interest in the
Manufactured Home. If there are any Manufactured Homes as to which the Depositor
has failed to perfect or cause to be perfected the security interest assigned to
the Trust Fund, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the Trustee, on
behalf of the Certificateholders as the new secured party on the certificate of
title that, through fraud or negligence, the security interest of the Trustee
could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter until the owner re-registers the Manufactured Home in such state. If
the owner were to relocate a Manufactured Home to another state and re-register
the Manufactured Home in such state, and if the Depositor did not take steps to
re-perfect its security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Depositor must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the Depositor would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Depositor would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states which do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under the Pooling and Servicing Agreement, the Master Servicer will be
obligated to take such steps, at the Master Servicer's expense, as are necessary
to maintain perfection of security interests in the Manufactured Homes.
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Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will obtain the representation of the Unaffiliated Seller that it has
no knowledge of any such liens with respect to any Manufactured Home securing a
Contract. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Trustee or Certificateholders in the
event such a lien arises.
FORECLOSURE ON MORTGAGES
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure may occasionally result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclose is
contested, the legal proceedings necessary to resolve the issue can be time
consuming. After the completion of a judicial foreclosure, the court generally
issues a judgment of foreclosure and appoints a referee or other court officer
to conduct the sale of the property.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage in and to the
mortgaged property. It is regulated by statutes and rules and subject throughout
to the court's equitable powers. Generally, a mortgagor is bound by the terms of
the mortgage note and the mortgage as made and cannot be relieved from its own
default. However, since a foreclosure action is equitable in nature and is
addressed to a court of equity, the court may relieve a mortgagor of a default
and deny the mortgagee foreclosure on proof that the mortgagor's default was
neither willful nor in bad faith and that the mortgagee's action was such as to
establish a waiver, or fraud, bad faith, oppressive or unconscionable conduct as
to warrant a court of equity to refuse affirmative relief to the mortgagee.
Under certain circumstances a court of equity may relieve the mortgagor from an
entirely technical default where such default was not willful.
A foreclosure action or sale pursuant to a power of sale 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. Moreover, a
non-collusive, regularly conducted foreclosure sale or sale pursuant to a power
of sale may be challenged as a fraudulent conveyance, regardless of the parties'
intent, if a court determines that the sale was for less than fair consideration
and such sale occurred while the mortgagor was insolvent and within one year (or
within the state 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 may take several years
and, generally, is a remedy alternative to foreclosure, the Mortgagee being
precluded from pursuing both at the same time. In some states, mortgages may
also be foreclosed by advertisement pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
which authorizes the trustee to sell the property upon default by the borrower
under the terms of the note or deed of trust. In some states, prior to such
sale, the trustee must record a notice of default and send a copy to the
borrower-trustor
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and to any person who has recorded a request for a copy of a notice of default
and notice of sale. In addition, in some states the trustee must provide notice
to any other individual having an interest in the real property, including any
junior lienholder. In some states, 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 to the extent allowed by applicable law.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender. Certain states
require that a notice of sale must be posted in a public place and, in most
states, published for a specific period of time in a specified manner prior to
the date of the trustee's sale. In addition, some state laws require that a copy
of the notice of sale be posted on the property, recorded and sent to all
parties having an interest in the real property. In certain states, foreclosure
under a deed of trust may also be accomplished by judicial action in the manner
provided for foreclosure of mortgages.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is generally a
public sale. However, because of the difficulty potential third party purchasers
at the sale might have in determining the exact status of title and because the
physical condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at the
foreclosure sale. In some states, potential buyers may be further unwilling to
purchase a property at a foreclosure sale as a result of the 1980 decision of
the United States Court of Appeals for the Fifth Circuit in DURRETT V.
WASHINGTON NATIONAL INSURANCE COMPANY. The court in DURRETT held that even a
non-collusive, regularly conducted foreclosure sale was a fraudulent transfer
under section 67 of the former Bankruptcy Act (section 548 of the current United
States Bankruptcy Code) and, therefore, could be rescinded in favor of the
bankrupt's estate, if (i) the foreclosure sale was held while the debtor was
insolvent and not more than one year prior to the filing of the bankruptcy
petition, and (ii) the price paid for the foreclosed property did not represent
"fair consideration" ("reasonably equivalent value" under the United States
Bankruptcy Code). However, on May 23, 1994, DURRETT was effectively overruled by
the United States Supreme Court in BFP V. RESOLUTION TRUST CORPORATION, AS
RECEIVER FOR IMPERIAL FEDERAL SAVINGS AND LOAN ASSOCIATION, ET AL., in which the
Court held that "'reasonably equivalent value', for foreclosed property, is the
price in face received at the foreclosure sale, so long as all the requirements
of the State's foreclosure law have been complied with". For these reasons, it
is 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. Generally,
state law controls the amount of foreclosure costs and expenses, including
attorneys' and trustee's fees, which may be recovered by a lender. In some
states there is a statutory minimum purchase price which the lender may offer
for the property. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the lender will
assume ownership of the mortgaged property and, therefore, the burdens of
ownership, including obtaining casualty insurance, paying taxes and making such
repairs at its own expense as are necessary to render the property suitable for
sale. Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may be
reduced by the receipt of any mortgage insurance proceeds, if any.
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A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure of a junior
mortgage triggers the enforcement of a "due-on-sale" clause, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those Mortgage Loans which are
junior mortgage loans, if the lender purchases the property, the lender's title
will be subject to all senior liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied first
to the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of junior
mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds are
generally payable to the mortgagor or trustor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceedings.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of his defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
a lender to foreclose if the default under the mortgage instrument is not
monetary, such as the borrower's failure to adequately maintain the property or
the borrower's execution of a second mortgage or deed of trust affecting the
property. Finally, some courts have been faced with the issue of whether or not
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under deeds of trust or mortgages receive
notices in addition to the statutorily-prescribed minimums. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust, or under a mortgage having a
power of sale, does not involve sufficient state action to afford constitutional
protections to the borrower.
In addition, certain states impose a statutory lien for associated
costs on property that is the subject of a cleanup action by the state on
account of hazardous wastes or hazardous substances released or disposed of on
the property. Such a lien may have priority over all subsequent liens on the
property and, in certain of these states, will have priority over prior recorded
liens, including the lien of a mortgage. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party that takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender on residential properties. In
the
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event that title to a Residential Property was acquired on behalf of
Certificateholders and cleanup costs were incurred in respect of the Residential
Property, such Certificateholders might realize a loss if such costs were
required to be paid by the related Trust Fund.
FORECLOSURE ON COOPERATIVE SHARES
The Cooperative shares and proprietary lease or occupancy agreement
owned by the tenant-stockholder and pledged to the lender are, in almost all
cases, subject to restrictions on transfer as set forth in the Cooperative's
Certificate of Incorporation and By-laws, as well as in the proprietary lease or
occupancy agreement, and may be canceled by the Cooperative, even while pledged,
for failure by the tenant-stockholder to pay rent or other obligations or
charges owed by such tenant-stockholder, including mechanics' liens against the
Cooperative apartment building incurred by such tenant-stockholder. Commonly,
rent and other obligations and charges arising under a proprietary lease or
occupancy agreement which are owed to the cooperative are made liens upon the
shares to which the proprietary lease or occupancy agreement relates. In
addition, the proprietary lease or occupancy agreement generally permits the
Cooperative to terminate such lease or agreement in the event the
tenant-stockholder fails to make payments or defaults in the performance of
covenants required thereunder. Typically, the lender and the Cooperative enter
into a recognition agreement which, together with any lender protection
provisions contained in the proprietary lease, establishes the rights and
obligations of both parties in the event of a default by the tenant-stockholder
on its obligations under the proprietary lease or occupancy agreement. A default
by the tenant-stockholder under the proprietary lease or occupancy agreement
will usually constitute a default under the security agreement between the
lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the Cooperative will take no action to terminate such lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the Cooperative will
recognize the lender's lien against proceeds from a sale of the Cooperative
apartment, subject, however, to the Cooperative's right to sums due under such
proprietary lease or occupancy agreement or which have become liens on the
shares relating to the proprietary lease or occupancy agreement. The total
amount owed to the Cooperative by the tenant-stockholder, which the lender
generally cannot restrict and does not monitor, could reduce the value of the
collateral below the outstanding principal balance of the Cooperative Loan and
accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
Foreclosure on the Cooperative shares is accomplished by a sale in
accordance with the provisions of Article 9 of the UCC and the security
agreement relating to those shares. Article 9 of the UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether
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a 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 sale. Generally, a sale conducted according to the usual practice
of banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
REPOSSESSION WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS THAT ARE NOT LAND
CONTRACTS
Repossession of manufactured housing is governed by state law. A few
states have enacted legislation which requires that the debtor be given an
opportunity to cure its default (typically 30 days to bring the account current)
before repossession can commence. So long as a manufactured home has not become
so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of such home in the
event of a default by the obligor will generally be governed by the UCC (except
in Louisiana). Article 9 of the UCC provides the statutory framework for the
repossession of manufactured housing. While the UCC as adopted by the various
states may vary in certain small particulars, the general repossession procedure
established by the UCC is as follows:
(i) Except in those states where the debtor must receive
notice of his right to cure his default, repossession can commence
immediately upon default without prior notice. Repossession may be
effected either through self-help (peaceable retaking without court
order), voluntary repossession or through judicial process
(repossession pursuant to court-issued writ of replevin). The self-help
and/or voluntary repossession methods are more commonly employed, and
are accomplished simply by retaking possession of the manufactured
home. In cases where the debtor objects or raises a defense to
repossession, a court order must be obtained from the appropriate state
court, and the manufactured home must then be repossessed in accordance
with that order. Whether the method employed is self-help, voluntary
repossession or judicial repossession, the repossession can be
accomplished either by an actual physical removal of the manufactured
home to a secure location for refurbishment and resale or by removing
the occupants and their belongings from the manufactured home and
maintaining possession of the manufactured home on the location where
the occupants were residing. Various factors may affect whether the
manufactured home is physically removed or left on location, such as
the nature and term of the lease of the site on which it is located and
the condition of the unit. In many cases, leaving the manufactured home
on location is preferable, in the event that the home is already set
up, because the expenses of retaking and redelivery will be saved.
However, in those cases where the home is left on location, expenses
for site rentals will usually be incurred.
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(ii) Once repossession has been achieved, preparation for the
subsequent disposition of the manufactured home can commence. The
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially reasonable.
The UCC and consumer protection laws in most states place restrictions
on repossession sales, including requiring prior notice to the debtor.
(iii) Sale proceeds are to be applied first to repossession
expenses (expenses incurred in retaking, storage, preparing for sale to
include refurbishing costs and selling) and then to satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the
full amount of the indebtedness, the remainder may be sought from the
debtor in the form of a deficiency judgment in those states which do
not prohibit or limit such judgments. The deficiency judgment is a
personal judgment against the debtor for the shortfall. Occasionally,
after resale of a manufactured home and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC
requires the party suing for the deficiency judgment to remit the
surplus to the debtor. Because the defaulting owner of a manufactured
home generally has very little capital or income available following
repossession, a deficiency judgment may not be sought in many cases or,
if obtained, will be settled at a significant discount in light of the
defaulting owner's strained financial condition.
LOUISIANA LAW
Any contract secured by a manufactured home located in Louisiana will
be governed by Louisiana law rather than Article 9 of the UCC. Louisiana laws
provide similar mechanisms for perfection and enforcement of security interests
in manufactured housing used as collateral for an installment sale contract or
installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished by voluntary consent
of the obligor, executory process (repossession proceedings which must be
initiated through the courts but which involve minimal court supervision) or a
civil suit for possession. In connection with a voluntary surrender, the obligor
must be given a full release from liability for all amounts due under the
contract. In executory process repossessions, a sheriff's sale (without court
supervision) is permitted, unless the obligor brings suit to enjoin the sale,
and the lender is prohibited from seeking a deficiency judgment
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against the obligor unless the lender obtained an appraisal of the manufactured
home prior to the sale and the property was sold for at least two-thirds of its
appraised value.
RIGHTS OF REDEMPTION WITH RESPECT TO RESIDENTIAL PROPERTIES
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee, from
their "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 interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay certain costs of such action. Those having an equity of
redemption must generally be made parties and duly summoned to the foreclosure
action in order for their equity of redemption to be barred.
The equity of redemption which is a non-statutory right that must be
exercised prior to foreclosure sale, should be distinguished from statutory
rights of redemption. In some states, after sale pursuant to a deed of trust or
foreclosure of a mortgage, the trustor or mortgagor and certain foreclosed
junior lienors are given a statutory period in which to redeem the property from
the foreclosure sale. In some states, redemption may occur only upon payment of
the foreclosure sales price, 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 exercise
of a right of redemption would defeat the title of any purchaser 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 and maintenance of the property until the redemption
period has expired. In some states, there is no right to redeem property after a
trustee's sale under a deed of trust.
NOTICE OF SALE; REDEMPTION RIGHTS WITH RESPECT TO MANUFACTURED HOMES
While state laws do not usually require notice to be given debtors
prior to repossession, many states do require delivery of a notice of default
and of the debtor's right to cure defaults before repossession. The law in most
states also requires that the debtor be given notice of sale prior to the resale
of the home so that the owner may redeem at or before resale. In addition, the
sale must comply with the requirements of the UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of trust. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed
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of trust or mortgage by foreclosure in an attempt to satisfy the full debt
before bringing a personal action against the borrower. In certain other states,
the lender has the option of bringing a personal action against the borrower on
the debt without first exhausting such security; however in some of these
states, the lender, following judgment on such personal action, may be deemed to
have elected a remedy and may be precluded from exercising remedies with respect
to the security. Consequently, the practical effect of the election requirement,
in those states permitting such election, is that lenders will usually proceed
against the security first rather than bringing a personal action against the
borrower. Finally, other statutory provisions limit any deficiency judgment
against the former borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a beneficiary
or a mortgagee from obtaining a large deficiency judgment against the former
borrower as a result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws and
state laws affording relief to debtors, may interfere with or affect the ability
of the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, the
filing of a petition acts as a stay against virtually all actions against the
debtor, including the enforcement of remedies of collection of a debt and,
often, no interest or principal payments are made during the bankruptcy
proceeding. Moreover, a court with federal bankruptcy jurisdiction may permit a
debtor through his or her Chapter 13 rehabilitative plan to cure a monetary
default with respect to a mortgage loan on a debtor's residence by paying
arrearages within a reasonable time period and reinstating the original mortgage
loan payment schedule even though the lender accelerated the mortgage loan and
final judgment of foreclosure had been entered in state court (provided no sale
of the property had yet occurred) prior to the filing of the debtor's Chapter 13
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
Except with respect to arrearages, courts with federal bankruptcy
jurisdiction have also indicated that the terms of a mortgage loan secured only
by property of the debtor that is the debtor's principal residence may not be
modified if the borrower has filed a petition under Chapter 13. Courts may be
able to modify the terms of a cooperative loan, but no case law exists on this
point. In all cases, the secured creditor is entitled to the amount of its debt
plus post-petition interest, attorney's fees and costs to the extent the value
of the security equals or exceeds the debt.
The Code provides priority to certain tax liens over the lien of the
mortgage. This may have the effect of delaying or interfering with the
enforcement of rights in respect of a defaulted Mortgage Loan. In addition,
substantive requirements are imposed upon mortgage lenders in connection with
the origination and the servicing of mortgage loans by numerous federal and some
state consumer protection laws. The laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws impose specific statutory liabilities upon
lenders who originate mortgage loans and who fail to comply with the provisions
of the law. In some cases, this liability may affect assignees of the mortgage
loans.
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FOR COOPERATIVE LOANS Generally, Article 9 of the UCC governs
foreclosure on Cooperative shares and the related proprietary lease or occupancy
agreement. Some courts have interpreted section 9-504 of the UCC to prohibit a
deficiency award unless the creditor establishes that the sale of the collateral
(which, in the case of a Cooperative Loan, would be the shares of the
Cooperative and the related proprietary lease or occupancy agreement) was
conducted in a commercially reasonable manner.
JUNIOR MORTGAGES
Some of the Mortgage Loans, Multifamily Loans and Home Improvement
Contracts may be secured by junior mortgages or deeds of trust, which are junior
to senior mortgages or deeds of trust which are not part of the Trust Fund. The
rights of the Certificateholders as the holders of a junior deed of trust or a
junior mortgage are subordinate in lien priority and in payment priority to
those of the holder of the senior mortgage or deed of trust, including the prior
rights of the senior mortgagee or beneficiary to receive and apply hazard
insurance and condemnation proceeds and, upon default of the mortgagor, to cause
a foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the deed of trust, the
junior mortgagee's or junior beneficiary's lien will be extinguished unless the
junior lienholder satisfies the defaulted senior loan or asserts its subordinate
interest in a property in foreclosure proceedings. See "-Foreclosure" herein.
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. In the event
of a conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends such sums, such sums will
generally have priority over all sums due under the junior mortgage.
CONSUMER PROTECTION LAWS WITH RESPECT TO HOME IMPROVEMENT AND MANUFACTURED
HOUSING CONTRACTS
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity Act,
Regulation "B", the Fair Credit Reporting Act, and related statutes. These laws
can impose specific statutory liabilities upon creditors who fail to comply with
their provisions and may affect the enforceability of the contract.
Contracts often contain provisions obligating the obligor to pay late
charges if payments are not timely made. In certain cases, Federal and state law
may specifically limit the amount of late charges that may be collected. Unless
otherwise provided in the related Prospectus Supplement, under an Agreement,
late charges will be retained by the Master Servicer as
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additional servicing compensation, and any inability to collect these amounts
will not affect payments to Certificateholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule") has the effect of subjecting a seller (and certain
related creditors and their assignees) in a consumer credit transaction and any
assignee of the creditor to all claims and defenses which the debtor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by a debtor on the contract, and the
holder of the contract may also be unable to collect amounts still due
thereunder.
Most of the Manufactured Housing Contracts and certain of the Home
Improvement Contracts in the Trust Fund will be subject to the requirements of
the FTC Rule. Accordingly, the Trustee, as holder of Manufactured Housing
Contracts, will be subject to any claims or defenses that the purchaser of the
related manufactured home may assert against the seller of the manufactured
home, subject to a maximum liability equal to the amounts paid by the obligor on
the Contract. If an obligor is successful in asserting any such claim or
defense, and if the Unaffiliated Seller had or should have had knowledge of such
claim or defense, the Master Servicer will have the right to require the
Unaffiliated Seller to repurchase the Contract because of a breach of its
Unaffiliated Seller's representation and warranty that no claims or defenses
exist which would affect the obligor's obligation to make the required payments
under the Contract. The Unaffiliated Seller would then have the right to require
the originating dealer to repurchase the Contract from it and might also have
the right to recover from the dealer for any losses suffered by the Unaffiliated
Seller with respect to which the dealer would have been primarily liable to the
obligor.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral and/or enforce a deficiency judgment. For example, in a
proceeding under the Federal bankruptcy law, a court may prevent a lender from
repossessing a home. In the case of an individual eligible for relief in a
proceeding under Chapter 11 of the Federal bankruptcy law, as part of the
rehabilitation plan under Chapter 11, a court may reduce the amount of the
secured indebtedness to the market value of the home at the time of bankruptcy
(as determined by the court), leaving the party providing financing as a general
unsecured creditor for the remainder of the indebtedness. A
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bankruptcy court may also reduce the payments due under a contract or change the
rate of interest and time of repayment of the indebtedness pursuant to a Chapter
11 plan of reorganization. Generally, any plan filed in a proceeding under
Chapter 13 of the Federal bankruptcy law must provide for the full payment of
the claim of the lender without changing the terms of payment 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.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless the Prospectus Supplement indicates otherwise, all the related
Residential Loans, except for FHA Loans and VA Loans, contain due-on-sale
clauses. These clauses permit the lender to accelerate the maturity of the loan
if the borrower sells, transfers, or conveys the property without the prior
consent of the mortgagee. The enforceability of these clauses has been impaired
in various ways in certain states by statute or decisional law. The ability of
mortgage lenders and their assignees and transferees to enforce due-on-sale
clauses was addressed by the Garn-St. Germain Depository Institutions Act of
1982 (the "Garn-St. Germain Act") which was enacted on October 15, 1982. This
legislation, subject to certain exceptions, preempts state constitutional,
statutory and case law that prohibits the enforcement of due-on-sale clauses.
The Garn-St. Germain Act does "encourage" lenders to permit assumptions of loans
at the original rate of interest or at some other rate less than the average of
the original rate and the market rate.
MORTGAGE LOANS
Exempted from this preemption pursuant to the Garn-St. Germain Act are
mortgage loans (originated other than by federal savings and loan associations
and federal savings banks) that were made or assumed during the period beginning
on the date a state, by statute or final appellate court decision having
statewide effect, prohibited the exercise of due-on-sale clauses and ending on
October 15, 1982 ("Window Period Loans"). However, this exception applies only
to transfers of property underlying Window Period Loans occurring between
October 15, 1982 and October 15, 1985 and does not restrict enforcement of a
due-on-sale clause in connection with current transfers or property underlying
Window Period Loans unless the property underlying such Window Period Loan is
located in one of the five "window period states" identified below. Due-on-sale
clauses contained in Mortgage Loans originated by federal savings and loan
associations or federal savings banks are fully enforceable pursuant to
regulations of the Federal Home Loan Bank Board, predecessor to the Office of
Thrift Supervision, which preempt state law restrictions on the enforcement of
due-on-sale clauses. Mortgage Loans originated by such institutions are
therefore not deemed to be Window Period Loans.
With the expiration of the exemption for Window Period Loans on October
15, 1985, due-on-sale clauses have become generally enforceable except in those
states whose legislatures exercised their authority to regulate the
enforceability of such clauses with respect to mortgage loans that were (i)
originated or assumed during the "window period", which ended in all cases not
later than October 15, 1982, and (ii) originated by lenders other than national
banks, federal savings institutions and federal credit unions. FHLMC has taken
the position in its published mortgage servicing standards that, out of a total
of eleven "window period states", three states
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(Michigan, New Mexico and Utah) have enacted statutes extending, on various
terms and for varying periods, the prohibition on enforcement of due-on-sale
clauses with respect to certain categories of Window Period Loans. The Garn-St.
Germain Act also sets forth eight specific instances in which a mortgage lender
covered by the Garn-St. Germain Act (including federal savings and loan
associations and federal savings banks) may not exercise a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred.
These include intra-family transfers, certain transfers by operation of law,
leases of fewer than three years and the creation of a junior encumbrance. The
Garn-St. Germain Act also grants the Director of the Office of Thrift
Supervision (successor to the Federal Home Loan Bank Board) authority to
prescribe by regulation further instances in which a due-on-sale clause may not
be enforced upon the transfer of the property. To date no such regulations have
been issued. Regulations promulgated under the Garn-St. Germain Act also
prohibit the imposition of a prepayment penalty upon the acceleration of a loan
pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a Mortgage
Loan bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, which may have an impact upon the
average life of the Mortgage Loans related to a Series and the number of such
Mortgage Loans which may be outstanding until maturity.
TRANSFER OF MANUFACTURED HOMES
Generally, manufactured housing contracts contain provisions
prohibiting the sale or transfer of the related manufactured homes without the
consent of the obligee on the contract and permitting the acceleration of the
maturity of such contracts by the obligee on the contract upon any such sale or
transfer that is not consented to. Unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will, to the extent it has knowledge
of such conveyance or proposed conveyance, exercise or cause to be exercised its
rights to accelerate the maturity of the related Contracts through enforcement
of "due-on-sale" clauses, subject to applicable state law. In certain cases, the
transfer may be made by a delinquent obligor in order to avoid a repossession
proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the Master
Servicer desires to accelerate the maturity of the related Contract, the Master
Servicer's ability to do so will depend on the enforceability under state law of
the "due-on-sale" clause. The Garn-St. Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. Consequently, in some cases the
Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
PREPAYMENT CHARGES AND PREPAYMENTS
Generally, conventional mortgage loans, Cooperative Loans, Home
Improvement and Manufactured Housing Contracts, residential owner occupied FHA
loans and VA loans may be prepaid in full or in part without penalty. Generally,
multifamily residential loans, including multifamily FHA Loans, may contain
provisions limiting prepayments on such loans, including prohibiting prepayment
for a specified period after origination, prohibiting partial prepayments
entirely or requiring the payment of a prepayment penalty upon prepayment in
full or in part.
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The laws of certain states may render prepayment fees unenforceable
after a Mortgage Loan has been outstanding for a certain number of years, or may
limit the amount of any prepayment fee to a specified percentage of the original
principal amount of the Mortgage Loan, to a specified percentage of the
outstanding principal balance of a Mortgage Loan, or to a fixed number of
months' interest on the prepaid amount. In certain states, prepayment fees
payable on default or other involuntary acceleration of a Residential Loan may
not be enforceable against the related mortgagor or obligor. Some state
statutory provisions may also treat certain prepayment fees as usurious if in
excess of statutory limits.
SUBORDINATE FINANCING
When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor (as junior loans often do) and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior loan. Second, acts of the senior lender
that prejudice the junior lender or impair the junior lender's security may
create a superior equity in favor of the junior lender. For example, if the
mortgagor and the senior lender agree to an increase in the principal amount of
or the interest rate payable on the senior loan, the senior lender may lose its
priority to the extent an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan
and/or any junior loan or loans, the existence of junior loans and actions taken
by junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 ("Title V"), provides that state
usury limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. A similar federal
statute was in effect with respect to mortgage loans made during the first three
months of 1980. The statute authorized any state to reimpose interest rate
limits by adopting, before April 1, 1983, a law or constitutional provision
which expressly rejects application of the federal law. In addition, even where
Title V is not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on mortgage loans covered by
Title V. Certain states have taken action to reimpose interest rate limits
and/or to limit discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that mortgage loans related to a Series originated on or
after January 1, 1980 are subject to federal preemption. Therefore, in a state
that has not taken the requisite action to reject application of Title V or to
adopt a provision limiting discount points or other charges prior to origination
of such mortgage loans, any such limitation under such state's usury law would
not apply to such mortgage loans.
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In any state in which application of Title V has been expressly
rejected or a provision limiting discount points or other charges is adopted, no
Mortgage Loans originated after the date of such state action will be eligible
for inclusion in a Trust Fund if such Mortgage Loans bear interest or provide
for discount points or charges in excess of permitted levels. No Mortgage Loan
originated prior to January 1, 1980 will bear interest or provide for discount
points or charges in excess of permitted levels.
Title V also provides that, subject to the following conditions, state
usury limitations shall not apply to any loan which is secured by a first lien
on certain kinds of manufactured housing. The Contracts would be covered if they
satisfy certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice period
prior to instituting any action leading to repossession of or foreclosure with
respect to the related unit. Title V authorized any state to reimpose
limitations on interest rates and finance charges by adopting before April 1,
1983 a law or constitutional provision which expressly rejects application of
the federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on loans covered by Title V. In any state in which application of Title
V was expressly rejected or a provision limiting discount points or other
charges has been adopted, no Contract which imposes finance charges or provides
for discount points or charges in excess of permitted levels has been included
in the Trust Fund.
ALTERNATIVE MORTGAGE INSTRUMENTS
ARM Loans originated by non-federally chartered lenders have
historically been subject to a variety of restrictions. Such restrictions
differed from state to state, resulting in difficulties in determining whether a
particular alternative mortgage instrument originated by a state-chartered
lender complied with applicable law. These difficulties were simplified
substantially as a result of the enactment of Title VIII of the Garn-St. Germain
Act ("Title VIII"). Title VIII provides that, notwithstanding any state law to
the contrary, (i) state-chartered banks may originate "alternative mortgage
instruments" (including ARM Loans) in accordance with regulations promulgated by
the Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks, (ii) state-chartered credit unions may
originate alternative mortgage instruments in accordance with regulations
promulgated by the National Credit Union Administration with respect to
origination of alternative mortgage instruments by federal credit unions and
(iii) all other non-federally chartered housing creditors, including without
limitation state-chartered savings and loan associations, savings banks and
mutual savings banks and mortgage banking companies may originate alternative
mortgage instruments in accordance with the regulations promulgated by the
Federal Home Loan Bank Board, predecessor to the Office of Thrift Supervision,
with respect to origination of alternative mortgage instruments by federal
savings and loan associations. Title VIII further provides that any state may
reject applicability of the provisions of Title VIII by adopting, prior to
October 15, 1985, a law or constitutional provision expressly rejecting the
applicability of such provisions. Certain states have taken such action.
The Depositor has been advised by its counsel that it is their opinion
that a court interpreting Title VIII would hold that ARM Loans which were
originated by state-chartered
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lenders before the date of enactment of any state law or constitutional
provision rejecting applicability of Title VIII would not be subject to state
laws imposing restrictions or prohibitions on the ability of state-chartered
lenders to originate alternative mortgage instruments.
All of the ARM Loans which were originated by a state-chartered lender
after the enactment of a state law or constitutional provision rejecting the
applicability of Title VIII complied with applicable state law. All of the ARM
Loans which were originated by federally chartered lenders or which were
originated by state-chartered lenders prior to enactment of a state law or
constitutional provision rejecting the applicability of Title VIII were
originated in compliance with all applicable federal regulations.
ENVIRONMENTAL LEGISLATION
A lender may be subject to unforeseen environmental risks when taking a
security interest in real or personal property.
Under the laws of many states, contamination on a property may give
rise to a lien on the property for cleanup costs. In several states, such a lien
has priority over all existing liens (a "superlien") including those of existing
mortgages; in these states, the lien of a mortgage contemplated by this
transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either
to the government or to private parties for cleanup costs on a property securing
a loan, even if the lender does not cause or contribute to the contamination.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination.
Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators unless
they qualify for the secured creditor exemption to CERCLA. Secured lenders may
qualify for the exemption unless they participate in management of the property
sufficiently to void the exemption. Also, if the lender takes title to or
possession of the property, the secured creditor exemption may be deemed to be
unavailable and the lender may be liable for clean-up or other remedial costs
pursuant to CERCLA.
The rule of the Environmental Protection Agency ("EPA") on lender
liability under CERCLA, finalized by the EPA on April 29, 1992, offers
substantial protection to lenders by defining the activities in which a lender
can engage and still have the benefit of the secured creditor exemption. The EPA
rule permits a lender to foreclose, purchase at foreclosure sale or take a deed
in lieu of foreclosure, without incurring CERCLA liability as an owner or
operator of the facility, provided that certain guidelines are followed.
Pre-foreclosure activities, such as servicing existing loans and working out
problem loans, are governed by a test for participation in management that can
be met by a lender by carefully staying within the bounds of the EPA rule.
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The validity of the EPA rule has yet to be tested in the courts.
Although the EPA intends for the rule to be binding in suits by private parties,
as well as actions by the EPA, it remains to be seen if a court will apply the
EPA rule to limit private party suits. If the EPA rule is successfully
challenged or held inapplicable to suits by private parties, a lender's
liability will be governed by the existing interpretations of the secured
creditor exemption. A decision in May 1990 of the United States Court of Appeals
for the Eleventh Circuit in UNITED STATES V. FLEET FACTORS CORP. has very
narrowly construed the provision in CERCLA excluding secured lenders from those
who may be liable for remedial costs. The court suggested that a lender with
enough control over a borrower's financial affairs to have the capacity to
influence the borrower's decision-making concerning treatment of hazardous
material could be liable under CERCLA. A subsequent decision by the United
States Court of Appeals for the Ninth Circuit in IN RE BERGSOE METAL CORP. ruled
that a secured lender had no liability absent "some actual management of the
facility" on the part of the lender.
The EPA rule does not protect a lender from liability under CERCLA in
cases where the lender arranges for disposal of hazardous substances or for
transportation of hazardous substances. The EPA rule also does not govern
liability for cleanup costs under federal laws other than CERCLA, in particular
Subtitle I of the federal Resource Conservation and Recovery Act, which
regulates underground storage tanks.
Although the EPA rule does not govern suits under the laws of many
states that are similar to CERCLA, some states with laws similar to CERCLA have
enacted lender protection amendments.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental hazard,
but that person or entity may be bankrupt or otherwise judgment proof. It is
possible that cleanup costs could become a liability of the Trust Fund and
occasion a loss to Certificateholders in certain circumstances described above
if such remedial costs were incurred.
Unless otherwise provided in the related Prospectus Supplement, the
Mortgage Loan Seller with respect to any Mortgage Loan included in a Trust Fund
for a particular Series of Certificates will represent as to the material
compliance of the related Residential Property with applicable environmental
laws and regulations as of the date of transfer and assignment of such Mortgage
Loan to the Trustee. In addition, unless otherwise provided in the related
Prospectus Supplement, the related Agreement will provide that the Master
Servicer and any Special Servicer acting on behalf of the Trustee, may not
acquire title to a Residential Property or take over its operation unless the
Master Servicer (or Special Servicer) has previously determined, based on a
report prepared by a person who regularly conducts environmental audits, that
(a) there are no circumstances present at the Residential Property relating to
substances for which some action relating to their investigation or clean-up
could be required or that it would be in the best economic interest of the Trust
Fund to take such actions with respect to the affected Residential Property and
(b) that the Residential Property is in compliance with applicable environmental
laws or that it would be in the best economic interest of the Trust Fund to take
the actions necessary to comply with such laws. See "Description of the
Certificates-Realization Upon Defaulted Mortgage Loans".
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FORMALDEHYDE LITIGATION WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials, including such components of manufactured housing as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The Depositor is aware of a limited number
of cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any Contract secured by a Manufactured Home with respect to
which a formaldehyde claim has been successfully asserted may be liable to the
obligor for the amount paid by the obligor on the related Contract and may be
unable to collect amounts still due under the Contract. The successful assertion
of such claim constitutes a breach of a representation or warranty of the
Unaffiliated Seller, and the Certificateholders would suffer a loss only to the
extent that (i) the Unaffiliated Seller breached its obligation to repurchase
the Contract in the event an obligor is successful in asserting such a claim,
and (ii) the Unaffiliated Seller, the Depositor or the Trustee were unsuccessful
in asserting any claim of contribution or subrogation on behalf of the
Certificateholders against the manufacturer or other persons who were directly
liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may
not cover liabilities arising from formaldehyde in manufactured housing, with
the result that recoveries from such manufacturers, suppliers or other persons
may be limited to their corporate assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a mortgagor who enters military
service after the origination of such mortgagor's Mortgage Loan or Contract
(including a mortgagor who was in reserve status and is called to active duty
after origination of the Mortgage Loan), may not be charged interest (including
fees and charges) above an annual rate of 6% during the period of such
mortgagor's active duty status, unless a court orders otherwise upon application
of the lender. The Relief Act applies to mortgagors who are members of the Army,
Navy, Air Force, Marines, National Guard, Reserves, Coast Guard, and officers of
the U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to mortgagors who enter military service (including
reservists who are called to active duty) after origination of the related
Mortgage Loan, no information can be provided as to the number of loans that may
be affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of the Master Servicer
to collect full amounts of interest on certain of the Mortgage Loans. Any
shortfalls in interest collections resulting from the application of the Relief
Act would result in a reduction of the amounts distributable to the holders of
the related Series of Certificates, and would not be covered by advances or,
unless otherwise specified in the related Prospectus Supplement, any form of
credit support provided in connection with such Certificates. In addition, the
Relief Act imposes limitations that would impair the ability of the Master
Servicer to foreclose on an affected Mortgage Loan or enforce rights under a
Contract during the mortgagor's period of active duty status, and, under certain
circumstances, during an
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additional three month period thereafter. Thus, in the event that such a
Mortgage Loan or Contract goes into default, there may be delays and losses
occasioned thereby.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Certificates offered hereunder. This discussion is directed solely to
Certificateholders that hold the Certificates as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986 (the "Code") and it
does not purport to discuss all federal income tax consequences that may be
applicable to particular categories of investors, some of which (such as banks,
insurance companies and foreign investors) may be subject to special rules.
Further, the authorities on which this discussion, and the opinion referred to
below, are based are subject to change or differing interpretations, which could
apply retroactively. Taxpayers and preparers of tax returns (including those
filed by any REMIC or other issuer) should be aware that under applicable
Treasury regulations a provider of advice on specific issues of law is not
considered an income tax return preparer unless the advice (i) is given with
respect to events that have occurred at the time the advice is rendered and is
not given with respect to the consequences of contemplated actions, and (ii) is
directly relevant to the determination of an entry on a tax return. Accordingly,
taxpayers should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. In addition to the federal
income tax consequences described herein, potential investors should consider
the state and local tax consequences, if any, of the purchase, ownership and
disposition of the Certificates. See "State and Other Tax Consequences".
Certificateholders are advised to consult their own tax advisors concerning the
federal, state, local or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder.
The following discussion addresses securities of two general types: (i)
certificates ("Grantor Trust Certificates") representing interests in a Trust
Fund ("Grantor Trust Fund") which the Master Servicer will covenant not to elect
to have treated as a real estate mortgage investment conduit ("REMIC"), and (ii)
certificates ("REMIC Certificates") representing interests in a Trust Fund, or a
portion thereof, which the Master Servicer will covenant to elect to have
treated as a REMIC under Sections 860A through 860G (the "REMIC Provisions") of
the Code. The Prospectus Supplement for each Series of Certificates will
indicate whether a REMIC election (or elections) will be made for the related
Trust Fund and, if such an election is to be made, will identify all "regular
interests" and "residual interests" in the REMIC. For purposes of this tax
discussion, references to a "Certificateholder" or a "holder" are to the
beneficial owner of a Certificate.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations do
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not adequately address certain issues relevant to, and in some instances provide
that they are not applicable to, securities such as the Certificates.
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS
With respect to each Series of Grantor Trust Certificates, Thacher
Proffitt & Wood, counsel to the Depositor, will deliver its opinion to the
effect that assuming compliance with all provisions of the related Pooling and
Servicing Agreement, the related Grantor Trust Fund will be classified as a
grantor trust under subpart E, part I of subchapter J of the Code and not as a
partnership or an association taxable as a corporation. Accordingly, each holder
of a Grantor Trust Certificate generally will be treated as the owner of an
interest in the Residential Loans included in the Grantor Trust Fund.
For purposes of the following discussion, a Grantor Trust Certificate
representing an undivided equitable ownership interest in the principal of the
Residential Loans constituting the related Grantor Trust Fund, together with
interest thereon at a pass-through rate, will be referred to as a "Grantor Trust
Fractional Interest Certificate". A Grantor Trust Certificate representing
ownership of all or a portion of the difference between interest paid on the
Residential Loans constituting the related Grantor Trust Fund (net of normal
administration fees and any spread) and interest paid to the holders of Grantor
Trust Fractional Interest Certificates issued with respect to such Grantor Trust
Fund will be referred to as a "Grantor Trust Strip Certificate". A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the Residential Loans constituting the related Grantor Trust Fund.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES
In the case of Grantor Trust Fractional Interest Certificates, unless
otherwise disclosed in the related Prospectus Supplement and subject to the
discussion below with respect to Cooperative Loans, Manufactured Homes and
Buydown Loans, counsel to the Depositor will deliver an opinion that, in
general, Grantor Trust Fractional Interest Certificates will represent interests
in (i) "loans...secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code; (ii) "obligation[s] (including any
participation or certificate of beneficial ownership therein) which ... [are]
principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code; and (iii) "real estate assets" within the
meaning of Section 856(c)(5)(A) of the Code. In addition, counsel to the
Depositor will deliver an opinion that interest on Grantor Trust Fractional
Interest Certificates will to the same extent be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Section 856(c)(3)(B) of the Code.
Some Grantor Trust Fractional Interest Certificates may evidence
interests in loans secured by Cooperative Shares. Such Grantor Trust Fractional
Interest Certificates will represent "real estate assets" within the meaning of
Section 856(c)(5)(A) of the Code and "obligation[s] (including any participation
or certificate of beneficial ownership therein) which
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... [are] principally secured by an interest in real property" within the
meaning of Section 860G(a)(3)(A) of the Code. In addition, interest on such
Grantor Trust Fractional Interest Certificates will to the same extent be
considered "interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Section 856(c)(3)(B) of the
Code. The Internal Revenue Service (the "IRS") has issued a private letter
ruling to the effect that Grantor Trust Fractional Interest Certificates which
evidence interests in loans secured by Cooperative Shares would be treated as
representing an ownership interest in qualifying assets under Section
7701(a)(19)(C) of the Code. Certificateholders should consult their tax advisors
concerning this question. If Grantor Trust Certificates evidence interests in
loans secured by Cooperative Shares, that fact will be disclosed in the
applicable Prospectus Supplement.
Some Grantor Trust Fractional Interest Certificates may evidence
interests in loans secured by Manufactured Homes. Whether such Certificates will
be treated as representing an ownership interest in qualifying assets under
Sections 7701(a)(19)(C), 856(c)(5)(A), 856(c)(3)(B) and 860G(a)(3)(A) of the
Code will depend upon the particular characteristics of such Manufactured Homes.
The proper characterization of such Certificates will be disclosed in the
applicable Prospectus Supplement.
The assets constituting certain Grantor Trust Funds may include Buydown
Loans. The characterization of an investment in Buydown Loans will depend upon
the precise terms of the related Buydown Agreement, but to the extent that such
Buydown Loans are secured by a bank account or other personal property, they may
not be treated in their entirety as assets described in the foregoing sections
of the Code. No directly applicable precedents exist with respect to the federal
income tax treatment or the characterization of investments in Buydown Loans.
Accordingly, holders of Grantor Trust Certificates should consult their own tax
advisors with respect to the characterization of investments in Grantor Trust
Certificates representing an interest in a Grantor Trust Fund that includes
Buydown Loans.
GRANTOR TRUST STRIP CERTIFICATES
Even if Grantor Trust Strip Certificates evidence an interest in a
Grantor Trust Fund consisting of Residential Loans that are "loans...secured by
an interest in real property" within the meaning of Section 7701(a)(19)(C)(v) of
the Code and "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code, and the interest on which is "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code, it is unclear whether the Grantor Trust Strip Certificates, and the income
therefrom, will be so characterized. However, the policies underlying such
sections (namely, to encourage or require investments in mortgage loans by
thrift institutions and real estate investment trusts) may suggest that such
characterization is appropriate. Counsel to the Depositor will not deliver any
opinion on these questions. Prospective purchasers to which such
characterization of an investment in Grantor Trust Strip Certificates is
material should consult their tax advisors regarding whether the Grantor Trust
Strip Certificates, and the income therefrom, will be so characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (including
any participation or certificate of beneficial ownership therein) which ...
[are] principally secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Code.
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TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES
Holders of a particular Series of Grantor Trust Fractional Interest
Certificates generally will be required to report on their federal income tax
returns their shares of the entire income from the Residential Loans (including
amounts used to pay reasonable servicing fees and other expenses) and will be
entitled to deduct their shares of any such reasonable servicing fees and other
expenses. Because of stripped interests, market or original issue discount, or
premium, the amount includible in income on account of a Grantor Trust
Fractional Interest Certificate may differ significantly from the amount
distributable thereon representing interest on the Residential Loans. Under
Section 67 of the Code, an individual, estate or trust holding a Grantor Trust
Fractional Interest Certificate directly or through certain pass-through
entities will be allowed a deduction for such reasonable servicing fees and
expenses only to the extent that the aggregate of such holder's miscellaneous
itemized deductions exceeds two percent of such holder's adjusted gross income.
In addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the excess
of the individual's adjusted gross income over such amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by holders of Grantor Trust
Fractional Interest Certificates who are subject to the limitations of either
Section 67 or Section 68 of the Code may be substantial. Further,
Certificateholders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holder's alternative minimum taxable income. Although it is not entirely clear,
it appears that in transactions in which multiple classes of Grantor Trust
Certificates (including Grantor Trust Strip Certificates) are issued, such fees
and expenses should be allocated among the classes of Grantor Trust Certificates
using a method that recognizes that each such class benefits from the related
services. In the absence of statutory or administrative clarification as to the
method to be used, it currently is intended to base information returns or
reports to the IRS and Certificateholders on a method that allocates such
expenses among classes of Grantor Trust Certificates with respect to each period
based on the distributions made to each such class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any Series will depend on whether they are subject to the
"stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (i) a class of Grantor
Trust Strip Certificates is issued as part of the same Series of Certificates or
(ii) the Depositor or any of its affiliates retains (for its own account or for
purposes of resale) a right to receive a specified portion of the interest
payable on the Residential Loans. Further, the IRS has ruled that an
unreasonably high servicing fee retained by a seller or servicer will be treated
as a retained ownership interest in mortgages that constitutes a stripped
coupon. For purposes of determining what constitutes reasonable servicing fees
for various types of mortgages the IRS has established certain "safe harbors".
The servicing fees paid with respect to the Residential Loans for certain Series
of Grantor Trust Certificates may be higher than the "safe harbors" and,
accordingly, may not constitute reasonable servicing compensation. The related
Prospectus Supplement will include information regarding servicing fees paid to
the Master Servicer, any Sub-Servicer or their respective affiliates necessary
to determine whether the preceding "safe harbor" rules apply.
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IF STRIPPED BOND RULES APPLY
If the stripped bond rules apply, each Grantor Trust Fractional
Interest Certificate will be treated as having been issued with "original issue
discount" within the meaning of Section 1273(a) of the Code, subject, however,
to the discussion below regarding the treatment of certain stripped bonds as
market discount bonds and the discussion regarding DE MINIMIS market discount.
See "-Taxation of Grantor Trust Fractional Interest Certificates-Market
Discount". Under the stripped bond rules, the holder of a Grantor Trust
Fractional Interest Certificate (whether a cash or accrual method taxpayer) will
be required to report interest income from its Grantor Trust Fractional Interest
Certificate for each month in an amount equal to the income that accrues on such
Certificate in that month calculated under a constant yield method, in
accordance with the rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of such Certificate's stated redemption price
over its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by such
purchaser for the Grantor Trust Fractional Interest Certificate. The stated
redemption price of a Grantor Trust Fractional Interest Certificate will be the
sum of all payments to be made on such Certificate, other than "qualified stated
interest", if any, as well as such Certificate's share of reasonable servicing
fees and other expenses. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Do Not Apply" for a definition of
"qualified stated interest". In general, the amount of such income that accrues
in any month would equal the product of such holder's adjusted basis in such
Grantor Trust Fractional Interest Certificate at the beginning of such month
(see "-Sales of Grantor Trust Certificates") and the yield of such Grantor Trust
Fractional Interest Certificate to such holder. Such yield would be computed at
the rate (compounded based on the regular interval between payment dates) that,
if used to discount the holder's share of future payments on the Residential
Loans, would cause the present value of those future payments to equal the price
at which the holder purchased such Certificate. In computing yield under the
stripped bond rules, a Certificateholder's share of future payments on the
Residential Loans will not include any payments made in respect of any ownership
interest in the Residential Loans retained by the Depositor, the Master
Servicer, any Sub-Servicer or their respective affiliates, but will include such
Certificateholder's share of any reasonable servicing fees and other expenses.
Section 1272(a)(6) of the Code requires (i) the use of a reasonable
prepayment assumption in accruing original issue discount and (ii) adjustments
in the accrual of original issue discount when prepayments do not conform to the
prepayment assumption, with respect to certain categories of debt instruments,
and regulations could be adopted applying those provisions to the Grantor Trust
Fractional Interest Certificates. It is unclear whether those provisions would
be applicable to the Grantor Trust Fractional Interest Certificates or whether
use of a reasonable prepayment assumption may be required or permitted without
reliance on these rules. It is also uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on
conditions at the time of the first sale of the Grantor Trust Fractional
Interest Certificate or, with respect to any holder, at the time of purchase of
the Grantor Trust Fractional Interest Certificate by that holder.
Certificateholders are advised to consult their own tax advisors concerning
reporting original issue discount in
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general and, in particular, whether a prepayment assumption should be used in
reporting original issue discount with respect to Grantor Trust Fractional
Interest Certificates.
In the case of a Grantor Trust Fractional Interest Certificate acquired
at a price equal to the principal amount of the Residential Loans allocable to
such Certificate, the use of a prepayment assumption generally would not have
any significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than
such principal amount, respectively), the use of a reasonable prepayment
assumption would increase or decrease such yield, and thus accelerate or
decelerate, respectively, the reporting of income.
If a prepayment assumption is not used, then when a Residential Loan
prepays in full, the holder of a Grantor Trust Fractional Interest Certificate
acquired at a discount or a premium generally will recognize ordinary income or
loss equal to the difference between the portion of the prepaid principal amount
of the Residential Loan that is allocable to such Certificate and the portion of
the adjusted basis of such Certificate that is allocable to such
Certificateholder's interest in the Residential Loan. If a prepayment assumption
is used, it appears that no separate item of income or loss should be recognized
upon a prepayment. Instead, a prepayment should be treated as a partial payment
of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates. See
"-REMICs-Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount". It is unclear whether any other adjustments would be required to
reflect differences between an assumed prepayment rate and the actual rate of
prepayments.
In the absence of statutory or administrative clarification, it is
currently intended to base information reports or returns to the IRS and
Certificateholders in transactions subject to the stripped bond rules on a
prepayment assumption (the "Prepayment Assumption") that will be disclosed in
the related Prospectus Supplement and on a constant yield computed using a
representative initial offering price for each class of Certificates. However,
neither the Depositor nor the Master Servicer will make any representation that
the Residential Loans will in fact prepay at a rate conforming to such
Prepayment Assumption or any other rate and Certificateholders should bear in
mind that the use of a representative initial offering price will mean that such
information returns or reports, even if otherwise accepted as accurate by the
IRS, will in any event be accurate only as to the initial Certificateholders of
each Series who bought at that price.
Under Treasury regulation Section 1.1286-1T, certain stripped bonds are
to be treated as market discount bonds and, accordingly, any purchaser of such a
bond is to account for any discount on the bond as market discount rather than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or more
coupons from the bond and disposing of the bond or coupon (i) there is no
original issue discount (or only a DE MINIMIS amount of original issue discount)
or (ii) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan (before subtracting any servicing fee or any stripped
coupon). If interest payable on a Grantor Trust Fractional Interest
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Certificate is more than one percentage point lower than the gross interest rate
payable on the Residential Loans, the related Prospectus Supplement will
disclose that fact. If the original issue discount or market discount on a
Grantor Trust Fractional Interest Certificate determined under the stripped bond
rules is less than 0.25% of the stated redemption price multiplied by the
weighted average maturity of the Residential Loans, then such original issue
discount or market discount will be considered to be DE MINIMIS. Original issue
discount or market discount of only a DE MINIMIS amount will be included in
income in the same manner as DE MINIMIS original issue and market discount
described in "-Taxation of Owners of Grantor Trust Fractional Interest
Certificates-If Stripped Bond Rules Do Not Apply" and "-Market Discount" below.
IF STRIPPED BOND RULES DO NOT APPLY
Subject to the discussion below on original issue discount, if the
stripped bond rules do not apply to a Grantor Trust Fractional Interest
Certificate, the Certificateholder will be required to report its share of the
interest income on the Residential Loans in accordance with such
Certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Fractional Interest Certificate to the
extent it evidences an interest in Residential Loans issued with original issue
discount.
The original issue discount, if any, on the Residential Loans will
equal the difference between the stated redemption price of such Residential
Loans and their issue price. Under the OID Regulations, the stated redemption
price is equal to the total of all payments to be made on such Residential Loan
other than "qualified stated interest". "Qualified stated interest" includes
interest that is unconditionally payable at least annually at a single fixed
rate, or at a "qualified floating rate", an "objective rate", a combination of a
single fixed rate and one or more "qualified floating rates" or one "qualified
inverse floating rate", or a combination of "qualified floating rates" that does
not operate in a manner that accelerates or defers interest payments on such
Residential Loan. In general, the issue price of a Residential Loan will be the
amount received by the borrower from the lender under the terms of the
Residential Loan, less any "points" paid by the borrower, and the stated
redemption price of a Residential Loan will equal its principal amount, unless
the Residential Loan provides for an initial below-market rate of interest or
the acceleration or the deferral of interest payments.
In the case of Residential Loans bearing adjustable or variable
interest rates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Residential Loans in
preparing information returns to the Certificateholders and the IRS.
Notwithstanding the general definition of original issue discount,
original issue discount will be considered to be DE MINIMIS if such original
issue discount is less than 0.25% of the stated redemption price multiplied by
the weighted average maturity of the Residential Loan. For this purpose, the
weighted average maturity of the Residential Loan will be computed as the sum of
the amounts determined, as to each payment included in the stated redemption
price of such Residential Loan, by multiplying (i) the number of complete years
(rounding down for partial years) from the issue date until such payment is
expected to be made by (ii) a fraction, the numerator of which is the amount of
the payment and the denominator of which is the stated redemption price of the
Residential Loan. Under the OID Regulations, original issue discount of only a
DE MINIMIS amount (other than DE MINIMIS original issue discount attributable to
a so-
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called "teaser" rate or initial interest holiday) will be included in income as
each payment of stated principal is made, based on the product of the total
amount of such DE MINIMIS original issue discount and a fraction, the numerator
of which is the amount of each such payment and the denominator of which is the
outstanding stated principal amount of the Residential Loan. The OID Regulations
also permit a Certificateholder to elect to accrue DE MINIMIS original issue
discount into income currently based on a constant yield method. See "-Taxation
of Owners of Grantor Trust Fractional Interest Certificates-Market Discount"
below.
If original issue discount is in excess of a DE MINIMIS amount, all
original issue discount with respect to a Residential Loan will be required to
be accrued and reported in income each month, based on a constant yield. The OID
Regulations suggest that no prepayment assumption is appropriate in computing
the yield on prepayable obligations issued with original issue discount. In the
absence of statutory or administrative clarification, it currently is not
intended to base information reports or returns to the IRS and
Certificateholders on the use of a prepayment assumption for certificates backed
by whole mortgage loans not subject to the stripped bond rules. However, Section
1272(a)(6) of the Code may require that a prepayment assumption be made in
computing yield with respect to all mortgage-backed securities.
Certificateholders are advised to consult their own tax advisors concerning
whether a prepayment assumption should be used in reporting original issue
discount with respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related Prospectus Supplement with
respect to each Series to determine whether and in what manner the original
issue discount rules will apply to Residential Loans in such Series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases such Grantor Trust Fractional Interest Certificate at a cost less than
such Certificate's allocable portion of the aggregate remaining stated
redemption price of the Residential Loans held in the related Trust Fund will
also be required to include in gross income such Certificate's daily portions of
any original issue discount with respect to such Residential Loans. However,
each such daily portion will be reduced, if the cost of such Grantor Trust
Fractional Interest Certificate to such purchaser is in excess of such
Certificate's allocable portion of the aggregate "adjusted issue prices" of the
Residential Loans held in the related Trust Fund, approximately in proportion to
the ratio such excess bears to such Certificate's allocable portion of the
aggregate original issue discount remaining to be accrued on such Residential
Loans. The adjusted issue price of a Residential Loan on any given day equals
the sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Residential Loan at the beginning of the
accrual period that includes such day and (ii) the daily portions of original
issue discount for all days during such accrual period prior to such day. The
adjusted issue price of a Residential Loan at the beginning of any accrual
period will equal the issue price of such Residential Loan, increased by the
aggregate amount of original issue discount with respect to such Residential
Loan that accrued in prior accrual periods, and reduced by the amount of any
payments made on such Residential Loan in prior accrual periods of amounts
included in its stated redemption price.
The Trustee will provide to any holder of a Grantor Trust Fractional
Interest Certificate such information as such holder may reasonably request from
time to time with respect to original issue discount accruing on Grantor Trust
Fractional Interest Certificates. See "-Grantor Trust Reporting" below.
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MARKET DISCOUNT
If the stripped bond rules do not apply to the Grantor Trust Fractional
Interest Certificate, a Certificateholder may be subject to the market discount
rules of Sections 1276 through 1278 of the Code to the extent an interest in a
Residential Loan is considered to have been purchased at a "market discount",
that is, in the case of a Residential Loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price
(as defined above), or in the case of a Residential Loan issued with original
issue discount, at a purchase price less than its adjusted issue price (as
defined above). If market discount is in excess of a DE MINIMIS amount (as
described below), the holder generally will be required to include in income in
each month the amount of such discount that has accrued (under the rules
described in the next paragraph) through such month that has not previously been
included in income, but limited, in the case of the portion of such discount
that is allocable to any Residential Loan, to the payment of stated redemption
price on such Residential Loan that is received by (or, in the case of accrual
basis Certificateholders, due to) the Trust Fund in that month. A
Certificateholder may elect to include market discount in income currently as it
accrues (under a constant yield method based on the yield of the Certificate to
such holder) rather than including it on a deferred basis in accordance with the
foregoing. If made, such election will apply to all market discount bonds
acquired by such Certificateholder during or after the first taxable year to
which such election applies. In addition, the OID Regulations would permit a
Certificateholder to elect to accrue all interest, discount (including DE
MINIMIS market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were made with respect to
a Residential Loan with market discount, the Certificateholder would be deemed
to have made an election to include currently market discount in income with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the taxable year of the election and
thereafter, and possibly previously acquired instruments. Similarly, a
Certificateholder that made this election for a Certificate acquired at a
premium would be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. See "-REMICs-Taxation of Owners of REMIC
Regular Certificates-Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest is irrevocable.
Section 1276(b)(3) of the Code authorized the Treasury Department to
issue regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury Department, certain
rules described in the Conference Committee Report (the "Committee Report")
accompanying the Tax Reform Act of 1986 will apply. Under those rules, in each
accrual period market discount on the Residential Loans should accrue, at the
Certificateholder's option: (i) on the basis of a constant yield method, (ii) in
the case of a Residential Loan issued without original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total stated interest
remaining to be paid on the Residential Loan as of the beginning of the accrual
period, or (iii) in the case of a Residential Loan issued with original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to
the total original issue discount remaining at the beginning of the accrual
period. The prepayment assumption, if any, used in calculating the
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accrual of original issue discount is to be used in calculating the accrual of
market discount. The effect of using a prepayment assumption could be to
accelerate the reporting of such discount income. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a
Residential Loan purchased at a discount in the secondary market.
Because the Residential Loans will provide for periodic payments of
stated redemption price, such discount may be required to be included in income
at a rate that is not significantly slower than the rate at which such discount
would be included in income if it were original issue discount.
Market discount with respect to Residential Loans generally will be
considered to be DE MINIMIS if it is less than 0.25% of the stated redemption
price of the Residential Loans multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the prepayment assumption used,
if any. The effect of using a prepayment assumption could be to accelerate the
reporting of such discount income. If market discount is treated as DE MINIMIS
under the foregoing rule, it appears that actual discount would be treated in a
manner similar to original issue discount of a DE MINIMIS amount. See "-Taxation
of Owners of Grantor Trust Fractional Interest Certificates-If Stripped Bond
Rules Do Not Apply".
Further, under the rules described in "-REMICs-Taxation of Owners of
REMIC Regular Certificates-Market Discount" below, any discount that is not
original issue discount and exceeds a DE MINIMIS amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues.
PREMIUM
If a Certificateholder is treated as acquiring the underlying
Residential Loans at a premium, that is, at a price in excess of their remaining
stated redemption price, such Certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of such premium
allocable to Residential Loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to Residential Loans originated before September 28, 1985 or to
Residential Loans for which an amortization election is not made, should be
allocated among the payments of stated redemption price on the Residential Loan
and be allowed as a deduction as such payments are made (or, for a
Certificateholder using the accrual method of accounting, when such payments of
stated redemption price are due).
It is unclear whether a prepayment assumption should be used in
computing amortization of premium allowable under Section 171 of the Code. If
premium is not subject to amortization using a prepayment assumption and a
Residential Loan prepays in full, the holder of a Grantor Trust Fractional
Interest Certificate acquired at a premium should recognize a loss, equal to the
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difference between the portion of the prepaid principal amount of the
Residential Loan that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate that is allocable to the Residential Loan. If
a prepayment assumption is used to amortize such premium, it appears that such a
loss would be unavailable. Instead, if a prepayment assumption is used, a
prepayment should be treated as a partial payment of the stated redemption price
of the Grantor Trust Fractional Interest Certificate and accounted for under a
method similar to that described for taking account of original issue discount
on REMIC Regular Certificates. See "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount". It is unclear whether any other
adjustments would be required to reflect differences between the prepayment
assumption used, and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES
The "stripped coupon" rules of Section 1286 of the Code will apply to
the Grantor Trust Strip Certificates. Except as described above in "-Taxation of
Owners of Grantor Trust Fractional Interest Certificates-If Stripped Bond Rules
Apply", no regulations or published rulings under Section 1286 of the Code have
been issued and some uncertainty exists as to how it will be applied to
securities such as the Grantor Trust Strip Certificates. Accordingly, holders of
Grantor Trust Strip Certificates should consult their own tax advisors
concerning the method to be used in reporting income or loss with respect to
such Certificates.
The OID Regulations do not apply to "stripped coupons", although they
provide general guidance as to how the original issue discount sections of the
Code will be applied. In addition, the discussion below is subject to the
discussion under "-Possible Application of Proposed Contingent Payment Rules"
and assumes that the holder of a Grantor Trust Strip Certificate will not own
any Grantor Trust Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of such holder's adjusted basis in such Grantor
Trust Strip Certificate at the beginning of such month and the yield of such
Grantor Trust Strip Certificate to such holder. Such yield would be calculated
based on the price paid for that Grantor Trust Strip Certificate by its holder
and the payments remaining to be made thereon at the time of the purchase, plus
an allocable portion of the servicing fees and expenses to be paid with respect
to the Residential Loans. See "-Taxation of Owners of Grantor Trust Fractional
Interest Certificates-If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a
prepayment assumption be used in computing the accrual of original issue
discount with respect to certain categories of debt instruments, and that
adjustments be made in the amount and rate of accrual of such discount when
prepayments do not conform to such prepayment assumption. Regulations could be
adopted applying those provisions to the Grantor Trust Strip Certificates. It is
unclear whether those provisions would be applicable to the Grantor Trust Strip
Certificates or whether use of a prepayment assumption may be required or
permitted in the absence of such regulations. It is also uncertain, if a
prepayment assumption is used, whether the assumed prepayment rate would be
determined based on conditions at the time of the first sale of the Grantor
Trust Strip
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Certificate or, with respect to any subsequent holder, at the time of purchase
of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a prepayment assumption is permitted to be made than if
yield is computed assuming no prepayments. In the absence of statutory or
administrative clarification, it currently is intended to base information
returns or reports to the IRS and Certificateholders on the Prepayment
Assumption disclosed in the related Prospectus Supplement and on a constant
yield computed using a representative initial offering price for each class of
Certificates. However, neither the Depositor nor the Master Servicer will make
any representation that the Residential Loans will in fact prepay at a rate
conforming to the Prepayment Assumption or at any other rate and
Certificateholders should bear in mind that the use of a representative initial
offering price will mean that such information returns or reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial Certificateholders of each Series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
Residential Loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument (rather than an interest in discrete Residential Loans) and the
effect of prepayments is taken into account in computing yield with respect to
such Grantor Trust Strip Certificate, it appears that no loss may be available
as a result of any particular prepayment unless prepayments occur at a rate
faster than the Prepayment Assumption. However, if a Grantor Trust Strip
Certificate is treated as an interest in discrete Residential Loans, or if the
Prepayment Assumption is not used, then when a Residential Loan is prepaid, the
holder of a Grantor Trust Strip Certificate should be able to recognize a loss
equal to the portion of the adjusted issue price of the Grantor Trust Strip
Certificate that is allocable to such Residential Loan.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES
The coupon stripping rules' general treatment of stripped coupons is to
regard them as newly issued debt instruments in the hands of each purchaser. To
the extent that payments on the Grantor Trust Strip Certificates would cease if
the Residential Loans were prepaid in full, the Grantor Trust Strip Certificates
could be considered to be debt instruments providing for contingent payments.
Under the OID Regulations, debt instruments providing for contingent payments
are not subject to the same rules as debt instruments providing for
noncontingent payments, but no final regulations have been promulgated with
respect to contingent payment debt instruments. Proposed regulations were
promulgated on December 16, 1994 regarding contingent payment debt instruments
but it appears that Grantor Trust Strip Certificates, due to their similarity to
other mortgage-backed securities (such as REMIC regular interests) that are
expressly excepted from the application of such proposed regulations, may be
excepted from such proposed regulations. Like the OID Regulations, such proposed
regulations do not specifically address securities, such as the Grantor Trust
Strip Certificates, that are subject to the stripped bond rules of Section 1286
of the Code.
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If the contingent payment rules under the proposed regulations were to
apply, the holder of a Grantor Trust Strip Certificate would be required to
apply the "noncontingent bond method". Under the "noncontingent bond method",
the issuer of a Grantor Trust Strip Certificate determines a projected payment
schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuer's projected payment schedule. The projected
payment schedule consists of all noncontingent payments and a projected amount
of each contingent payment based on the projected yield (as described below) of
the Grantor Trust Strip Certificate.
The projected amount of each payment is determined so that the
projected payment schedule reflects the projected yield. The projected amount of
each payment must reasonably reflect the relative expected values of the
payments to be received by the holders of a Grantor Trust Strip Certificate. The
projected yield referred to above is a reasonable rate, not less than the
"applicable Federal rate" that, as of the issue date, reflects general market
conditions, the credit quality of the issuer, and the terms and conditions of
the Mortgage Loans. The holder of a Grantor Trust Strip Certificate would be
required to include as interest income in each month the adjusted issue price of
the Grantor Trust Strip Certificate at the beginning of the period multiplied by
the projected yield.
Assuming that a prepayment assumption were used, if the proposed
regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES
Any gain or loss, equal to the difference between the amount realized
on the sale of a Grantor Trust Certificate, recognized on the sale or exchange
of a Grantor Trust Certificate by an investor who holds such Grantor Trust
Certificate as a capital asset, will be capital gain or loss, except to the
extent of accrued and unrecognized market discount, which will be treated as
ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a
Grantor Trust Certificate generally will equal its cost, increased by any income
reported by the seller (including original issue discount and market discount
income) and reduced (but not below zero) by any previously reported losses, any
amortized premium and by any distributions with respect to such Grantor Trust
Certificate. The Code as of the date of this Prospectus provides a top marginal
tax rate of 39.6% for individuals and a maximum marginal rate for long-term
capital gains of individuals of 28%. No such rate differential exists for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes.
Gain or loss from the sale of a Grantor Trust Certificate may be
partially or wholly ordinary and not capital in certain circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income, as will gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Code. Furthermore, a portion of
any gain that might otherwise be capital gain may be treated as ordinary income
to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning
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of Section 1258 of the Code. A conversion transaction generally is one in which
the taxpayer has taken two or more positions in the same or similar property
that reduce or eliminate market risk, if substantially all of the taxpayer's
return is attributable to the time value of the taxpayer's net investment in
such transaction. The amount of gain realized in a conversion transaction that
is recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the conversion
transaction, subject to appropriate reduction for prior inclusion of interest
and other ordinary income items from the transaction. Finally, a taxpayer may
elect to have net capital gain taxed at ordinary income rates rather than
capital gains rates in order to include such net capital gain in total net
investment income for that taxable year, for purposes of the rule that limits
the deduction of interest on indebtedness incurred to purchase or carry property
held for investment to a taxpayer's net investment income.
GRANTOR TRUST REPORTING
Unless otherwise provided in the related Prospectus Supplement, the
Trustee will furnish to each holder of a Grantor Trust Certificate with each
distribution a statement setting forth the amount of such distribution allocable
to principal on the underlying Residential Loans and to interest thereon at the
related Pass-Through Rate. In addition, within a reasonable time after the end
of each calendar year, the Master Servicer or Trustee will furnish to each
Certificateholder during such year who was such a holder at any time during such
year, information regarding the amount of servicing compensation received by the
Master Servicer and Sub-Servicer (if any) and such other such customary factual
information as the Master Servicer or the Trustee, as the case may be, deems
necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. Because the rules for accruing discount and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the Master
Servicer's or Trustee's information reports of such items of income and expense.
Moreover, such information reports, even if otherwise accepted as accurate by
the IRS, will in any event be accurate only as to the initial Certificateholders
that bought their Certificates at the representative initial offering price used
in preparing such reports.
BACKUP WITHHOLDING
In general, the rules described in "-REMICS-Backup Withholding with
Respect to REMIC Certificates" will also apply to Grantor Trust Certificates.
FOREIGN INVESTORS
In general, the discussion with respect to REMIC Regular Certificates
in "-REMICS-Foreign Investors in REMIC Certificates-REMIC Regular Certificates"
applies to Grantor Trust Certificates except that Grantor Trust Certificates
will, unless otherwise disclosed in the related Prospectus Supplement, be
eligible for exemption from United States withholding tax, subject to the
conditions described in such discussion, only to the extent the related
Residential Loans were originated after July 18, 1984.
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To the extent that interest on a Grantor Trust Certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Code from United States
withholding tax, and the Grantor Trust Certificate is not held in connection
with a Certificateholder's trade or business in the United States, such Grantor
Trust Certificate will not be subject to United States estate taxes in the
estate of a non-resident alien individual.
REMICS
CLASSIFICATION OF REMICS
Upon the issuance of each Series of REMIC Certificates, Thacher
Proffitt & Wood, counsel to the Depositor, will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the related Pooling
and Servicing Agreement, the related Trust Fund (or each applicable portion
thereof) will qualify as a REMIC and the REMIC Certificates offered with respect
thereto will be considered to evidence ownership of "regular interests" ("REMIC
Regular Certificates") or "residual interests" ("REMIC Residual Certificates")
in that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for such status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In that event, such entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although
the Code authorizes the Treasury Department to issue regulations providing
relief in the event of an inadvertent termination of REMIC status, no such
regulations have been issued. Any such relief, moreover, may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
Trust Fund's income for the period in which the requirements for such status are
not satisfied. The Pooling and Servicing Agreement with respect to each REMIC
will include provisions designed to maintain the Trust Fund's status as a REMIC
under the REMIC Provisions. It is not anticipated that the status of any Trust
Fund as a REMIC will be terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES
In general, the REMIC Certificates will be "real estate assets" within
the meaning of Section 856(c)(5)(A) of the Code and assets described in Section
7701(a)(19)(C) of the Code in the same proportion that the assets of the REMIC
underlying such Certificates would be so treated. Moreover, if 95% or more of
the assets of the REMIC qualify for any of the foregoing treatments at all times
during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest
(including original issue discount) on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that such Certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code. In addition, the REMIC Regular Certificates will be "qualified
mortgages" within the meaning of Section 860G(a)(3) of the Code. The
determination as to the percentage of the REMIC's assets that constitute assets
described in the foregoing sections of the Code will be made with respect to
each calendar quarter based on the average adjusted basis
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of each category of the assets held by the REMIC during such calendar quarter.
The REMIC will report those determinations to Certificateholders in the manner
and at the times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to Residential Loans,
payments on Residential Loans held pending distribution on the REMIC
Certificates and property acquired by foreclosure held pending sale, and may
include amounts in reserve accounts. It is unclear whether property acquired by
foreclosure held pending sale and amounts in reserve accounts would be
considered to be part of the Residential Loans, or whether such assets (to the
extent not invested in assets described in the foregoing sections) otherwise
would receive the same treatment as the Residential Loans for purposes of all of
the foregoing sections. In addition, in some instances Residential Loans may not
be treated entirely as assets described in the foregoing sections. If so, the
related Prospectus Supplement will describe the Residential Loans that may not
be so treated. The REMIC Regulations do provide, however, that payments on
Residential Loans held pending distribution are considered part of the
Residential Loans for purposes of Section 856(c)(5)(A) of the Code. Furthermore,
foreclosure property will qualify as "real estate assets" under Section
856(c)(5)(A) of the Code.
TIERED REMIC STRUCTURES
For certain Series of REMIC Certificates, two or more separate
elections may be made to treat designated portions of the related Trust Fund as
REMICs ("Tiered REMICs") for federal income tax purposes. Upon the issuance of
any such Series of REMIC Certificates, Thacher Proffitt & Wood, counsel to the
Depositor, will deliver its opinion generally to the effect that, assuming
compliance with all provisions of the related Pooling and Servicing Agreement,
the Tiered REMICs will each qualify as a REMIC and the REMIC Certificates issued
by the Tiered REMICs, respectively, will be considered to evidence ownership of
REMIC Regular Certificates or REMIC Residual Certificates in the related REMIC
within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will
be "real estate assets" within the meaning of Section 856(c)(5)(A) of the Code,
and "loans secured by an interest in real property" under Section 7701(a)(19)(C)
of the Code, and whether the income on such Certificates is interest described
in Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
GENERAL
Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of REMIC Regular Certificates that otherwise report income
under a cash method of accounting will be required to report income with respect
to REMIC Regular Certificates under an accrual method.
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ORIGINAL ISSUE DISCOUNT
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Section 1273(a) of the Code. Any holders of
REMIC Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with the method described below, in advance of the receipt of the
cash attributable to such income. In addition, Section 1272(a)(6) of the Code
provides special rules applicable to REMIC Regular Certificates and certain
other debt instruments issued with original issue discount. Regulations have not
been issued under that section.
The Code requires that a prepayment assumption be used with respect to
Residential Loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of such discount to
reflect differences between the actual prepayment rate and the prepayment
assumption. The prepayment assumption is to be determined in a manner prescribed
in Treasury regulations; as noted above, those regulations have not been issued.
The Committee Report indicates that the regulations will provide that the
prepayment assumption used with respect to a REMIC Regular Certificate must be
the same as that used in pricing the initial offering of such REMIC Regular
Certificate. The prepayment assumption (the "Prepayment Assumption") used in
reporting original issue discount for each Series of REMIC Regular Certificates
will be consistent with this standard and will be disclosed in the related
Prospectus Supplement. However, neither the Depositor, nor the Master Servicer
will make any representation that the Residential Loans will in fact prepay at a
rate conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate
will be the excess of its stated redemption price at maturity over its issue
price. The issue price of a particular class of REMIC Regular Certificates will
be the first cash price at which a substantial amount of REMIC Regular
Certificates of that class is sold (excluding sales to bond houses, brokers and
underwriters). If less than a substantial amount of a particular class of REMIC
Regular Certificates is sold for cash on or prior to the date of their initial
issuance (the "Closing Date"), the issue price for such class will be the fair
market value of such class on the Closing Date. Under the OID Regulations, the
stated redemption price of a REMIC Regular Certificate is equal to the total of
all payments to be made on such Certificate other than "qualified stated
interest". "Qualified stated interest" includes interest that is unconditionally
payable at least annually at a single fixed rate, or at a "qualified floating
rate", an "objective rate", a combination of a single fixed rate and one or more
"qualified floating rates" or one "qualified inverse floating rate", or a
combination of "qualified floating rates" that does not operate in a manner that
accelerates or defers interest payments on such REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
such REMIC Regular Certificates. If the original issue discount rules apply to
such Certificates, the related Prospectus Supplement will describe the manner in
which such rules will be applied with respect to those Certificates in preparing
information returns to the Certificateholders and the IRS.
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Certain classes of the REMIC Regular Certificates may provide for the
first interest payment with respect to such Certificates to be made more than
one month after the date of issuance, a period which is longer than the
subsequent monthly intervals between interest payments. Assuming the "accrual
period" (as defined below) for original issue discount is each monthly period
that ends on the day prior to each Distribution Date, in some cases, as a
consequence of this "long first accrual period", some or all interest payments
may be required to be included in the stated redemption price of the REMIC
Regular Certificate and accounted for as original issue discount. Because
interest on REMIC Regular Certificates must in any event be accounted for under
an accrual method, applying this analysis would result in only a slight
difference in the timing of the inclusion in income of the yield on the REMIC
Regular Certificates.
In addition, if the accrued interest to be paid on the first
Distribution Date is computed with respect to a period that begins prior to the
Closing Date, a portion of the purchase price paid for a REMIC Regular
Certificate will reflect such accrued interest. In such cases, information
returns to the Certificateholders and the IRS will be based on the position that
the portion of the purchase price paid for the interest accrued with respect to
periods prior to the Closing Date is treated as part of the overall cost of such
REMIC Regular Certificate (and not as a separate asset the cost of which is
recovered entirely out of interest received on the next Distribution Date) and
that portion of the interest paid on the first Distribution Date in excess of
interest accrued for a number of days corresponding to the number of days from
the Closing Date to the first Distribution Date should be included in the stated
redemption price of such REMIC Regular Certificate. However, the OID Regulations
state that all or some portion of such accrued interest may be treated as a
separate asset the cost of which is recovered entirely out of interest paid on
the first Distribution Date. It is unclear how an election to do so would be
made under the OID Regulations and whether such an election could be made
unilaterally by a Certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC Regular Certificate will be considered to be
DE MINIMIS if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of the REMIC Regular Certificate is computed as the
sum of the amounts determined, as to each payment included in the stated
redemption price of such REMIC Regular Certificate, by multiplying (i) the
number of complete years (rounding down for partial years) from the issue date
until such payment is expected to be made (presumably taking into account the
Prepayment Assumption) by (ii) a fraction, the numerator of which is the amount
of the payment, and the denominator of which is the stated redemption price at
maturity of such REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a DE MINIMIS amount (other than DE MINIMIS original issue
discount attributable to a so-called "teaser" interest rate or an initial
interest holiday) will be included in income as each payment of stated principal
is made, based on the product of the total amount of such DE MINIMIS original
issue discount and a fraction, the numerator of which is the amount of such
principal payment and the denominator of which is the outstanding stated
principal amount of the REMIC Regular Certificate. The OID Regulations also
would permit a Certificateholder to elect to accrue DE MINIMIS original issue
discount into income currently based on a constant yield method. See "-Taxation
of Owners of REMIC Regular Certificates-Market Discount" for a description of
such election under the OID Regulations.
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If original issue discount on a REMIC Regular Certificate is in excess
of a DE MINIMIS amount, the holder of such Certificate must include in ordinary
gross income the sum of the "daily portions" of original issue discount for each
day during its taxable year on which it held such REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as follows.
As to each "accrual period", that is, unless otherwise stated in the
related Prospectus Supplement, each period that ends on a date that corresponds
to the day prior to each Distribution Date and begins on the first day following
the immediately preceding accrual period (or in the case of the first such
period, begins on the Closing Date), a calculation will be made of the portion
of the original issue discount that accrued during such accrual period. The
portion of original issue discount that accrues in any accrual period will equal
the excess, if any, of (i) the sum of (A) the present value, as of the end of
the accrual period, of all of the distributions remaining to be made on the
REMIC Regular Certificate, if any, in future periods and (B) the distributions
made on such REMIC Regular Certificate during the accrual period of amounts
included in the stated redemption price, over (ii) the adjusted issue price of
such REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding
sentence will be calculated (i) assuming that distributions on the REMIC Regular
Certificate will be received in future periods based on the Residential Loans
being prepaid at a rate equal to the Prepayment Assumption and (ii) using a
discount rate equal to the original yield to maturity of the Certificate. For
these purposes, the original yield to maturity of the Certificate will be
calculated based on its issue price and assuming that distributions on the
Certificate will be made in all accrual periods based on the Residential Loans
being prepaid at a rate equal to the Prepayment Assumption. The adjusted issue
price of a REMIC Regular Certificate at the beginning of any accrual period will
equal the issue price of such Certificate, increased by the aggregate amount of
original issue discount that accrued with respect to such Certificate in prior
accrual periods, and reduced by the amount of any distributions made on such
REMIC Regular Certificate in prior accrual periods of amounts included in the
stated redemption price. The original issue discount accruing during any accrual
period, computed as described above, will be allocated ratably to each day
during the accrual period to determine the daily portion of original issue
discount for such day.
A subsequent purchaser of a REMIC Regular Certificate that purchases
such Certificate at a cost (excluding any portion of such cost attributable to
accrued qualified stated interest) less than its remaining stated redemption
price will also be required to include in gross income the daily portions of any
original issue discount with respect to such Certificate. However, each such
daily portion will be reduced, if such cost is in excess of its "adjusted issue
price", in proportion to the ratio such excess bears to the aggregate original
issue discount remaining to be accrued on such REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (i) the adjusted issue price (or, in the case of the first accrual
period, the issue price) of such Certificate at the beginning of the accrual
period which includes such day and (ii) the daily portions of original issue
discount for all days during such accrual period prior to such day.
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MARKET DISCOUNT
A Certificateholder that purchases a REMIC Regular Certificate at a
market discount, that is, in the case of a REMIC Regular Certificate issued
without original issue discount, at a purchase price less than its remaining
stated principal amount, or in the case of a REMIC Regular Certificate issued
with original issue discount, at a purchase price less than its adjusted issue
price will recognize gain upon receipt of each distribution representing stated
redemption price. In particular, under Section 1276 of the Code such a
Certificateholder generally will be required to allocate the portion of each
such distribution representing stated redemption price first to accrued market
discount not previously included in income, and to recognize ordinary income to
that extent. A Certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including DE MINIMIS market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made
with respect to a REMIC Regular Certificate with market discount, the
Certificateholder would be deemed to have made an election to include currently
market discount in income with respect to all other debt instruments having
market discount that such Certificateholder acquires during the taxable year of
the election or thereafter, and possibly previously acquired instruments.
Similarly, a Certificateholder that made this election for a Certificate that is
acquired at a premium would be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Certificateholder owns or acquires. See "-Taxation of Owners of REMIC
Regular Certificates-Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a Certificate on a constant yield method or
as interest would be irrevocable.
However, market discount with respect to a REMIC Regular Certificate
will be considered to be DE MINIMIS for purposes of Section 1276 of the Code if
such market discount is less than 0.25% of the remaining stated redemption price
of such REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as DE MINIMIS under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a DE MINIMIS amount. See "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount" above. Such treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, certain
rules described in the Committee Report apply. The Committee Report indicates
that in each accrual period market discount on REMIC Regular Certificates
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should accrue, at the Certificateholder's option: (i) on the basis of a constant
yield method, (ii) in the case of a REMIC Regular Certificate issued without
original issue discount, in an amount that bears the same ratio to the total
remaining market discount as the stated interest paid in the accrual period
bears to the total amount of stated interest remaining to be paid on the REMIC
Regular Certificate as of the beginning of the accrual period, or (iii) in the
case of a REMIC Regular Certificate issued with original issue discount, in an
amount that bears the same ratio to the total remaining market discount as the
original issue discount accrued in the accrual period bears to the total
original issue discount remaining on the REMIC Regular Certificate at the
beginning of the accrual period. Moreover, the Prepayment Assumption used in
calculating the accrual of original issue discount is also used in calculating
the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect such
regulations might have on the tax treatment of a REMIC Regular Certificate
purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or
other periodic distributions throughout their term, the effect of these rules
may be to require market discount to be includible in income at a rate that is
not significantly slower than the rate at which such discount would accrue if it
were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of such Certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the DE MINIMIS rule referred to above applies. Any such
deferred interest expense would not exceed the market discount that accrues
during such taxable year and is, in general, allowed as a deduction not later
than the year in which such market discount is includible in income. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
PREMIUM
A REMIC Regular Certificate purchased at a cost (excluding any portion
of such cost attributable to accrued qualified stated interest) greater than its
remaining stated redemption price will be considered to be purchased at a
premium. The holder of such a REMIC Regular Certificate may elect under Section
171 of the Code to amortize such premium under the constant yield method over
the life of the Certificate. If made, such an election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, rather than as a separate interest deduction. The
OID Regulations also permit Certificateholders to elect to include all interest,
discount and premium in income based on a constant yield method, further
treating the Certificateholder as having made the election to amortize premium
generally. See "-Taxation of Owners of REMIC Regular Certificates-Market
Discount" above. The Committee Report states that the same rules that apply to
accrual of
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market discount (which rules will require use of a Prepayment Assumption in
accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have original issue discount) will also
apply in amortizing bond premium under Section 171 of the Code.
REALIZED LOSSES
Under Section 166 of the Code, both corporate holders of the REMIC
Regular Certificates and noncorporate holders of the REMIC Regular Certificates
that acquire such Certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their Certificates become wholly or partially worthless as the
result of one or more realized losses on the Residential Loans. However, it
appears that a noncorporate holder that does not acquire a REMIC Regular
Certificate in connection with a trade or business will not be entitled to
deduct a loss under Section 166 of the Code until such holder's Certificate
becomes wholly worthless (i.e., until its outstanding principal balance has been
reduced to zero) and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to such Certificate, without
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Residential Loans or the Underlying Certificates until it
can be established that any such reduction ultimately will not be recoverable.
As a result, the amount of taxable income reported in any period by the holder
of a REMIC Regular Certificate could exceed the amount of economic income
actually realized by the holder in such period. Although the holder of a REMIC
Regular Certificate eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear with respect
to the timing and character of such loss or reduction in income.
TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL
As residual interests, the REMIC Residual Certificates will be subject
to tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Residential Loans or as debt instruments issued by
the REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that such holder owned such REMIC Residual Certificate. For
this purpose, the taxable income or net loss of the REMIC will be allocated to
each day in the calendar quarter ratably using a "30 days per month/90 days per
quarter/360 days per year" convention unless otherwise disclosed in the related
Prospectus Supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on such day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by
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virtue of this paragraph will be treated as ordinary income or loss. The taxable
income of the REMIC will be determined under the rules described below in
"-Taxable Income of the REMIC" and will be taxable to the REMIC Residual
Certificateholders without regard to the timing or amount of cash distributions
by the REMIC. Ordinary income derived from REMIC Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers subject to
limitations under Section 469 of the Code on the deductibility of "passive
losses".
A holder of a REMIC Residual Certificate that purchased such
Certificate from a prior holder of such Certificate also will be required to
report on its federal income tax return amounts representing its daily share of
the taxable income (or net loss) of the REMIC for each day that it holds such
REMIC Residual Certificate. Those daily amounts generally will equal the amounts
of taxable income or net loss determined as described above. The Committee
Report indicates that certain modifications of the general rules may be made, by
regulations, legislation or otherwise to reduce (or increase) the income of a
REMIC Residual Certificateholder that purchased such REMIC Residual Certificate
from a prior holder of such Certificate at a price greater than (or less than)
the adjusted basis (as defined below) such REMIC Residual Certificate would have
had in the hands of an original holder of such Certificate. The REMIC
Regulations, however, do not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such REMIC Residual Certificate will be taken
into account in determining the income of such holder for federal income tax
purposes. Although it appears likely that any such payment would be includible
in income immediately upon its receipt, the IRS might assert that such payment
should be included in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of such payments, holders of REMIC Residual Certificates should
consult their tax advisors concerning the treatment of such payments for income
tax purposes.
The amount of income REMIC Residual Certificateholders will be required
to report (or the tax liability associated with such income) may exceed the
amount of cash distributions received from the REMIC for the corresponding
period. Consequently, REMIC Residual Certificateholders should have other
sources of funds sufficient to pay any federal income taxes due as a result of
their ownership of REMIC Residual Certificates or unrelated deductions against
which income may be offset, subject to the rules relating to "excess
inclusions", residual interests without "significant value" and "noneconomic"
residual interests discussed below. The fact that the tax liability associated
with the income allocated to REMIC Residual Certificateholders may exceed the
cash distributions received by such REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect such REMIC Residual
Certificateholders' after-tax rate of return.
TAXABLE INCOME OF THE REMIC
The taxable income of the REMIC will equal the income from the
Residential Loans and other assets of the REMIC plus any cancellation of
indebtedness income due to the allocation of realized losses to REMIC Regular
Certificates, less the deductions allowed to the REMIC for interest (including
original issue discount and reduced by any premium on issuance) on the REMIC
Regular Certificates (and any other class of REMIC Certificates constituting
"regular
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interests" in the REMIC not offered hereby), amortization of any premium on the
Residential Loans, bad debt losses with respect to the Residential Loans and,
except as described below, for servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates (or, if a class of REMIC Certificates is not sold
initially, their fair market values). Such aggregate basis will be allocated
among the Residential Loans and the other assets of the REMIC in proportion to
their respective fair market values. The issue price of any REMIC Certificates
offered hereby will be determined in the manner described above under "-Taxation
of Owners of REMIC Regular Certificates-Original Issue Discount". The issue
price of a REMIC Certificate received in exchange for an interest in the
Residential Loans or other property will equal the fair market value of such
interests in the Residential Loans or other property. Accordingly, if one or
more classes of REMIC Certificates are retained initially rather than sold, the
Master Servicer may be required to estimate the fair market value of such
interests in order to determine the basis of the REMIC in the Residential Loans
and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to Residential Loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates (that is, under the constant yield method taking into account the
Prepayment Assumption). However, a REMIC that acquires loans at a market
discount must include such market discount in income currently, as it accrues,
on a constant interest basis. See "-Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing such discount income
that is analogous to that required to be used by a REMIC as to Residential Loans
with market discount that it holds.
A Residential Loan will be deemed to have been acquired with discount
(or premium) to the extent that the REMIC's basis therein, determined as
described in the preceding paragraph, is less than (or greater than) its stated
redemption price. Any such discount will be includible in the income of the
REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing
original issue discount on the REMIC Regular Certificates. It is anticipated
that each REMIC will elect under Section 171 of the Code to amortize any premium
on the Residential Loans. Premium on any Residential Loan to which such election
applies may be amortized under a constant yield method, presumably taking into
account a Prepayment Assumption. Further, such an election would not apply to
any Residential Loan originated on or before September 27, 1985. Instead,
premium on such a Residential Loan should be allocated among the principal
payments thereon and be deductible by the REMIC as those payments become due or
upon the prepayment of such Residential Loan.
A REMIC will be allowed deductions for interest (including original
issue discount) on the REMIC Regular Certificates (including any other class of
REMIC Certificates constituting "regular interests" in the REMIC not offered
hereby) equal to the deductions that would be allowed if the REMIC Regular
Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered hereby) were indebtedness of the
REMIC. Original issue discount will be considered to accrue for this purpose as
described
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above under "-Taxation of Owners of REMIC Regular Certificates-Original Issue
Discount", except that the DE MINIMIS rule and the adjustments for subsequent
holders of REMIC Regular Certificates (including any other class of REMIC
Certificates constituting "regular interests" in the REMIC not offered hereby)
described therein will not apply.
If a class of REMIC Regular Certificates is issued at a price in excess
of the stated redemption price of such class (such excess "Issue Premium"), the
net amount of interest deductions that are allowed the REMIC in each taxable
year with respect to the REMIC Regular Certificates of such class will be
reduced by an amount equal to the portion of the Issue Premium that is
considered to be amortized or repaid in that year. Although the matter is not
entirely certain, it is likely that Issue Premium would be amortized under a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under "-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount".
As a general rule, the taxable income of a REMIC will be determined in
the same manner as if the REMIC were an individual having the calendar year as
its taxable year and using the accrual method of accounting. However, no item of
income, gain, loss or deduction allocable to a prohibited transaction will be
taken into account. See "-Prohibited Transactions and Other Possible REMIC
Taxes" below. Further, the limitation on miscellaneous itemized deductions
imposed on individuals by Section 67 of the Code (which allows such deductions
only to the extent they exceed in the aggregate two percent of the taxpayer's
adjusted gross income) will not be applied at the REMIC level so that the REMIC
will be allowed deductions for servicing, administrative and other non-interest
expenses in determining its taxable income. All such expenses will be allocated
as a separate item to the holders of REMIC Certificates, subject to the
limitation of Section 67 of the Code. See "-Possible Pass-Through of
Miscellaneous Itemized Deductions". If the deductions allowed to the REMIC
exceed its gross income for a calendar quarter, such excess will be the net loss
for the REMIC for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS
The adjusted basis of a REMIC Residual Certificate will be equal to the
amount paid for such REMIC Residual Certificate, increased by amounts included
in the income of the REMIC Residual Certificateholder and decreased (but not
below zero) by distributions made, and by net losses allocated, to such REMIC
Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account
any net loss for any calendar quarter to the extent such net loss exceeds such
REMIC Residual Certificateholder's adjusted basis in its REMIC Residual
Certificate as of the close of such calendar quarter (determined without regard
to such net loss). Any loss that is not currently deductible by reason of this
limitation may be carried forward indefinitely to future calendar quarters and,
subject to the same limitation, may be used only to offset income from the REMIC
Residual Certificate. The ability of REMIC Residual Certificateholders to deduct
net losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in such REMIC Residual
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Certificate. To the extent a distribution on a REMIC Residual Certificate
exceeds such adjusted basis, it will be treated as gain from the sale of such
REMIC Residual Certificate. Holders of certain REMIC Residual Certificates may
be entitled to distributions early in the term of the related REMIC under
circumstances in which their bases in such REMIC Residual Certificates will not
be sufficiently large that such distributions will be treated as nontaxable
returns of capital. Their bases in such REMIC Residual Certificates will
initially equal the amount paid for such REMIC Residual Certificates and will be
increased by their allocable shares of taxable income of the REMIC. However,
such bases increases may not occur until the end of the calendar quarter, or
perhaps the end of the calendar year, with respect to which such REMIC taxable
income is allocated to the REMIC Residual Certificateholders. To the extent such
REMIC Residual Certificateholders' initial bases are less than the distributions
to such REMIC Residual Certificateholders, and increases in such initial bases
either occur after such distributions or (together with their initial bases) are
less than the amount of such distributions, gain will be recognized to such
REMIC Residual Certificateholders on such distributions and will be treated as
gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "-Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder and the adjusted basis such REMIC Residual Certificate would
have in the hands of an original holder, see "-Taxation of Owners of REMIC
Residual Certificates-General".
EXCESS INCLUSIONS
Any "excess inclusions" with respect to a REMIC Residual Certificate
will be subject to federal income tax in all events.
In general, the "excess inclusions" with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of (i) the
daily portions of REMIC taxable income allocable to such REMIC Residual
Certificate over (ii) the sum of the "daily accruals" (as defined below) for
each day during such quarter that such REMIC Residual Certificate was held by
such REMIC Residual Certificateholder. The daily accruals of a REMIC Residual
Certificateholder will be determined by allocating to each day during a calendar
quarter its ratable portion of the product of the "adjusted issue price" of the
REMIC Residual Certificate at the beginning of the calendar quarter and 120% of
the "long-term Federal rate" in effect on the Closing Date. For this purpose,
the adjusted issue price of a REMIC Residual Certificate as of the beginning of
any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters
and decreased (but not below zero) by any distributions made with respect to
such REMIC Residual Certificate before the beginning of such quarter. The issue
price of a REMIC Residual Certificate is the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
REMIC Residual Certificates were sold. The "long-term Federal rate" is an
average of current yields on Treasury securities with a remaining term of
greater than
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nine years, computed and published monthly by the IRS. Although it has not done
so, the Treasury has authority to issue regulations that would treat the entire
amount of income accruing on a REMIC Residual Certificate as an excess inclusion
if the REMIC Residual Certificates are considered not to have "significant
value".
For REMIC Residual Certificateholders, excess inclusions (i) will not
be permitted to be offset by deductions, losses or loss carryovers from other
activities, (ii) will be treated as "unrelated business taxable income" to an
otherwise tax-exempt organization and (iii) will not be eligible for any rate
reduction or exemption under any applicable tax treaty with respect to the 30%
United States withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however, "-Foreign Investors
in REMIC Certificates", below. Furthermore, for purposes of the alternative
minimum tax, (i) excess inclusions will not be permitted to be offset by the
alternative tax net operating loss deduction and (ii) alternative minimum
taxable income may not be less than the taxpayer's excess inclusions. The latter
rule has the effect of preventing nonrefundable tax credits from reducing the
taxpayer's income tax to an amount lower than the tentative minimum tax on
excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Section 857(b)(2) of the
Code, excluding any net capital gain), will be allocated among the shareholders
of such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and certain cooperatives; the
REMIC Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax". If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, based on the
Prepayment Assumption and on any required or permitted clean up calls, or
required liquidation provided for in the REMIC's organizational documents, (1)
the present value of the expected future distributions (discounted using the
"applicable Federal rate" for obligations whose term ends on the close of the
last quarter in which excess inclusions are expected to accrue with respect to
the REMIC Residual Certificate, which rate is computed and published monthly by
the IRS) on the REMIC Residual Certificate equals at least the present value of
the expected tax on the anticipated excess inclusions, and (2) the transferor
reasonably expects that the transferee will receive distributions with respect
to the REMIC Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual Certificates that may
constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the
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related Pooling and Servicing Agreement that are intended to reduce the
possibility of any such transfer being disregarded. Such restrictions will
require each party to a transfer to provide an affidavit that no purpose of such
transfer is to impede the assessment or collection of tax, including certain
representations as to the financial condition of the prospective transferee, as
to which the transferor is also required to make a reasonable investigation to
determine such transferee's historic payment of its debts and ability to
continue to pay its debts as they come due in the future. Prior to purchasing a
REMIC Residual Certificate, prospective purchasers should consider the
possibility that a purported transfer of such REMIC Residual Certificate by such
a purchaser to another purchaser at some future date may be disregarded in
accordance with the above-described rules which would result in the retention of
tax liability by such purchaser.
The related Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will not be considered "noneconomic" will be based upon
certain assumptions, and the Depositor will make no representation that a REMIC
Residual Certificate will not be considered "noneconomic" for purposes of the
above-described rules. See "-Foreign Investors in REMIC Certificates-REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of certain REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES
Prospective purchasers of a REMIC Residual Certificate should be aware
that on January 3, 1995, the IRS released proposed regulations (the "Proposed
Mark-to-Market Regulations") relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-market
requirement applies to all securities owned by a dealer, except to the extent
that the dealer has specifically identified a security as held for investment.
The Proposed Mark-to-Market Regulations provide that for purposes of this
mark-to-market requirement, a REMIC Residual Certificate is not treated as a
security and thus may not be marked to market. The Proposed Mark-to-Market
Regulations apply to all REMIC Residual Certificates acquired on or after
January 4, 1995.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS
Fees and expenses of a REMIC generally will be allocated to the holders
of the related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single class
grantor trust, all or a portion of such fees and expenses should be allocated to
the holders of the related REMIC Regular Certificates. Unless otherwise stated
in the related Prospectus Supplement, such fees and expenses will be allocated
to holders of the related REMIC Residual Certificates in their entirety and not
to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular
Certificates the holders of which receive an allocation of fees and expenses in
accordance with the preceding discussion, if any holder thereof is an
individual, estate or trust, or a "pass-through entity" beneficially owned by
one or more individuals, estates or trusts, (i) an amount equal to such
individual's, estate's or trust's share of such fees and expenses will be added
to the gross income of such
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holder and (ii) such individual's, estate's or trust's share of such fees and
expenses will be treated as a miscellaneous itemized deduction allowable subject
to the limitation of Section 67 of the Code, which permits such deductions only
to the extent they exceed in the aggregate two percent of a taxpayer's adjusted
gross income. In addition, Section 68 of the Code provides that the amount of
itemized deductions otherwise allowable for an individual whose adjusted gross
income exceeds a specified amount will be reduced by the lesser of (i) 3% of the
excess of the individual's adjusted gross income over such amount or (ii) 80% of
the amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income reportable by REMIC Certificateholders that
are subject to the limitations of either Section 67 or Section 68 of the Code
may be substantial. Furthermore, in determining the alternative minimum taxable
income of such a holder of a REMIC Certificate that is an individual, estate or
trust, or a "pass-through entity" beneficially owned by one or more individuals,
estates or trusts, no deduction will be allowed for such holder's allocable
portion of servicing fees and other miscellaneous itemized deductions of the
REMIC, even though an amount equal to the amount of such fees and other
deductions will be included in such holder's gross income. Accordingly, such
REMIC Certificates may not be appropriate investments for individuals, estates,
or trusts, or pass-through entities beneficially owned by one or more
individuals, estates or trusts. Such prospective investors should carefully
consult with their own tax advisors prior to making an investment in such
Certificates.
SALES OF REMIC CERTIFICATES
If a REMIC Certificate is sold, the selling Certificateholder will
recognize gain or loss equal to the difference between the amount realized on
the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of
a REMIC Regular Certificate generally will equal the cost of such REMIC Regular
Certificate to such Certificateholder, increased by income reported by such
Certificateholder with respect to such REMIC Regular Certificate (including
original issue discount and market discount income) and reduced (but not below
zero) by distributions on such REMIC Regular Certificate received by such
Certificateholder and by any amortized premium. The adjusted basis of a REMIC
Residual Certificate will be determined as described under "-Taxation of Owners
of REMIC Residual Certificates-Basis Rules, Net Losses and Distributions".
Except as provided in the following two paragraphs, any such gain or loss will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset (generally, property held for investment) within the meaning of Section
1221 of the Code. The Code as of the date of this Prospectus provides for a top
marginal tax rate of 39.6% for individuals and a maximum marginal rate for
long-term capital gains of individuals of 28%. No such rate differential exists
for corporations. In addition, the distinction between a capital gain or loss
and ordinary income or loss remains relevant for other purposes.
Gain from the sale of a REMIC Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent such gain does
not exceed the excess, if any, of (i) the amount that would have been includible
in the seller's income with respect to such REMIC Regular Certificate assuming
that income had accrued thereon at a rate equal to 110% of the "applicable
Federal rate" (generally, a rate based on an average of current yields on
Treasury securities having a maturity comparable to that of the Certificate
based on the application of the Prepayment Assumption to such Certificate, which
rate is computed and published monthly by the IRS), determined as of the date of
purchase of such REMIC Regular
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Certificate, over (ii) the amount of ordinary income actually includible in the
seller's income prior to such sale. In addition, gain recognized on the sale of
a REMIC Regular Certificate by a seller who purchased such REMIC Regular
Certificate at a market discount will be taxable as ordinary income in an amount
not exceeding the portion of such discount that accrued during the period such
REMIC Certificate was held by such holder, reduced by any market discount
included in income under the rules described above under "-Taxation of Owners of
REMIC Regular Certificates-Market Discount" and "-Premium".
REMIC Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a REMIC Certificate by a bank or thrift institution to which such
section applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that such Certificate is held as part of a "conversion transaction" within the
meaning of Section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable Federal rate" (which rate is computed and
published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include such
net capital gain in total net investment income for the taxable year, for
purposes of the rule that limits the deduction of interest on indebtedness
incurred to purchase or carry property held for investment to a taxpayer's net
investment income.
Except as may be provided in Treasury regulations yet to be issued, if
the seller of a REMIC Residual Certificate reacquires a REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a "taxable mortgage pool" (as defined in Section 7701(i) of the
Code) during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of Section 1091 of the Code. In that event, any loss realized by the REMIC
Residual Certificateholder on the sale will not be deductible, but instead will
be added to such REMIC Residual Certificateholder's adjusted basis in the
newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (a "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions a prohibited transaction means
the disposition of a Residential Loan, the receipt of income from a source other
than a Residential Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset
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purchased with the payments on the Residential Loans for temporary investment
pending distribution on the REMIC Certificates. It is not anticipated that the
REMIC will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a REMIC made after the day on
which the REMIC issues all of its interests could result in the imposition of a
tax on the REMIC equal to 100% of the value of the contributed property (a
"Contributions Tax"). Each Pooling and Servicing Agreement will include
provisions designed to prevent the acceptance of any contributions that would be
subject to such tax.
REMICs also are 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. "Net income from foreclosure
property" generally means gain from the sale of a 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.
Unless otherwise disclosed in the related Prospectus Supplement, it is not
anticipated that any REMIC will recognize "net income from foreclosure property"
subject to federal income tax.
Unless otherwise disclosed in the related Prospectus Supplement, it is
not anticipated that any material state or local income or franchise tax will be
imposed on any REMIC.
Unless otherwise stated in the related Prospectus Supplement, and to
the extent permitted by then applicable laws, any Prohibited Transactions Tax,
Contributions Tax, tax on "net income from foreclosure property" or state or
local income or franchise tax that may be imposed on the REMIC will be borne by
the related Master Servicer or the Trustee in either case out of its own funds,
provided that the Master Servicer or the Trustee, as the case may be, has
sufficient assets to do so, and provided further that such tax arises out of a
breach of the Master Servicer's or the Trustee's obligations, as the case may
be, under the related Pooling and Servicing Agreement and in respect of
compliance with applicable laws and regulations. Any such tax not borne by the
Master Servicer or the Trustee will be charged against the related Trust Fund
resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
ORGANIZATIONS
If a REMIC Residual Certificate is transferred to a "disqualified
organization" (as defined below), a tax would be imposed in an amount
(determined under the REMIC Regulations) equal to the product of (i) the present
value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to
accrue with respect to the REMIC Residual Certificate, which rate is computed
and published monthly by the IRS) of the total anticipated excess inclusions
with respect to such REMIC Residual Certificate for periods after the transfer
and (ii) the highest marginal federal income tax rate applicable to
corporations. The anticipated excess inclusions must be determined as of the
date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of such transfer, the Prepayment
Assumption and any required or permitted clean up calls or required liquidation
provided for in the REMIC's organizational documents. Such a tax generally would
be imposed on the transferor of the REMIC Residual Certificate, except that
where such transfer is through an agent for a disqualified organization,
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the tax would instead be imposed on such agent. However, a transferor of a REMIC
Residual Certificate would in no event be liable for such tax with respect to a
transfer if the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that such affidavit is
false. Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that (i) residual interests in such
entity are not held by disqualified organizations and (ii) information necessary
for the application of the tax described herein will be made available.
Restrictions on the transfer of REMIC Residual Certificates and certain other
provisions that are intended to meet this requirement will be included in the
Pooling and Servicing Agreement, and will be discussed more fully in any
Prospectus Supplement relating to the offering of any REMIC Residual
Certificate.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a REMIC Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be imposed on such entity equal to the product of (i) the amount
of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
each record holder of an interest in such pass-through entity furnishes to such
pass-through entity (i) such holder's social security number and a statement
under penalty of perjury that such social security number is that of the record
holder or (ii) a statement under penalty of perjury that such record holder is
not a disqualified organization.
For these purposes, a "disqualified organization" means (i) the United
States, any State or political subdivision thereof, any foreign government, any
international organization, or any agency or instrumentality of the foregoing
(but would not include instrumentalities described in Section 168(h)(2)(D) of
the Code or the Federal Home Loan Mortgage Corporation), (ii) any organization
(other than a cooperative described in Section 521 of the Code) that is exempt
from federal income tax, unless it is subject to the tax imposed by Section 511
of the Code or (iii) any organization described in Section 1381(a)(2)(C) of the
Code. For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
will, with respect to such interest, be treated as a pass-through entity.
TERMINATION
A REMIC will terminate immediately after the Distribution Date
following receipt by the REMIC of the final payment in respect of the
Residential Loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last distribution on a REMIC
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a REMIC Residual Certificate, if the last
distribution on such REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in such Certificate, such REMIC Residual
Certificateholder should (but may not) be treated as realizing a loss equal to
the amount of such difference, and such loss may be treated as a capital loss.
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REPORTING AND OTHER ADMINISTRATIVE MATTERS
Solely for purposes of the administrative provisions of the Code, the
REMIC will be treated as a partnership and REMIC Residual Certificateholders
will be treated as partners. Unless otherwise stated in the related Prospectus
Supplement, the Trustee, which generally will hold at least a nominal amount of
REMIC Residual Certificates, will file REMIC federal income tax returns on
behalf of the related REMIC, will be designated as and will act as the "tax
matters person" with respect to the REMIC in all respects.
As the tax matters person, the Trustee will, subject to certain notice
requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of
items of income, deduction, gain or loss of the REMIC, as well as the REMIC's
classification. REMIC Residual Certificateholders will generally be required to
report such REMIC items consistently with their treatment on the related REMIC's
tax return and may in some circumstances be bound by a settlement agreement
between the Trustee, as tax matters person, and the IRS concerning any such
REMIC item. Adjustments made to the REMIC tax return may require a REMIC
Residual Certificateholder to make corresponding adjustments on its return, and
an audit of the REMIC's tax return, or the adjustments resulting from such an
audit, could result in an audit of a REMIC Residual Certificateholder's return.
No REMIC will be registered as a tax shelter pursuant to Section 6111 of the
Code because it is not anticipated that any REMIC will have a net loss for any
of the first five taxable years of its existence. Any person that holds a REMIC
Residual Certificate as a nominee for another person may be required to furnish
to the related REMIC, in a manner to be provided in Treasury regulations, the
name and address of such person and other information.
Reporting of interest income, including any original issue discount,
with respect to REMIC Regular Certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent to individual holders of REMIC Regular
Interests and the IRS; holders of REMIC Regular Certificates that are
corporations, trusts, securities dealers and certain other non-individuals will
be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with
the requirements of the applicable regulations. The information must be provided
by the later of 30 days after the end of the quarter for which the information
was requested, or two weeks after the receipt of the request. The REMIC must
also comply with rules requiring a REMIC Regular Certificate issued with
original issue discount to disclose on its face the amount of original issue
discount and the issue date, and requiring such information to be reported to
the IRS. Reporting with respect to the REMIC Residual Certificates, including
income, excess inclusions, investment expenses and relevant information
regarding qualification of the REMIC's assets will be made as required under the
Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will
include a statement of the adjusted issue price of the REMIC Regular Certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the
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holder's purchase price that the Master Servicer will not have, such regulations
only require that information pertaining to the appropriate proportionate method
of accruing market discount be provided. See "-Taxation of Owners of REMIC
Regular Certificates-Market Discount".
The responsibility for complying with the foregoing reporting rules
will be borne by the Trustee, unless otherwise stated in the related Prospectus
Supplement.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES
Payments of interest and principal, as well as payments of proceeds
from the sale of REMIC Certificates, may be subject to the "backup withholding
tax" under Section 3406 of the Code at a rate of 31% if recipients of such
payments fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal income
tax. Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES
A REMIC Regular Certificateholder that is not a "United States person"
(as defined below) and is not subject to federal income tax as a result of any
direct or indirect connection to the United States in addition to its ownership
of a REMIC Regular Certificate will not, unless otherwise disclosed in the
related Prospectus Supplement, be subject to United States federal income or
withholding tax in respect of a distribution on a REMIC Regular Certificate,
provided that the holder complies to the extent necessary with certain
identification requirements (including delivery of a statement, signed by the
Certificateholder under penalties of perjury, certifying that such
Certificateholder is not a United States person and providing the name and
address of such Certificateholder). For these purposes, "United States person"
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in, or under the laws of, the United States or
any political subdivision thereof, or an estate or trust whose income is subject
to United States federal income tax regardless of its source. It is possible
that the IRS may assert that the foregoing tax exemption should not apply with
respect to a REMIC Regular Certificate held by a REMIC Residual
Certificateholder that owns directly or indirectly a 10% or greater interest in
the REMIC Residual Certificates. If the holder does not qualify for exemption,
distributions of interest, including distributions in respect of accrued
original issue discount, to such holder may be subject to a tax rate of 30%,
subject to reduction under any applicable tax treaty.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on such
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be
included in the estate of a non-resident alien individual and would not be
subject to United States estate taxes. However, Certificateholders who are
non-resident alien individuals should consult their tax advisors concerning this
question.
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Unless otherwise stated in the related Prospectus Supplement, transfers
of REMIC Residual Certificates to investors that are not United States Persons
will be prohibited under the related Pooling and Servicing Agreement.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in
"Certain Federal Income Tax Consequences", potential investors should consider
the state and local tax consequences of the acquisition, ownership, and
disposition of the Certificates offered hereunder. State tax law may differ
substantially from the corresponding federal tax law, and this discussion does
not purport to describe any aspect of the tax laws of any state or other
jurisdiction. Therefore, prospective investors should consult their own tax
advisors with respect to the various tax consequences of investments in the
Certificates offered hereunder.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements on employee benefit plans
and on certain other retirement plans and arrangements, including individual
retirement accounts and annuities, Keogh plans and collective investment funds
and separate accounts in which such plans, accounts or arrangements are invested
subject to ERISA and the Code (all of which are hereinafter referred to as
"Plans") and on persons who are fiduciaries with respect to such Plans. Certain
employee benefit plans, such as governmental plans (as defined in Section 3(32)
of ERISA), and, if no election has been made under Section 410(d) of the Code,
church plans (as defined in Section 3(33) of ERISA), are not subject to the
ERISA requirements discussed herein. Accordingly, assets of such plans may be
invested in Certificates without regard to the ERISA considerations described
below, subject to the provisions of applicable federal and state law. Any such
plan which is qualified and exempt from taxation under Sections 401(a) and
501(a) of the Code, however, is subject to the prohibited transaction rules set
forth in Section 503 of the Code.
In addition to the imposition of general fiduciary requirements
including those of investment prudence and diversification and the requirement
that a Plan's investment be made in accordance with the documents governing the
Plan, Section 406(a) of ERISA and Section 4975(c)(1)(A), (B), (C) and (D) of the
Code prohibit a broad range of transactions involving assets of a Plan and
persons ("Parties in Interest" within the meaning of Section 3(14) of ERISA and
"Disqualified Persons" within the meaning of Section 4975(e)(2) of the Code,
collectively referred to as "Parties in Interest") who have certain specified
relationships to the Plan. In addition, Section 406(b) of ERISA and Section
4975(c)(1)(E) and (F) of the Code impose certain prohibitions on Parties in
Interest who are fiduciaries with respect to the Plan. Certain Parties in
Interest to a prohibited transaction may be subject to a penalty imposed under
Section 502(i) of ERISA or an excise tax pursuant to Sections 4975(a) and (b) of
the Code, unless a statutory or administrative exemption is available.
A Plan's investment in Certificates may cause the Residential Loans,
Mortgage Securities (if any), Agency Securities and other assets included in a
Trust Fund to be deemed Plan assets. Under Section 2510.3-101 of the regulations
of the United States Department of Labor ("DOL"), which were issued November 13,
1986, when a Plan acquires an equity interest in an entity, the
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Plan's assets include the investment in the entity and an undivided interest in
each of the underlying assets of the entity, unless certain exceptions not
applicable here apply, or unless the equity participation in the entity by
"benefit plan investors" (i.e., Plans, and certain employee benefit plans not
subject to ERISA) is not significant. For this purpose, in general,
participation is considered "significant" on any date if 25% or more of the
value of any class of equity interests is held by benefit plan investors. Equity
participation in a Trust Fund will be significant on any date if, immediately
after the most recent acquisition of any Certificate, 25% or more of the value
of any class of Certificates is held by benefit plan investors.
Any person who has discretionary authority or control respecting the
management or disposition of Plan assets, and any person who provides investment
advice with respect to such assets for a fee, is a fiduciary of the investing
Plan. If the Residential Loans, Agency Securities, Mortgage Securities and other
assets included in a Trust Fund constitute Plan assets, then any party
exercising management or discretionary control regarding those assets such as
the Master Servicer or any Sub-Servicer may be deemed to be a Plan "fiduciary,"
and thus subject to the fiduciary requirements and prohibited transaction
provisions of ERISA with respect to the investing Plan. In addition, if the
Residential Loans, Agency Securities, Mortgage Securities or other assets
included in a Trust Fund constitute Plan assets, the purchase of Certificates by
a Plan, as well as the operation of the related Trust Fund, may constitute or
involve a prohibited transaction under ERISA and the Code.
Some of the transactions involving the Certificates that might
otherwise constitute prohibited transactions under ERISA or the Code might
qualify for relief from the prohibited transaction rules under certain
administrative exemptions, which may be individual or class exemptions. The DOL
issued an individual exemption, Prohibited Transaction Exemption 90-36 (the
"Exemption"), on June 19, 1990 to PaineWebber Incorporated, which generally
exempts from the application of the prohibited transaction provisions of Section
406 of ERISA, and the excise taxes imposed on such prohibited transactions
pursuant to Section 4975(a) and (b) of the Code and Section 502(i) of ERISA,
certain transactions, among others, relating to the servicing and operation of
mortgage pools and the purchase, sale and holding of mortgage pass-through
certificates underwritten by an Underwriter (as hereinafter defined), provided
that certain conditions set forth in the Exemption are satisfied. For purposes
of this Section "ERISA Considerations", the term "Underwriter" shall include (a)
PaineWebber Incorporated, (b) any person directly or indirectly, through one or
more intermediaries, controlling, controlled by or under common control with
PaineWebber Incorporated and (c) any member of the underwriting syndicate or
selling group of which a person described in (a) or (b) is a manager or
co-manager with respect to a class of Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of Certificates to be
eligible for exemptive relief thereunder. First, the acquisition of Certificates
by a Plan must be on terms that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated party. Second, the
Exemption only applies to Certificates evidencing rights and interests not
subordinated to the rights and interests evidenced by the other Certificates of
the same series. Third, the Certificates at the time of acquisition by the Plan
must be rated in one of the three highest generic rating categories by Standard
& Poor's Corporation, Moody's Investors Service, Inc., Duff & Phelps, Inc. or
Fitch Investors Service, Inc. Fourth, the Trustee cannot be an
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affiliate of any other member of the "Restricted Group" which consists of any
Underwriter, the Depositor, the Trustee, the Master Servicer, any Sub-Servicer,
the obligor on credit support and any mortgagor with respect to Trust Fund
Assets constituting more than 5% of the aggregate unamortized principal balance
of the Trust Fund Assets in the related Trust Fund as of the date of initial
issuance of the Certificates. Fifth, the sum of all payments made to and
retained by the Underwriter(s) must represent not more than reasonable
compensation for underwriting the Certificates; the sum of all payments made to
and retained by the Depositor pursuant to the assignment of the Trust Fund
Assets to the related Trust Fund must represent not more than the fair market
value of such obligations; and the sum of all payments made to and retained by
the Master Servicer and any Sub-Servicer must represent not more than reasonable
compensation for such person's services under the related Pooling and Servicing
Agreement and reimbursement of such person's reasonable expenses in connection
therewith. Sixth, the investing Plan must be an accredited investor as defined
in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
A fiduciary of a Plan contemplating purchasing a Certificate must make
its own determination that the general conditions set forth above will be
satisfied with respect to such Certificate. However, to the extent that
Certificates are subordinate, the Exemption will not apply to an investment by a
Plan. In addition, any Certificates representing a beneficial ownership in
unsecured obligations will not satisfy the general conditions of the Exemption.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Section 4975(c) of the Code) in connection with the
direct or indirect sale, exchange, transfer, holding or the direct or indirect
acquisition or disposition in the secondary market of Certificates by Plans.
However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
Certificate on behalf of an "Excluded Plan" by any person who has discretionary
authority or renders investment advice with respect to the assets of such
Excluded Plan. For purposes of the Certificates, an Excluded Plan is a Plan
sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(b)(1) and (b)(2) of ERISA and the taxes imposed by Section 4975(c)(1)(E) of
the Code in connection with (1) the direct or indirect sale, exchange or
transfer of Certificates in the initial issuance of Certificates between the
Depositor or an Underwriter and a Plan when the person who has discretionary
authority or renders investment advice with respect to the investment of Plan
assets in the Certificates is (a) a mortgagor with respect to 5% or less of the
fair market value of the Trust Fund Assets or (b) an affiliate of such a person,
(2) the direct or indirect acquisition or disposition in the secondary market of
Certificates by a Plan and (3) the holding of Certificates by a Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the Trust Funds. The
Depositor expects that the specific conditions of the
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Exemption required for this purpose will be satisfied with respect to the
Certificates so that the Exemption would provide an exemption from the
restrictions imposed by Sections 406(a) and (b) of ERISA (as well as the excise
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code) for transactions in connection with the servicing,
management and operation of the Trust Funds, provided that the general
conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code if
such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" (within the meaning of Section 3(14) of
ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of
the Code) with respect to an investing Plan by virtue of providing services to
the Plan (or by virtue of having certain specified relationships to such a
person) solely as a result of the Plan's ownership of Certificates.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the Plan fiduciary should
consider its general fiduciary obligations under ERISA in determining whether to
purchase any Certificates on behalf of a Plan.
In addition to the Exemption, the DOL has issued a number of class
exemptions which may apply to a transaction involving a Plan's acquisition or
holding of Certificates. In particular, in connection with a contemplated
purchase of Certificates representing a beneficial ownership interest in a pool
of consisting of interest bearing obligations secured by either first or second
mortgages on single-family, residential property, Prohibited Transaction Class
Exemption ("PTCE") 83-1 exempts certain transactions involving mortgage pool
investment trusts. There also may be other class exemptions applicable to
certain transactions involving the Trust Fund, including PTCE 84-14, which
exempts certain transactions involving employee benefit plans and an investment
fund in which such plan has an interest and which is managed by a qualified
professional asset manager, provided that such transactions are not described in
PTCE 83-1, PTCE 96-23, which exempts certain transactions involving an employee
benefit plan which is managed by an in-house asset manager, provided that such
transactions are not described in PTCE 83-1, PTCE 86-128, which exempts certain
transactions involving employee benefit plans and certain broker-dealers, PTCE
90-1, which exempts certain transactions involving employee benefit plans and
insurance company pooled separate accounts, PTCE 91-38, which exempts certain
transactions involving employee benefit plans and bank collective investment
funds, and PTCE 95-60, which exempts certain transactions involving employee
benefit plans and insurance company general accounts. There are other prohibited
transaction class exemptions that have been issued by the DOL that may apply to
a transaction involving Certificates.
Any plan fiduciary which proposes to cause a Plan to purchase
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such
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investment and the availability of the Exemption or any class exemption in
connection therewith. There can be no assurance that the Exemption or any other
individual or class exemption will apply with respect to any particular Plan
that acquires or holds Certificates or, even if all of the conditions specified
therein were satisfied, that such exemption would apply to all transactions
involving the Trust Fund. The Prospectus Supplement with respect to a series of
Certificates may contain additional information regarding the application of the
Exemption, PTCE 83-1, or any other exemption, with respect to the Certificates
offered thereby. In addition, any Plan fiduciary that proposes to cause a Plan
to purchase Strip Certificates should consider the federal income tax
consequences of such investment.
ANY PLAN FIDUCIARY CONSIDERING WHETHER TO PURCHASE A CERTIFICATE ON
BEHALF OF A PLAN SHOULD CONSULT WITH ITS COUNSEL REGARDING THE APPLICABILITY OF
THE FIDUCIARY RESPONSIBILITY AND PROHIBITED TRANSACTION PROVISIONS OF ERISA AND
THE CODE TO SUCH INVESTMENT.
LEGAL INVESTMENT
The Prospectus Supplements for each Series of Certificates will specify
which, if any, of the classes of Certificates offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). "Mortgage related securities" are legal
investments to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, insurance companies and pension funds
created pursuant to or existing under the laws of the United States or of any
state, the authorized investments of which are subject to state regulation).
Under SMMEA, if a state enacts legislation prior to October 3, 1991 specifically
limiting the legal investment authority of any such entities with respect to
"mortgage related securities", the Certificates will constitute legal
investments for entities subject to such legislation only to the extent provided
in such legislation. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in "mortgage related securities", or
require the sale or other disposition of such securities, so long as such
contractual commitment was made or such securities acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with "mortgage related securities" without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
Any class of Certificates offered hereby and by the related Prospectus
Supplement that is not initially rated in one of the two highest rating
categories by at least one Rating Agency or that represents an interest in a
Trust Fund that includes junior Residential Loans will NOT constitute "mortgage
related securities" for purposes of SMMEA. Prospective investors in such
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classes of Certificates, in particular, should consider the matters discussed in
the following paragraphs.
The Federal Financial Institutions Examination Council has issued a
supervisory policy statement (the "Policy Statement") applicable to all
depository institutions, setting forth guidelines for and significant
restrictions on investments in "high-risk mortgage securities". The Policy
Statement has been adopted by the Federal Reserve Board, the Office of the
Comptroller of the Currency, the FDIC and the OTS with an effective date of
February 10, 1992. The Policy Statement generally indicates that a mortgage
derivative product will be deemed to be high risk if it exhibits greater price
volatility than a standard fixed rate thirty-year mortgage security. According
to the Policy Statement, prior to purchase, a depository institution will be
required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition
would reduce the institution's overall interest rate risk. Reliance on analysis
and documentation obtained from a securities dealer or other outside party
without internal analysis by the institution would be unacceptable. There can be
no assurance as to which classes of Certificates will be treated as high-risk
under the Policy Statement.
The predecessor of the Office of Thrift Supervision ("OTS") issued a
bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which is
applicable to thrift institutions regulated by the OTS. The bulletin established
guidelines for the investment by savings institutions in certain "high-risk"
mortgage derivative securities and limitations on the use of such securities by
insolvent, undercapitalized or otherwise "troubled" institutions. According to
the bulletin, such "high-risk" mortgage derivative securities include securities
having certain specified characteristics, which may include certain classes of
Certificates. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which prohibit investment
in certain specified types of securities, which may include certain classes of
Certificates. Similar policy statements have been issued by regulators having
jurisdiction over other types of depository institutions.
There may be other restrictions on the ability of certain investors
either to purchase certain classes of Certificates or to purchase any class of
Certificates representing more than a specified percentage of the investors'
assets. The Company will make no representations as to the proper
characterization of any class of Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase any class of
Certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Certificates. Accordingly,
all investors whose investment activities are subject to legal investment laws
and regulations, regulatory capital requirements or review by regulatory
authorities should consult with their own legal advisors in determining whether
and to what extent the Certificates of any class constitute legal investments or
are subject to investment, capital or other restrictions, and, if applicable,
whether SMMEA has been overridden in any jurisdiction relevant to such investor.
PLANS OF DISTRIBUTION
The Certificates offered hereby and by the Supplements to this
Prospectus will be offered in Series. The distribution of the Certificates may
be effected from time to time in one or more
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transactions, including negotiated transactions, at a fixed public offering
price or at varying prices to be determined at the time of sale or at the time
of commitment therefor. If so specified in the related Prospectus Supplement,
the Certificates will be distributed in a firm commitment underwriting, subject
to the terms and conditions of the underwriting agreement, by PaineWebber
Incorporated ("PaineWebber") acting as underwriter with other underwriters, if
any, named therein. In such event, the Prospectus Supplement may also specify
that the underwriters will not be obligated to pay for any Certificates agreed
to be purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of the Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Certificates
in the form of discounts, concessions or commissions. The Prospectus Supplement
will describe any such compensation paid by the Depositor.
Alternatively, the Prospectus Supplement may specify that the
Certificates will be distributed by PaineWebber acting as agent or in some cases
as principal with respect to Certificates which it has previously purchased or
agreed to purchase. If PaineWebber acts as agent in the sale of Certificates,
PaineWebber will receive a selling commission with respect to each Series of
Certificates, depending on market conditions, expressed as a percentage of the
aggregate principal balance of the related Residential Loans as of the Cut-off
Date. The exact percentage for each Series of Certificates will be disclosed in
the related Prospectus Supplement. To the extent that PaineWebber elects to
purchase Certificates as principal, PaineWebber may realize losses or profits
based upon the difference between its purchase price and the sales price. The
Prospectus Supplement with respect to any Series offered other than through
underwriters will contain information regarding the nature of such offering and
any agreements to be entered into between the Depositor and purchasers of
Certificates of such Series.
The Depositor will indemnify PaineWebber and any underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, or will contribute to payments PaineWebber and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, PaineWebber and the Depositor may
engage in various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's residential loans
pending the sale of such residential loans or interests therein, including the
Certificates.
The Depositor anticipates that the Certificates will be sold primarily
to institutional investors. Purchasers of Certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Certificates. Certificateholders should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
As to each Series of Certificates, only those classes rated in one of
the four highest rating categories by any Rating Agency will be offered hereby.
Any unrated class may be initially retained by the Depositor, and may be sold by
the Depositor at any time to one or more institutional investors.
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LEGAL MATTERS
Certain legal matters in connection with the Certificates will be
passed upon for the Depositor by Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
Unless otherwise specified in the related Prospectus Supplement, it is
a condition to the issuance of the Certificates of each Series offered hereby
and by the Prospectus Supplement that they shall have been rated in one of the
four highest rating categories by the nationally recognized statistical rating
agency or agencies (each, a "Rating Agency") specified in the related Prospectus
Supplement.
Any such rating would be based on, among other things, the adequacy of
the value of the Trust Fund Assets and any credit enhancement with respect to
such class and will reflect such Rating Agency's assessment solely of the
likelihood that holders of a class of Certificates of such class will receive
payments to which such Certificateholders are entitled under the related
Agreement. Such rating will not constitute an assessment of the likelihood that
principal prepayments on the related Residential Loans will be made, the degree
to which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the Series of
Certificates. Such rating should not be deemed a recommendation to purchase,
hold or sell Certificates, inasmuch as it does not address market price or
suitability for a particular investor. Such rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause such investor to experience a lower than anticipated yield or
that an investor purchasing a Certificate at a significant premium might fail to
recoup its initial investment under certain prepayment scenarios.
There is also no assurance that any such rating will remain in effect
for any given period of time or that it may not be lowered or withdrawn entirely
by the Rating Agency in the future if in its judgment circumstances in the
future so warrant. In addition to being lowered or withdrawn due to any erosion
in the adequacy of the value of the Trust Fund Assets or any credit enhancement
with respect to a Series, such rating might also be lowered or withdrawn among
other reasons, because of an adverse change in the financial or other condition
of a credit enhancement provider or a change in the rating of such credit
enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established
with respect to a Series of Certificates will be determined on the basis of
criteria established by each Rating Agency rating classes of such Series. Such
criteria are sometimes based upon an actuarial analysis of the behavior of
mortgage loans in a larger group. Such analysis is often the basis
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upon which each Rating Agency determines the amount of credit enhancement
required with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately reflect
future experience nor any assurance that the data derived from a large pool of
mortgage loans accurately predicts the delinquency, foreclosure or loss
experience of any particular pool of Residential Loans. No assurance can be
given that values of any Residential Properties have remained or will remain at
their levels on the respective dates of origination of the related Residential
Loans. If the residential real estate markets should experience an overall
decline in property values such that the outstanding principal balances of the
Residential Loans in a particular Trust Fund and any secondary financing on the
related Residential Properties become equal to or greater than the value of the
Residential Properties, the rates of delinquencies, foreclosures and losses
could be higher than those now generally experienced in the mortgage lending
industry. In additional, adverse economic conditions (which may or may not
affect real property values) may affect the timely payment by mortgagors of
scheduled payments of principal and interest on the Residential Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect to
any Trust Fund. To the extent that such losses are not covered by credit
enhancement, such losses will be borne, at least in part, by the holders of one
or more classes of the Certificates of the related Series.
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INDEX OF SIGNIFICANT DEFINITIONS
PAGE ON WHICH
TERM IN THE TERM IS DEFINED
PROSPECTUS IN THE PROSPECTUS
- ---------- -----------------
Accessories ..........................................................30
Accrual Certificates.....................................................6, 49
Accrued Certificate Interest................................................58
Administration Fee Rate.....................................................74
Advance ..........................................................13
Advances ......................................................48, 55
Agency Securities ...........................................................1
Agreement .......................................................4, 48
ARM Loans ..........................................................25
Assumed Reinvestment Rate...................................................59
Available Distribution Amount...............................................60
Balloon Loans ..........................................................25
BIF ..........................................................44
Buydown Loans ..........................................................29
Buydown Period ..........................................................29
Cash Flow Value ..........................................................59
CERCLA .........................................................114
Certificate Account.........................................................11
Certificate Interest Rate....................................................5
Certificate Principal Balance............................................5, 59
Certificates ...........................................................4
Charter Act ..........................................................33
Code .......................................................6, 14
Collateral Value ..........................................................30
Commission ...........................................................1
Committee Report .........................................................125
Contracts .......................................................9, 24
Cooperative .......................................................9, 24
Cooperative Loans .......................................................9, 24
Cooperative Notes ..........................................................28
Cooperative Unit ..........................................................24
Corporate Trust Office......................................................48
Credit Insurance Instrument.................................................71
Cumulative Subordination Payments...........................................62
Cut-off Date ...........................................................7
Deficiency Event ..........................................................79
Deposit Period ..........................................................64
Depositor ...........................................................4
Distribution Date .......................................................7, 56
DOL .........................................................151
Due Period ..........................................................59
Due-on-encumbrance..........................................................41
i
<PAGE>
PAGE ON WHICH
TERM IN THE TERM IS DEFINED
PROSPECTUS IN THE PROSPECTUS
- ---------- -----------------
Due-on-sale .....................................................41, 111
EPA .........................................................114
ERISA .........................................................151
Events of Default ..........................................................80
Exemption .........................................................152
FDIC ..........................................................44
FHA ..........................................................11
FHA Loans ..........................................................26
FHLMC .......................................................1, 11
FHLMC Act ..........................................................34
FHLMC Certificate group.....................................................34
FHLMC Certificates......................................................11, 31
Final Distribution Date.....................................................57
FNMA .......................................................1, 11
FNMA Certificates ......................................................11, 31
FTC Rule .........................................................109
Garn-St Germain Act........................................................110
GNMA .......................................................1, 11
GNMA Certificates ......................................................11, 31
Grantor Trust Certificates..................................................13
Grantor Trust Fractional Interest Certificate..............................118
Grantor Trust Strip Certificate............................................118
Hazard Insurance Instrument.................................................71
Holder-in-Due-Course.......................................................109
Housing Act ..........................................................29
Initial Deposit ..........................................................63
Insurability Representation.................................................53
Insurance Instrument........................................................72
Insurance Proceeds..........................................................55
Interest Rate ......................................................10, 25
L/C Bank ..........................................................94
Liquidation Proceeds........................................................55
Loan-to-Value Ratio.........................................................30
Lockout Period ..........................................................26
Manager ..........................................................26
Manufactured home ..........................................................28
Manufacturer's Invoice Price................................................30
Master Servicer ...........................................................4
Maximum Subordination Amount................................................63
Mortgage Loans .......................................................9, 24
Mortgage Notes ..........................................................26
ii
<PAGE>
PAGE ON WHICH
TERM IN THE TERM IS DEFINED
PROSPECTUS IN THE PROSPECTUS
- ---------- -----------------
Mortgaged Properties.........................................................9
Mortgages ..........................................................26
Multifamily Loans .......................................................9, 24
Net Interest Rate ..........................................................49
Nonrecoverable Advance......................................................65
OID Regulations .........................................................117
Optional Termination........................................................13
OTS .........................................................156
Parties in Interest........................................................151
Percentage Interest.........................................................48
Permitted Instruments.......................................................54
Plans .........................................................151
Policy Statement .........................................................156
Pooling and Servicing Agreement.............................................36
Prepayment Period ..........................................................39
Primary Hazard Insurance Policy.............................................86
Purchase Price ..........................................................45
Realized Loss ..........................................................61
Refinance Loans ..........................................................30
Regular Interests .....................................................49, 117
Relief Act .........................................................116
REMIC .......................................................2, 49
REMIC Regular Certificates..................................................13
Reserve Fund ......................................................63, 93
Residential Loan Program....................................................36
Residential Loans ...........................................................1
Residential Properties...................................................9, 24
Residual interests..................................................6, 49, 117
Restricted Group .........................................................153
Retained Interest ..........................................................48
Retained Interest Rate......................................................49
SAIF ..........................................................44
Scheduled Principal Balance.................................................62
Senior Certificates......................................................5, 48
Senior Liens ..........................................................26
Senior Percentage ..........................................................62
Senior/Subordinate Series...................................................49
Servicemen's Readjustment Act...............................................30
SMMEA .........................................................155
Special Hazard Amount.......................................................91
Special Hazard Insurer......................................................91
iii
<PAGE>
PAGE ON WHICH
TERM IN THE TERM IS DEFINED
PROSPECTUS IN THE PROSPECTUS
- ---------- -----------------
Special Hazard Losses.......................................................61
Special Hazard Subordination Amount.........................................61
Specified Reserve Fund Balance..............................................63
Stated Principal Balance....................................................46
Strip Certificates.......................................................5, 49
Stripped Agency Securities..................................................35
Stripped Interest ..........................................................38
Sub-Servicer ..........................................................36
Sub-Servicing Account.......................................................54
Sub-Servicing Agreement.....................................................46
Subordinate Certificates.................................................5, 48
Subordination ..........................................................55
Superlien .........................................................114
Termination ..........................................................56
Title V .........................................................112
Title VIII .........................................................113
Trust Fund ...........................................................5
Trust Fund Asset ...........................................................4
Trustee ...........................................................4
Unaffiliated Sellers........................................................24
Unrecovered Senior Portion..................................................62
VA ..........................................................11
VA Loans ..........................................................26
Window Period .........................................................110
Window Period Loans........................................................110
iv
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Location of Exhibit
in Sequential
Number Description of Document Numbering System
------ ----------------------- ----------------
<S> <C> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 By-Laws of the Registrant.
*4.1 Form of Pooling and Servicing Agreement (Version 1, relating to
Certificates with various combinations of Credit Support).
*4.2 Form of Pooling and Servicing Agreement (Version 2, relating to a
typical "shifting interest" Senior/Subordinated Series).
*4.3 Form of Pooling and Servicing Agreement (Version 3, relating to a
typical Senior/Subordinated Series without "shifting interests").
*4.4 Form of Pooling and Servicing Agreement (Version 4, relating to a typical multi-class
series).
*4.5 Form of Trust Agreement (relating to Certificates evidencing
ownership interests in a Trust Fund including Agency Securities).
*4.6 Form of Unaffiliated Seller's Agreement (Version 1, for a series
using a multi-class, "shifting interest" or reserve fund
structure).
*4.7 Form of Unaffiliated Seller's Agreement (Version 2, for a series
using various forms of insurance policies and surety bonds as
credit support).
*4.8 Form of Custodial Agreement.
5.1 Opinion of Thacher Proffitt & Wood.
8.1 Opinion of Thacher Proffitt & Wood with respect to certain tax matters.
23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibits 5.1 and 8.1).
*99.1 Form of FHA Mortgage Insurance Certificate (28.1**).
*99.2 Form of VA Loan Guaranty (28.2**).
*99.3 Form of Pool Insurance Policy (28.3**).
*99.4 Form of Special Hazard Credit Insurance Policy (28.4**).
*99.5 Form of Bankruptcy Bond (28.5**).
*99.6 Form of Letter of Credit (28.6**).
</TABLE>
*Incorporated by reference from the Registration Statement on Form S-11 (File
No. 33-14827).
**Exhibit number in Registration Statement on Form S-11 (File No. 33-14827).
EXHIBIT 5.1
<PAGE>
[OPINION LETTERHEAD OF THACHER PROFFITT & WOOD]
November 5, 1996
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
Re: PaineWebber Mortgage Acceptance Corporation IV
Asset-Backed Certificates
Registration Statement on Form S-3
----------------------------------
Dear Sirs:
We are counsel to PaineWebber Mortgage Acceptance Corporation IV,
a Delaware corporation (the "Registrant"), in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of Asset-Backed
Certificates (the "Certificates") and the related preparation and filing of a
Registration Statement on Form S-3 (the "Registration Statement"). The
Certificates are issuable in series under separate pooling and servicing
agreements (in the case of Trust Funds including Residential Loans) among the
Registrant, a trustee to be identified in the prospectus supplement for such
series of Certificates and a master servicer to be identified in the prospectus
supplement for such series of Certificates or under separate trust agreements
(in the case of Trust Funds including Agency Securities) among the registrant
and a trustee to be identified in the prospectus supplement for such series of
certificates. Each pooling and servicing agreement and trust agreement (each, an
"Agreement") will be in the forms filed as Exhibits to the Registration
Statement.
Capitalized terms used but not defined herein have the meanings
set forth in the Registration Statement.
In connection with rendering this opinion letter, we have
examined the forms of the Agreements contained as Exhibits in the Registration
Statement, the Registration Statement and such records and other documents as we
have deemed necessary and relevant. As to matters of fact, we have examined and
relied upon representations or certifications of officers of the Registrant or
public officials. We have assumed the authenticity of all documents submitted to
us as originals, the genuineness of all
<PAGE>
PaineWebber Mortgage Acceptance Corporation IV
November 5, 1996 Page 2.
signatures, the legal capacity of natural persons and the conformity to the
originals of all documents. We have assumed that all parties, other than the
Registrant, had the corporate power and authority to enter into and perform all
obligations thereunder and, as to such parties, we also have assumed the due
authorization by all requisite corporate action, the due execution and delivery
and the validity, binding effect and enforceability of such documents.
In rendering this opinion letter, we express no opinion as to the
laws of any jurisdiction other than the laws of the State of New York and the
corporate laws of the State of Delaware, nor do we express any opinion, either
implicitly or otherwise, on any issue not expressly addressed below. In
rendering this opinion letter, we have not passed upon and do not pass upon the
application of the "doing business" or securities laws of any jurisdiction. This
opinion letter is further subject to the qualification that enforceability may
be limited by (i) bankruptcy, insolvency, liquidation, receivership, moratorium,
reorganization or other similar laws affecting the enforcement of the rights of
creditors, (ii) general principles of equity, whether enforcement is sought in a
proceeding in equity or at law, and (iii) public policy considerations
underlying the securities laws, to the extent that such public policy
considerations limit the enforceability of the provisions of such agreements
that purport to provide indemnification from securities law liabilities.
Based on the foregoing, we are of the opinion that:
1. When an Agreement for a series of Certificates has been duly
authorized by all necessary organizational action and duly executed and
delivered by the parties thereto, such Agreement will be a legal and valid
obligation of the Registrant.
2. When an Agreement for a series of Certificates has been duly
authorized by all necessary organizational action and duly executed and
delivered by the parties thereto, and when the Certificates of such series have
been duly executed and authenticated in accordance with the provisions of that
Agreement, and issued and sold as contemplated in the Registration Statement and
the prospectus and prospectus supplement delivered in connection therewith, such
Certificates will be legally and validly issued and outstanding, fully paid and
non-assessable, and the holders of such Certificates will be entitled to the
benefits of that Agreement.
We hereby consent to the filing of this opinion letter as an
Exhibit to the Registration Statement, and to the use of our name in the
prospectus and prospectus supplement included in the Registration Statement
under the heading "Legal Matters", without admitting that we are "experts"
within the meaning of the Act, and the rules and regulations thereunder, with
respect to any part of the Registration Statement, including this Exhibit.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ Paul D. Tvetenstrand
EXHIBIT 8.1
<PAGE>
[OPINION LETTERHEAD OF THACHER PROFFITT & WOOD]
November 5, 1996
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
Re: PaineWebber Mortgage Acceptance Corporation IV
Asset-Backed Certificates
Registration Statement on Form S-3
----------------------------------
Dear Sirs:
We are counsel to PaineWeber Mortgage Acceptance Corporation IV,
a Delaware corporation (the "Registrant"), in connection with the registration
under the Securities Act of 1933, as amended (the "Act"), of Asset-Backed
Certificates (the "Certificates") and the related preparation and filing of a
Registration Statement on Form S-3 (the "Registration Statement"). In that
capacity we prepared the description of federal income tax consequences
appearing under the heading "Certain Federal Income Tax Consequences" in the
prospectus contained in the Registration Statement. In our opinion, while such
description does not purport to discuss all possible federal income tax
consequences of an investment in Certificates, the description is accurate with
respect to those tax consequences that are discussed.
We hereby consent to the filing of this letter as an Exhibit to
the Registration statement and to the reference to this firm in the Registration
Statement and related prospectus under the heading "Certain Federal Income Tax
Consequences" without admitting that we are "experts" within the meaning of the
Act or the rules and regulations of the Securities and Exchange Commission
issued hereunder.
Very truly yours,
THACHER PROFFITT & WOOD
By /s/ David C. Miller
---------------------
David C. Miller
