Registration No. 333-15685
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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Copies to:
Paul D. Tvetenstrand, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
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Approximate date of commencement of proposed sale to the public: From
time to time on or after the effective date of this Registration Statement, 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 plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
/ /_________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /_________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF SECURITIES BEING AMOUNT PRICE OFFERING REGISTRATION
REGISTERED BEING REGISTERED PER UNIT (1) PRICE (1) FEE(2)
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<S> <C> <C> <C> <C>
Asset-Backed Certificates, $644,893,533.66 100% $644,893,533.66 $0
issued in series
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) No additional registration fees in connection with $144,893,533.66
aggregate principal amount of Asset-Backed Certificates shall be paid
by the Registrant as such fees were paid in connection with
Registration Statement No. 33-83802 referred to below. No additional
registration fees in connection with $500,000,000.00 aggregate
principal amount of Asset-Backed Certificates shall be paid by the
Registrant as such fees were paid in connection with the original
filing on November 5, 1996.
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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 Prospectuses
and Prospectus Supplements contained in this Registration Statement also relate
to the Registrant's Registration Statement on Form S-3 (Registration No.
33-83802). This Registration Statement, which is a new registration statement,
also 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.
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EXPLANATORY NOTE
This Registration Statement includes a basic prospectus and
six 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 and
Version 6 shall be used in offering a series of Notes. Each basic prospectus
used (in either preliminary or final form) will be accompanied by the applicable
prospectus supplement.
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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 June __, 1997
PROSPECTUS
JUNE __, 1997
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Depositor
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
(Issuable in Series)
Principal and interest with respect to Securities will be payable
monthly, quarterly, semiannually or at such other intervals on the dates
specified in the related Prospectus Supplement.
The mortgage pass-through certificates ("Certificates") or
mortgaged-backed notes ("Notes") offered hereby (together, "Securities") and by
Supplements to this Prospectus will be offered from time to time in one or more
series (each, a "Series"). Each Series of Securities 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 Securities
and the composition of the related Trust Fund will be furnished at the time of
offering in a Prospectus Supplement.
Each Series of Securities will include one or more classes. Each class
of Securities 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 Securities 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
Securities 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 Securities 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
Securities will be pursuant to its representations and warranties as described
herein. The Master Servicer with respect to a Series of Securities 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.
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Each Trust Fund will be held in trust for the benefit of the holders of
the related Series of Securities as more fully described herein. With respect to
each series of Certificates, 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
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FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 17.
THE SECURITIES 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 SECURITIES 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 Securities 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
Securities.
The Depositor does not intend to list any of the Securities on any
securities exchange and has not made any other arrangement for secondary trading
of the Securities. With respect to each Series, all of the Securities 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 Securities prior to the
offering thereof. No assurance can be given that such a market will develop as a
result of such an offering.
The Securities 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 TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES OFFERED
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HEREBY AND THEREBY NOR AN OFFER OF THE SECURITIES 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.
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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 Securityholders. 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.
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REPORTS TO CERTIFICATEHOLDERS
The Master Servicer or the Trustee (as specified in the related
Prospectus Supplement) will furnish to all registered holders of Securities 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 Securities-Statements to
Securityholders".
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each Series of Securities 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 Depositor 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 Securities, that
relate specifically to such related Series of Securities. The Depositor 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 Securities, 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 Securities, 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
Securities of each Series to be offered hereunder will, among other things, set
forth with respect to such Securities, as appropriate: (i) a description of the
class or classes of Securities and the Security 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 Securities; (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 Securities; (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 Securities; (x) information as to
the Trustee; (xi) information as to the nature and extent of subordination with
respect to any class of
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Securities that is subordinate in right of payment to any other class; and (xii)
information as to the Master Servicer.
UNTIL 90 DAYS AFTER THE DATE OF EACH PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES 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 SECURITIES COVERED BY SUCH PROSPECTUS
SUPPLEMENT AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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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.
Securities Offered................ Mortgage pass-through certificates
("Certificates") or mortgage-backed notes
("Notes", and together with the Certificates
("Securities").
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 Securities evidencing interests in
a Trust Fund including Residential Loans as
specified in the related Prospectus
Supplement. See "Description of the
Securities-Certain Matters Regarding the
Master Servicer, the Depositor and the
Trustee".
Trustees.......................... The trustee or indenture trustee (the
"Trustee") for each Series of Securities will
be named in the related Prospectus
Supplement. The owner trustee (the "Owner
Trustee") for each Series of Notes will be
named in the Prospectus Supplement. See
"Description of the Securities-Certain
Matters Regarding the Master Servicer, the
Depositor and The Trustee".
Issuer of Notes................. With respect to each series of Notes, the
issuer (the "Issuer") will be the Depositor
or an owner trust established by it for the
purpose of issuing such series of Notes. Each
such owner trust will be created pursuant to
a trust agreement (the "Owner Trust
Agreement") between the Depositor, acting as
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depositor, and the Owner Trustee. Each series
of Notes will represent indebtedness of the
Issuer and will be issued pursuant to an
indenture between the Issuer and the Trustee
(the "Indenture") whereby the Issuer will
pledge the Trust Fund to secure the Notes
under the lien of the Indenture. As to each
series of Notes where the Issuer is an owner
trust, the ownership of the Trust Fund will
be evidenced by certificates (the "Equity
Certificates") issued under the Owner Trust
Agreement, which, unless otherwise specified
in the Prospectus Supplement, are not offered
hereby. The Notes will represent nonrecourse
obligations solely of the Issuer, and the
proceeds of the Trust Fund will be the sole
source of payments on the Notes, except as
described herein under "Description of Credit
Support" and in the related Prospectus
Supplement.
Description of Securities......... Each Series of Securities will include one or
more classes. Each Series of Securities
(including any class or classes of Securities
of such Series not offered hereby) will
represent either (i) with respect to each
series of Certificates, in the aggregate the
entire beneficial ownership interest in, or
(ii) with respect to each series of Notes,
indebtedness of, 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 Assets and
other assets with respect to a Series of
Securities shall constitute a "Trust Fund").
Unless otherwise specified in the related
Prospectus Supplement, each class of
Securities will have a stated principal
amount (a "Security Principal Balance") and
will be entitled to distributions of interest
thereon based on a specified interest rate
(the "Security Interest Rate"). The Security
Interest Rate may vary for each class of
Securities and may be fixed, variable or
adjustable. The related Prospectus Supplement
will specify the Security Interest Rate for
each Series of Securities or each class
thereof, or the method for determining the
Security Interest Rate.
If so provided in the related Prospectus
Supplement, a Series of Securities evidencing
interests in a Trust
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Fund including Residential Loans may include
one or more classes of Securities
(collectively, the "Senior Securities") which
are senior to one or more classes of
Securities (collectively, the "Subordinate
Securities") 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
Securities 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 Securities"), (iii) may
be entitled to receive distributions only of
prepayments of principal throughout the lives
of the Securities 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
Securities of such Series throughout the
lives of the Securities 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 Securities
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
Securities 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
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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
Securities 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 Securities
("Accrual Securities"), as to which accrued
interest will not be distributed but rather
will be added to the Security Principal
Balance thereof on each Distribution Date, as
hereinafter defined, in the manner described
in the related Prospectus Supplement.
As to each Series relating only to
Certificates, 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
Securities".
The Securities will not represent an interest
in or obligation of the Depositor or any
affiliate thereof except as set forth herein,
nor will the Securities, any Residential
Loans (other than Residential Loans
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 Securities of any Series including such
Agency Securities will not be so guaranteed.
Interest.......................... Interest on each class of Securities other
than certain classes of Strip Securities or
Accrual Securities (prior to the time when
accrued interest becomes payable thereon) of
each Series will accrue at the applicable
Security Interest Rate on the outstanding
Security Principal Balances thereof and
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will be distributed to Securityholders 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 Securities with no or, in
certain cases, a nominal Security 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
Securities will be added to the Security
Principal Balance thereof on each
Distribution Date. Distributions of interest
with respect to one or more classes of
Securities (or accruals thereof in the case
of Accrual Securities) 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
Securities".
Principal......................... The Securities of each Series (other than
certain Strip Securities) initially will have
an aggregate Security Principal Balance equal
to either (i) unless the related Prospectus
Supplement provides otherwise, the
outstanding principal balance of the Trust
Fund Assets included in the related Trust
Fund, as of 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 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
Securities, the total of the Cash Flow Values
(as defined herein) of the Residential Loans
as of such date. The Security Principal
Balance of a Security 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 Security Principal Balance
of each class of Securities 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
Securities of each Series will be payable on
each
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Distribution Date to the class or classes of
Securities entitled thereto until the
Security Principal Balance of such class has
been reduced to zero, on a pro rata basis
among all of the Securities of such class, in
proportion to their respective outstanding
Security Principal Balances, or in the
priority and manner otherwise specified in
the related Prospectus Supplement. Strip
Securities not having a Security Principal
Balance will not receive distributions in
respect of principal. See "The Trust Funds",
"Maturity and Prepayment Considerations" and
"Description of the Securities".
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 Securities 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 related Prospectus Supplement. See
"Description of the Securities--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
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Property, as described in the related
Prospectus Supplement, (iii) one- to
four-family first or junior lien closed end
home equity loans for property improvement,
debt consolidation or home equity purposes
(the "Home Equity Loans"), (iv) 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 (v) 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
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
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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 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
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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. Trust Account................. Each Trust Fund will include one or more
accounts (collectively, the "Trust Account")
established and maintained on behalf of the
Securityholders into which the Master
Servicer or the Trustee will, to the extent
described herein and in the related
Prospectus Supplement, deposit all payments
and collections received or advanced with
respect to the related Trust Fund Assets. A
Trust 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
Securities-Deposits to the Trust Account".
E. Credit Support................ If so specified in the Prospectus Supplement,
one or more classes of Securities 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
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reserve fund, a cash account, reinvestment
income, subordination of one or more classes
of Securities in a Series (or, with respect
to any Series of Notes, the related Equity
Certificates) to the extent provided in the
related Prospectus Supplement, cross-support
between Securities 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 Securities. 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
Securities-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 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
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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
Securities-Advances".
Optional Termination.............. If so specified in the related Prospectus
Supplement, a Series of Securities 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 Securities-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. Notes will
represent indebtedness of the related Trust
Fund.
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
ERISA Considerations.............. A fiduciary of an employee benefit plan and
certain other retirement plans and
arrangements, including individual retirement
accounts and annuities, Keogh plans and bank
collective investment funds and insurance
company general 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 Code should carefully review with
its counsel whether the purchase, sale or
holding of Securities could give rise to a
transaction that is prohibited or is not
otherwise permissible either under ERISA or
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Section 4975 of the Code. Plan investors are
advised to consult their counsel and to
review "ERISA Considerations" herein and in
the related Prospectus Supplement.
Legal Investment.................. The Prospectus Supplement for each Series of
Securities will specify which, if any, of the
Securities 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 Securities 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
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. 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 Securities 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 Securities 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 Securities 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 Securities.
See "Risk Factors."
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RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities offered hereby and by the related
Prospectus Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities of
any Series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Securities of such Series
remain outstanding. The market value of Securities of each Series will fluctuate
with changes in prevailing rates of interest. Consequently, sale of the
Securities 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 Securities have
no optional redemption rights. Unless otherwise provided in the related
Prospectus Supplement, PaineWebber expects to make a secondary market in the
Securities 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 Securities of a Series will be payable solely from the Trust
Fund for such Securities 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 Securities. Furthermore, at the times set forth in the related Prospectus
Supplement, certain Trust Fund Assets and/or any balance remaining in the Trust
Account immediately after making all payments due on the Securities of such
Series, after making adequate provision for future payments on certain classes
of Securities 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
Securityholders. Consequently, holders of Securities 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 Securities, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Securities of such
Series.
The Securities 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 Securities, or the
Securities 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 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
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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 Securities 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
Securities, and as a result Securityholders 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 Securities 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 Securities 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
Securities 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 Securities 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 Securityholders
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 Securityholders will
be less than the indicated coupon rate. See "Description of the
Securities--Distributions" and "--Principal Interest on the Securities".
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 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,
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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 Securityholders 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 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
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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 Securities, 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".
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;
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(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".
Rating of the Securities
Unless otherwise specified in the related Prospectus Supplement, it
will be a condition to the issuance of a class of Securities 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 Securities will receive
payments to which such Securityholders are entitled under the related Agreement.
Such rating will not constitute an
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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 Securities. Such rating shall not be deemed a
recommendation to purchase, hold or sell Securities, 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 Security 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 Securities 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 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
Securities of the related Series. See "Rating".
BOOK-ENTRY REGISTRATION
If issued in book-entry form, such registration may reduce the
liquidity of the Securities in the secondary trading market since investors may
be unwilling to purchase Securities 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
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pledge a Certificate to persons or entities that do not participate in the DTC
system, or otherwise to take action in respect of such Securities, may be
limited due to lack of a physical certificate representing the Securities.
In addition, Securityholders 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
Securityholders either directly or indirectly through Financial Intermediaries.
See "Description of the Securities--Book-Entry Registration of Securities"
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 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
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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 Securities 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 Securityholders 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.
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 Securities 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 Securities, 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 Securityholders. Upon any such sale, the proceeds thereof may be insufficient
to pay in full the principal of and interest on the Securities of such Series.
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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 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
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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 Securities 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
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 Securities offered hereunder. As to any
such Series of Securities, 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 Securities, 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 Securities 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 Securities 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.
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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
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 Securities 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.
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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 Securityholders 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 EQUITY LOANS AND HOME IMPROVEMENT CONTRACTS
As specified in the related Prospectus Supplement, the Home Equity
Loans will be secured by first or junior liens on the related Mortgaged
Properties for property improvement, debt consolidation or home equity purposes.
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 Equity Loans and 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".
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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 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".
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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
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".
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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. Except as otherwise
specified in the Prospectus Supplement, 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.
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 Securities of the related Series. See "Description of the
Securities" and "Description of Credit Support".
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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 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.
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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.
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
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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 Securities 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.
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,
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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 Securities 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 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,
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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 Securities 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 Securities of each Series
evidencing interests in a Trust Fund 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 Securities 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, but not limited to (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 Security
Interest Rate, or the initial Security Interest Rate in the case of a Series or
class of Securities with a variable or adjustable Security 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
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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 Securities 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 Securities, which information will be included in a
report on Form 8-K which will be available to purchasers of the related
Securities at or before the initial issuance thereof and will be filed with the
Commission within fifteen days after the initial issuance of such Securities. 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 or Servicing
Agreement among itself, the Depositor and the Trustee (each, a "Servicing
Agreement"), and will receive a fee for such services. See "Residential Loan
Program" and "Description of the Securities". With respect to Residential Loans
serviced through a Sub-Servicer, the Master Servicer will remain liable for its
servicing obligations under the related 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 Securities-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 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
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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 Securityholders
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 Securities, other than to pass
through all distributions received with respect to the Agency Securities to the
holders of the related Securities 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.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds
from the sale of each Series of Securities 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 or other 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 Securities 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 Securities) to Securityholders (other than
holders of Strip Securities) with respect to each Trust Fund Asset will be
similarly calculated for the applicable period, based on the applicable Security
Interest Rate. In the case of Strip Securities, 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 Securities of each Series may bear a fixed, variable or adjustable Security
Interest Rate.
The effective yield to Securityholders will be below the yield
otherwise produced by the applicable Security Interest Rate (or as to a Strip
Security, 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 Securities) 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 Securities having
Distribution Dates occurring at intervals less frequently than monthly.
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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
Securityholders. 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 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 Securityholders 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 Securities".
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 Securityholders 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
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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
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 Securities 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 Securities. The average life of a Security refers to the average
amount of time that will elapse from the date of issuance of a Security until
the principal amount of such Security has been reduced to zero. The average life
of the Securities 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 Securities may be significantly shorter than would
otherwise be the case. As to any Series of Securities, 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 Securities 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 Securities of such Series and
the percentage of the initial Security 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
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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 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.
Other factors that might be expected to affect the prepayment rate of
Securities 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 SECURITIES EVIDENCING INTERESTS IN A TRUST
FUND INCLUDING RESIDENTIAL LOANS, UNLESS OTHERWISE PROVIDED IN THE RELATED
PROSPECTUS SUPPLEMENT, THE
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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
SECURITIES-COLLECTION AND 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
SECURITIES-TERMINATION" FOR A DESCRIPTION OF THE POSSIBLE EARLY TERMINATION OF
ANY SERIES OF SECURITIES. SEE ALSO "RESIDENTIAL LOAN PROGRAM-REPRESENTATIONS BY
UNAFFILIATED SELLERS; REPURCHASES" AND "DESCRIPTION OF THE SECURITIES-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 SECURITIES 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 SECURITIES 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
SECURITIES WILL, TO A CERTAIN EXTENT, DEPEND ON THE INTEREST RATES ON SUCH
UNDERLYING RESIDENTIAL LOANS.
THE PROSPECTUS SUPPLEMENT FOR EACH SERIES OF SECURITIES 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 Securities of any Series.
RESIDENTIAL LOAN PROGRAM
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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.
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
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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.
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
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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 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 Securities 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 Securities 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
Securities-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
Securityholders 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 Securities, to
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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 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 Securities, 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
Securityholders 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 Securities 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 Securities-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 Securityholders, 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
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 Securities is issued will provide that, if for any
reason the Master Servicer for such Series of Securities 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.
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
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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
Securities-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 Securities-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 SECURITIES
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 Securities 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 series of Notes (or, in
certain instances, two or more series of Notes) will be issued pursuant to an
Indenture
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between the related Issuer and the Trustee. The related Trust Fund will be
created pursuant to an Owner Trust Agreement (the "Owner Trust Agreement"; an
Owner Trust Agreement, Pooling and Servicing Agreement, Servicing Agreement,
Indenture, an "Agreement") between the Depositor and the Owner Trustee. As to
each series of Notes where the Issuer is an Owner Trust, the ownership of the
Trust Fund will be evidenced by certificates (the "Equity Certificates") issued
under the Owner Trust Agreement, which, unless otherwise specified in the
Prospectus Supplement, are not offered thereby. 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 Securities 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 Securities 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. Unless otherwise specified in the related
Prospectus Supplement, each series of Notes covered by a particular Indenture
will evidence indebtedness of a separate Trust Fund created pursuant to the
related Owner Trust Agreement. As to each Series, the Securities will be issued
in authorized denominations evidencing a portion of all of the Securities 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 Trust Account described below and any other
account held for the benefit of Securityholders; (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 Securityholders,
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 Securities
will be transferable and exchangeable for Securities 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 Securities
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 Securities may consist of either (i) a single class of
Securities; (ii) two or more classes of Securities, one or more classes of which
("Senior Securities") will be senior in
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right of payment to one or more of the other classes ("Subordinate Securities")
to the extent described in the related Prospectus Supplement (any such Series, a
"Senior/Subordinate Series"); (iii) two or more classes of Securities, 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 Securities"); (iv) two or more classes of Securities 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 Securities ("Accrual
Securities") with respect to which accrued interest will not be distributed but
rather will be added to the Security Principal Balance thereof on each
Distribution Date for the period described in the related Prospectus Supplement;
or (v) other types of classes of Securities, as described in the related
Prospectus Supplement. Credit support for each Series of Securities 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 Securities as described under "Description of the
Securities-Subordination", or by any combination of the foregoing.
Each class of Securities (other than certain Strip Securities) will
have a Security Principal Balance and, unless otherwise provided in the related
Prospectus Supplement, will be entitled to payments of interest thereon based on
a specified Security Interest Rate. See "Principal and Interest on the
Securities" below. The Security Interest Rates of the various classes of
Securities 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 Security Interest Rates on the Securities based on their respective Security
Principal Balances will not exceed the lowest Net Interest Rate. The specific
percentage ownership interests of each class of Securities and the minimum
denomination per Security 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 relating to a
series of Certificates, 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 Securities in such a Series will constitute "regular
interests" in the related REMIC as defined in the Code. As to each Series, all
of the Securities 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 distributable
to Certificateholders. See "Certain Federal Income Tax
Consequences-REMIC-Prohibited Transactions and Other Possible REMIC Taxes".
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ASSIGNMENT OF TRUST FUND ASSETS
At the time of issuance of each Series of Securities, 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 Securities 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 Securities evidencing interests in a Trust Fund including Agency
Securities, the pass-through rate on the Agency Securities, and with respect to
a Series of Securities 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.
HOME EQUITY LOANS AND HOME IMPROVEMENT CONTRACTS
Unless otherwise provided in the related Prospectus Supplement, the
Depositor will, as to each Home Equity Loan and 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 Home Equity Loans and
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 Home Equity Loans and secured
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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 Home Equity Loan
and 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 Equity Loan and 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 Equity Loan or 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 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 Securityholders 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.
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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 Securityholders. 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
Securityholders 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 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 Securities, 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
Securityholders in a Residential Loan, the Depositor will be obligated either to
cure the breach in all material respects, repurchase the
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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 Securities 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 Securities 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 Securities 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 Securityholders 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 Securityholders 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 "Description of the Securities - Events of Default" and "
- - Rights Upon Event of Default" herein.
Deposits to the Trust 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
Trust Account or Trust 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 Securities 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 Securityholders have a claim
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with respect to the funds in the Trust 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 Trust Account is maintained. The collateral eligible
to secure amounts in the Trust Account is limited to United States government
securities and other high quality investments ("Permitted Instruments"). A Trust
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 Trust Account as additional compensation for administration of the
Trust Fund Assets. In respect of any Series of Securities 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
Trust Account. If permitted by each Rating Agency rating the Securities of such
Series, a Trust Account may contain funds relating to more than one Series of
Securities.
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 Trust
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 Securityholders, 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 Securityholders in the manner and
priority specified in the related Prospectus Supplement, as a prepayment of
principal of the related Securities.
PAYMENTS ON RESIDENTIAL LOANS
The Master Servicer will deposit or cause to be deposited in the Trust
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
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subsequent to the Cut-off Date (unless otherwise specified in the related
Prospectus Supplement, 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 Securityholders 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 Trust
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 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 Trust
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 Trust Account;
(ix) any amounts required to be transferred to the Trust
Account pursuant to any guaranteed investment contract;
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(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 Trust
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 Trust
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 Securities 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 Securities 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 Securityholder at a bank or other entity
having appropriate facilities therefor, if such Securityholder has so notified
the Trustee or the Master Servicer and holds Securities 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 Security Register;
provided, however, that the final distribution in retirement of the Securities
will be made only upon presentation and surrender of the Securities at the
office or agency of the Security Registrar specified in the notice to
Securityholders of such final distribution. Unless otherwise specified in the
Prospectus Supplement, all distributions made to the holders of Securities of
any Series on each Distribution Date will be made on a pro rata basis among the
Securityholders 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 Securities.
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 Securities is the latest Distribution Date on which the
Security 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 Securities 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 Securities
could occur significantly earlier than its Final Distribution Date. The rate of
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payments on the Trust Fund Assets for any Series of Securities 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 Securities in the case of a Senior/Subordinate
Series, may cause the actual last Distribution Date of certain classes of
Securities to occur after their Final Distribution Date.
SPECIAL DISTRIBUTIONS
With respect to any Series of Securities with Distribution Dates
occurring at intervals less frequently than monthly, the Securities 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
Securities of a Series out of, and to the extent of, the amount available
therefor in the related Trust 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 Trust 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
Securities 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 the amount that
would otherwise be distributed as principal on the next Distribution Date from
amounts then on deposit in the Trust Account. All special distributions will
include interest at the applicable Trust 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 Securities
on a Distribution Date. Special distributions of principal with respect to
Securities 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 SECURITIES
Each class of Securities (other than certain classes of Strip
Securities) may have a different Certificate Interest Rate, which may be a
fixed, variable or adjustable Security Interest Rate. The related Prospectus
Supplement will specify the Security Interest Rate for each class, or in the
case of a variable or adjustable Security Interest Rate, the method for
determining the Security Interest Rate. Unless otherwise specified in the
related Prospectus Supplement, interest on the Securities will be calculated on
the basis of a 360-day year consisting of twelve 30-day months.
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As to each Series of Securities, with respect to each Distribution
Date, interest accruing with respect to each Security (the "Accrued Security
Interest"), other than a Strip Security, will be equal to interest on the
outstanding Security Principal Balance thereof immediately prior to the
Distribution Date, at the applicable Security Interest Rate, for a period of
time corresponding to the intervals between the Distribution Dates for such
Series. As to each Strip Security, 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 Security Interest on each Security 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 Securities of that
Series in proportion to the respective amounts of Accrued Security 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 Securities of a Series will be added to the Security Principal Balance
thereof on each Distribution Date until the Security Principal Balance of the
Securities of all other classes of such Series having a Final Distribution Date
prior to the Final Distribution Date of such class of Accrual Securities has
been reduced to zero, and actual payments of interest on the Accrual Securities
will be made thereafter. See "Final Distribution Date".
Unless the related Prospectus Supplement provides otherwise, each
Security will have a "Security Principal Balance" that, at any time, will equal
the maximum amount that the 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 Security,
distributions generally will be applied to accrued and currently payable
interest thereon, and thereafter to principal. The outstanding Security
Principal Balance of a Security will be reduced to the extent of distributions
in respect of principal thereon, and in the case of Securities 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 Security Principal Balance of all classes of Securities 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
Security Principal Balance of a Series and each class thereof will be specified
in the related Prospectus Supplement. Alternatively, the initial Security
Principal Balance for a Series of Securities 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
Security 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 Securities. The "Assumed Reinvestment Rate"
for a Series of Securities
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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 Securities 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 Security Principal Balance
of the Securities of such Series at the date of initial issuance thereof.
With respect to any Series as to which the initial Security 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 Security entitled thereto until the Security Principal
Balance of such class has been reduced to zero. In the case of a Series of
Securities that include two or more classes of Securities, the timing,
sequential order and amount of distributions (including distributions among
multiple classes of Senior Securities or Subordinate Securities) 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 Securities
will be made on a pro rata basis among all of the Securities 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
Trust 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
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(c) all other amounts in the Trust 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 Securityholders 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 Trust Account
(which may include income provided under a guaranteed investment
contract).
On each Distribution Date for a Series of Securities, the Trustee or
the Master Servicer will withdraw or cause to be withdrawn from the Trust
Account the entire Available Distribution Amount and distribute the same or
cause the same to be distributed to the related Securityholders in the manner
set forth herein and in the Prospectus Supplement.
SUBORDINATION
A Senior/Subordinate Series will consist of one or more classes of
Senior Securities and one or more classes of Subordinate Securities, as
specified in the related Prospectus Supplement. Unless otherwise specified in
the related Prospectus Supplement, only the Senior Securities will be offered
hereby. Subordination of the Subordinate Securities 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 Security Principal Balance of the Subordinate
Certificates thereof has been reduced to
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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 Security 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 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 Security Principal Balance thereof. At any given time, the percentage
corresponding to the ratio of the Security Principal Balance of the Senior
Certificates to the Security 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 Security Principal Balance of each such class. The
Security 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
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Subordinate Certificates. In addition, as set forth above, Realized Losses will
be first allocated to Subordinate Certificates by reduction of the Security
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 Securities 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 Securityholders to receive distributions of principal and interest
with respect to the Residential Loans will be subordinate to the rights of the
Senior Securityholders. 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 Securityholders that, but for the subordination provisions,
would otherwise have been payable to the Subordinate Securityholders. The
Available Subordination Amount will decrease whenever amounts otherwise payable
to the Subordinate Securityholders are paid to the Senior Securityholders
(including amounts withdrawn from the Reserve Fund and paid to the Senior
Securityholders), and will increase whenever there is distributed to the
Subordinate Securityholders amounts in respect of which subordination payments
have previously been paid to the Senior Securityholders (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 Securityholders from the
subordination provisions described herein will be effected both by the
preferential right of the Senior Securityholders 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 Securities (the "Initial Deposit")
and by deposits of amounts otherwise due on the Subordinate Securities 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 Securityholders 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 Securityholders 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 Securityholders 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
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Senior Securityholders could suffer shortfalls of amounts due to them. The
Senior Securityholders 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 Securityholders 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.
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 Security Principal Balances of the various
classes of Securities comprising a Senior/Subordinate Series are based upon the
Cash Flow Value of the Residential Loans, a shortfall in amounts distributable
to Senior Securityholders 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 Security Interest on the Security Principal
Balances of the Senior Securities 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 Securities 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
Trust 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
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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 Trust Account on
such Distribution Date shall be less than payments to Securityholders required
to be made on such date. Unless otherwise specified in a Prospectus Supplement
relating to a Series of Securities, 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
Securities as to which the Trust Fund includes 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 Trust 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 Securities on such Distribution Date that remain after applying
towards such payment the entire Available Distribution Amount, including funds
otherwise payable to the Subordinate Securityholders, 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 Security Principal Balance of the Subordinate
Securities 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 Securities 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 Securityholders, rather than to guarantee or insure
against losses. Unless otherwise specified in a Prospectus Supplement relating
to a Series of Securities, 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 Trust Account. If so specified in the
related Prospectus Supplement, the
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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.
STATEMENTS TO SECURITYHOLDERS
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 Securityholder 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 Security):
(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 Securityholders to prepare their tax
returns or which a Securityholder 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 Security Principal Balance of a minimum denomination
Security, and the aggregate Security Principal Balance of all of the
Securities 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;
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(x) in the case of Securities with a variable Security
Interest Rate, the Security Interest Rate applicable to such
Distribution Date, as calculated in accordance with the method
specified in the Prospectus Supplement relating to such Series;
(xi) in the case of Securities with an adjustable Security
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 Securities, the interest accrued on each such class with
respect to such Distribution Date and added to the Security 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 Securityholders 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 Securities 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 Security 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 Securities 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 Securities such statements or
information as may be required by the Code or applicable procedures of the
Internal Revenue Service.
BOOK-ENTRY REGISTRATION OF SECURITIES
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 Securities"). Persons acquiring beneficial
ownership interests in the Securities ("Security Owners") will hold
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their Securities 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 indirectly through organizations which are
Participants in such systems. The Book-Entry Securities will be issued in one or
more certificates which equal the aggregate principal balance of the Securities
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 Security (a "Definitive Security"). Unless and until Definitive Securities
are issued, it is anticipated that the only "Securityholders" of the Securities
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 Security 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 Security 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 Securities from the Trustee through DTC and Participants. While
the Securities 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 Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. 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 Securities, except under the
limited circumstances described below. Unless and until Definitive Securities
are issued, Security Owners who are not Participants may transfer ownership of
Securities only through Participants and indirect participants by instructing
such Participants and indirect participants to transfer Securities, 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 Securities 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 Securities 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. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for
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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
Securities 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 Securities 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 Securities to persons or entities that do
not participate in the Depository system, or otherwise take actions in respect
of such Book-Entry Securities, may by limited due to the lack of physical
certificates for such Book-Entry Securities. In addition, issuance of the
Book-Entry Securities in book-entry form may reduce the liquidity of such
Securities in the secondary market since certain potential investors may be
unwilling to purchase Securities 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, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Securities of such beneficial owners are credited.
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It is the Depositor's understanding that, unless and until Definitive
Securities are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Securities 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
Securities. CEDEL or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Securityholder 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 Securities which conflict with actions taken with respect to other
Securities.
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 Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
reregistration, the Trustee will issue Definitive Securities, and thereafter the
Trustee will recognize the holders of such Definitive Securities as
Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities 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 Instrument", and
collectively, an "Insurance Instrument"). With respect to any Series of
Securities 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
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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
TRUST ACCOUNT PENDING DISTRIBUTION THEREOF TO SECURITYHOLDERS 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 FROM THE TRUST 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 Securityholders, 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
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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 Trust Account for the related Trust
Fund, subject to withdrawal as heretofore described. Unless otherwise provided
in the Prospectus Supplement relating to a Series of Securities, 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
Securityholders 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
Security Principal Balances are based upon Cash Flow Values), the amount of any
liens senior thereto 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 Trust 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
reimbursed under any Insurance Instrument, it will be entitled to withdraw from
the Trust 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
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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 Securities 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 Securities 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 Securities 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 Securities 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 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 Securities
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 Trust Account pending monthly,
quarterly, semiannual
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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 Securities 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
Securityholders, 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
Securityholders to receive any related Liquidation Proceeds. The Master Servicer
is also entitled to reimbursement from the Trust Account for Advances, if
applicable. With respect to a Series of Securities 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 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 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.
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CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE
THE MASTER SERVICER
The Master Servicer under each Servicing Agreement will be identified
in the related Prospectus Supplement. Each such Servicing Agreement will provide
that the Master Servicer may resign from its obligations and duties under the
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 Servicing Agreement has assumed, in writing, the Master
Servicer's obligations and responsibilities under the Pooling and Servicing
Agreement.
Each 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 Securityholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to the 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 Servicing Agreement or against any specific liability imposed on the Master
Servicer by the terms of the 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 Servicing Agreement. Each 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 relating to the Servicing Agreement or the
Securities, 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 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 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 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 Servicing Agreement and the
rights and duties of the parties thereto and the interests of the
Securityholders 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 Trust Account, such right of reimbursement being
prior to the rights of Securityholders to receive any amount in the Trust
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
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successor of the Master Servicer under each 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 Servicing Agreement, Owner Trust 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
Securityholders 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
Securities, the Pool Insurance Policy, the special hazard insurance policy and
the 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 Securityholders
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 Trust Account, such right of reimbursement being prior to the rights of
Securityholders to receive any amount in the Trust 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.
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THE TRUSTEES
The Trustee for any Series of Securities (or, Trustees, in the case of
an issuance of Notes) 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 Securities evidencing not less than 51% of the Percentage
Interests of any Series of Securities 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.
DUTIES OF THE TRUSTEES
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Securities, 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 Securities, the Trust
Fund Assets, or deposited into or withdrawn from the Trust 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 Securityholders 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
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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 Securities 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 Securities with Distribution Dates
occurring at intervals less frequently than monthly, and with respect to each
Series of Securities 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
Securities of any such Series is the inability to distribute to holders of one
or more classes of Securities 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 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 Securities
in accordance with the priorities as to distributions of principal and interest
set forth in such Securities will be sufficient to make distributions of
interest at the applicable Security Interest Rates and to distribute in full the
principal balance of each such Security on or before the latest Final
Distribution Date of any outstanding Securities 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 Securities, which opinion or report will be
conclusive evidence as to such sufficiency. Prior to making any such
determination, distributions on the Securities 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 Securities 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 Securities expressly in accordance with their terms.
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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 Securities, and such Securities will, to the extent permitted by applicable
law, accrue interest at the highest Security Interest Rate borne by any Security
of such Series, or in the event any class of such Series shall have an
adjustable or variable Security Interest Rate, at the weighted average Security
Interest Rate, calculated on the basis of the maximum Security Interest Rate
applicable to the class having the initial Security Principal Balance of the
Securities of that class. In such event, the holders of Securities 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
Securities 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
POOLING AND SERVICING AGREEMENTS
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 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.
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
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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 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.
SERVICING AGREEMENT
Unless otherwise provided in the related Prospectus Supplement for a
series of Notes, a "Servicing Default" under the related Servicing Agreement
generally will include: (i) any failure by the Master Servicer to make a
required deposit to the Security Account or, if the Master Servicer is so
required, to distribute to the holders of any class of Notes or Equity
Certificates of such series any required payment which continues unremedied for
five business days (or other period of time described in the related Prospectus
Supplement) after the giving of written notice of such failure to the Master
Servicer by the Trustee or the Issuer; (ii) any failure by the Master Servicer
duly to observe or perform in any material respect any other of its covenants or
agreements in the Servicing Agreement with respect to such series of Securities
which continues unremedied for 45 days after the giving of written notice of
such failure to the Master Servicer by the Trustee or the Issuer; (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Master Servicer and certain
actions by the Master Servicer indicating its insolvency or inability to pay its
obligations and (iv) any other Servicing Default as set forth in the Servicing
Agreement.
So long as a Servicing Default remains unremedied, either the Depositor
or the Trustee may, by written notification to the Master Servicer and to the
Issuer or the Trustee or Trust Fund, as applicable, terminate all of the rights
and obligations of the Master Servicer under the Servicing Agreement (other than
any right of the Master Servicer as Noteholder or as holder of
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the Equity Certificates and other than the right to receive servicing
compensation and expenses for servicing the Mortgage Loans during any period
prior to the date of such termination), whereupon the Trustee will succeed to
all responsibilities, duties and liabilities of the Master Servicer under such
Servicing Agreement (other than the obligation to purchase Mortgage Loans under
certain circumstances) and will be entitled to similar compensation
arrangements. In the event that the Trustee would be obligated to succeed the
Master Servicer but is unwilling so to act, it may appoint (or if it is unable
so to act, it shall appoint) or petition a court of competent jurisdiction for
the appointment of an approved mortgage servicing institution with a net worth
of at least $10,000,000 to act as successor to the Master Servicer under the
Servicing Agreement (unless otherwise set forth in the Servicing Agreement).
Pending such appointment, the Trustee is obligated to act in such capacity. The
Trustee and such successor may agree upon the servicing compensation to be paid,
which in no event may be greater than the compensation to the initial Master
Servicer under the Servicing Agreement.
INDENTURE
Unless otherwise provided in the related Prospectus Supplement for a
series of Notes, an Event of Default under the Indenture generally will include:
(i) a default for five days or more (or other period of time described in the
related Prospectus Supplement) in the payment of any principal of or interest on
any Note of such series; (ii) failure to perform any other covenant of the
Issuer or the Trust Fund in the Indenture which continues for a period of thirty
days after notice thereof is given in accordance with the procedures described
in the related Prospectus Supplement; (iii) any representation or warranty made
by the Issuer or the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such series having been incorrect in a material respect as of the time
made, and such breach is not cured within thirty days after notice thereof is
given in accordance with the procedures described in the related Indenture; (iv)
certain events of bankruptcy, insolvency, receivership or liquidation of the
Issuer or the Trust Fund; or (v) any other Event of Default provided with
respect to Notes of that series.
If an Event of Default with respect to the Notes of any series at the
time outstanding occurs and is continuing, the Trustee or the holders of a
majority of the then aggregate outstanding amount of the Notes of such series
may declare the principal amount (or, if the Notes of that series are Accrual
Securities, such portion of the principal amount as may be specified in the
terms of that series, as provided in the related Prospectus Supplement) of all
the Notes of such series to be due and payable immediately. Such declaration
may, under certain circumstances, be rescinded and annulled by the holders of a
majority in aggregate outstanding amount of the related Notes.
If following an Event of Default with respect to any series of Notes,
the Notes of such series have been declared to be due and payable, the Trustee
may, in its discretion, notwithstanding such acceleration, elect to maintain
possession of the collateral securing the Notes of such series and to continue
to apply payments on such collateral as if there had been no declaration of
acceleration if such collateral continues to provide sufficient funds for the
payment of principal of and interest on the Notes of such series as they would
have become due if there had not been such a declaration. In addition, the
Trustee may not sell or otherwise liquidate the collateral securing the Notes of
a series following an Event of Default, unless (a) the holders of 100% of the
then aggregate outstanding amount of the Notes of such series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the
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principal of and accrued interest, due and unpaid, on the outstanding Notes of
such series at the date of such sale or (c) the Trustee determines that such
collateral would not be sufficient on an ongoing basis to make all payments on
such Notes as such payments would have become due if such Notes had not been
declared due and payable, and the Trustee obtains the consent of the holders of
66 2/3% of the then aggregate outstanding amount of the Notes of such series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default, the Indenture provides that the Trustee will have a
prior lien on the proceeds of any such liquidation for unpaid fees and expenses.
As a result, upon the occurrence of such an Event of Default, the amount
available for payments to the Noteholders would be less than would otherwise be
the case. However, the Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
In the event the principal of the Notes of a series is declared due and
payable, as described above, the holders of any such Notes issued at a discount
from par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount that is unamortized.
No Noteholder or holder of an Equity Certificate generally will have
any right under an Owner Trust Agreement or Indenture to institute any
proceeding with respect to such Agreement unless (a) such holder previously has
given to the Trustee written notice of default and the continuance thereof, (b)
the holders of Notes or Equity Certificates of any class evidencing not less
than 25% of the aggregate Percentage Interests constituting such class (i) have
made written request upon the Trustee to institute such proceeding in its own
name as Trustee thereunder and (ii) have offered to the Trustee reasonable
indemnity, (c) the Trustee has neglected or refused to institute any such
proceeding for 60 days after receipt of such request and indemnity and (d) no
direction inconsistent with such written request has been given to the Trustee
during such 60 day period by the Holders of a majority of the Note Balances of
such class. However, the Trustee will be under no obligation to exercise any of
the trusts or powers vested in it by the applicable Agreement 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 Notes or Equity
Certificates covered by such Agreement, unless such holders 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)
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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.
With respect to each series of Notes, each related Servicing Agreement
or Indenture may be amended by the parties thereto without the consent of any of
the holders of the Notes covered by such Agreement, to cure any ambiguity, to
correct, modify or supplement any provision therein, or to make any other
provisions with respect to matters or questions arising under the Agreement
which are not inconsistent with the provisions thereof, provided that such
action will not adversely affect in any material respect the interests of any
holder of Notes covered by the Agreement. Each Agreement may also be amended by
the parties thereto with the consent of the holders of Notes evidencing not less
than 66-2/3% of the voting rights, for any purpose; provided, however, that no
such amendment may (i) 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 Note without the consent of the holder of such Note, (ii) adversely
affect in any material respect the interests of the holders of any class of
Notes in a manner other than as described in (i), without the consent of the
holders of Notes of such class evidencing not less than 66-2/3% of the aggregate
voting rights of such class or (iii) reduce the aforesaid percentage of voting
rights required for the consent to any such amendment without the consent of the
holders of all Notes covered by such Agreement then outstanding. The voting
rights evidenced by any Note will be the portion of the voting rights of all of
the Notes in the related series allocated in the manner described in the related
Prospectus Supplement.
TERMINATION
The obligations created by the Agreement for each Series of Securities
will terminate upon payment to the Securityholders of that Series of all amounts
held in the Trust Account and required to be paid to the Securityholders
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 Securityholder, and the final distribution will
be made only upon surrender and cancellation of the Securities at an office or
agency appointed by the Trustee which will be specified in the notice of
termination.
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 Securities 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
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(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 Securities 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 Securities 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 Securities.
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 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
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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 Trust 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 Securities 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 Securities 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 Securities 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
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,
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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 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 Securities 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.
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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 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 Trust Account. Each
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
Residential Loans. If such blanket policy contains a deductible clause, the
Master Servicer will deposit in the Trust 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
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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 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.
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
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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 Securities may include credit
support for such Series or for one or more classes of Securities 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 Securities, credit support may be provided by subordination of one or
more classes of Securities, in combination with or in lieu of any one or more of
the instruments set forth above. See "Description of the
Securities-Subordination". The amount and type of credit support with respect to
a Series of Securities or with respect to one or more classes of Securities
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
Securities, 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 Securities 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 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 Securityholders. 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
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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.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities, the amount of coverage under each Pool Insurance Policy
will be reduced over the life of the Securities 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, Securityholders 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, Securityholders
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
Securityholders, 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
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"-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 Securityholders 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, 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
Securityholders.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the Prospectus Supplement with respect to a Series
of Securities, 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
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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 Securities 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 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 Securityholders, 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
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policy reach the policy limit, coverage thereunder will be exhausted and any
further losses will be borne by the Securityholders.
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.
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 Securities, 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".
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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 Securities. Amounts in a
Reserve Fund may be distributed to Securityholders, 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.
CROSS-SUPPORT PROVISIONS
If so provided in the related Prospectus Supplement, the Residential
Loans for a Series of Securities may be divided into separate groups, each
supporting a separate class or classes of Securities of a Series, and credit
support may be provided by cross-support provisions requiring that distributions
be made on Securities evidencing interests in one group of Mortgage Loans prior
to distributions on Securities evidencing interests in a different group of
Mortgage Loans within the Trust Fund. The Prospectus Supplement for a Series
that includes a crosssupport 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 Securities,
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
Securities. 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.
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INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Securities 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 Securities 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 Securities,
a portion of the interest payment on each Mortgage Loan may be applied to reduce
the principal balance of one or more classes of Securities to provide or
maintain a cushion against losses on the related Residential Loans.
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 Securities, 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. UNLESS OTHERWISE SPECIFIED
IN THE PROSPECTUS SUPPLEMENT, 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
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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
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
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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 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
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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.
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 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
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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 Securityholders.
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 Securityholders, as the 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 Securityholders 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
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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 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.
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 Securityholders 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
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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 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.
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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.
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
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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 event that title to a Residential Property was
acquired on behalf of Securityholders and cleanup costs were incurred in respect
of the Residential Property, such Securityholders 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 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.
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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 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
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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 or Chapter 11 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
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 and the right to judicial sale, with
rare exception 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 11 or 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.
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.
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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 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
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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 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.
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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 (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
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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.
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.
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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.
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
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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 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
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Under the federal Comprehensive Environmental Response, Compensation
and Liability Act, as amended ("CERCLA"), and under state law in certain states,
a secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. 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 who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the definition
of owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility.
The Asset Conservation, Lender Liability and Deposit Insurance Act of
1996 (the "Conservation Act") amended, among other things, the provisions of
CERCLA with respect to lender liability and the secured creditor exemption. The
Conservation Act 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. In order for lender to be deemed to have
participated in the management of a mortgaged property, the lender must actually
participate in the operational affairs of the property of the borrower. The
Conservation Act provides that "merely having the capacity to influence, or
unexercised right to control" operations does not constitute participation in
management. A lender will lose the protection of the secured creditor exemption
only if it exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or assumes
day-to-day management of all operational functions of the mortgaged property.
The Conservation Act also provides that a lender will continue to have the
benefit of the secured creditor exemption even if it forecloses on a mortgaged
property, purchases it at a foreclosure sale or accepts a deed-in-lieu of
foreclosure provided that the lender seeks to sell the mortgaged property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Other federal and state laws in certain circumstances may impose
liability on a secured party which takes a deed-in-lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property on which contaminants other than CERCLA hazardous substances are
present, including petroleum, agricultural chemicals, hazardous wastes,
asbestos, radon, and lead-based paint. Such cleanup costs may be substantial. It
is possible that such cleanup costs could become a liability of a Trust Fund and
reduce the amounts otherwise distributable to the holders of the related series
of Certificates. Moreover, certain federal statutes and certain states by
statute impose a lien for any cleanup costs incurred by such state on the
property that is the subject of such cleanup costs (an "ENVIRONMENTAL LIEN").
All subsequent liens on such property generally are subordinated to such an
Environmental Lien and, in some states, even prior recorded liens are
subordinated to Environmental Liens. In the latter states, the security interest
of the Trustee in a related parcel of real property that is subject to such an
Environmental Lien could be adversely affected.
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 Securities 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
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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".
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 Securityholders 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
Securityholders 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
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(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 Securities, 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 Securities. 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 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 Securities offered hereunder. This discussion is directed solely to
Securityholders that hold the Securities 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 Securities. See "State and Other Tax Consequences".
Securityholders 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 three 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"),
(ii) notes representing indebtedness of a trust fund and (iii) 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
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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 "Securityholder" or a "holder" are to the
beneficial owner of a Security.
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 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
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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 ... [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.
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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.
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
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Master Servicer, any Sub-Servicer or their respective affiliates necessary to
determine whether the preceding "safe harbor" rules apply.
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 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
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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-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.
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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.
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
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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 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.
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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
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
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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 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
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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.
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
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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 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.
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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.
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.
NOTES
Upon the issuance of each series of Notes, Thacher Proffitt & Wood,
counsel to the Depositor (or such other counsel thereto as set forth in the
Prospectus Supplement), will deliver its opinion generally to the effect that,
for federal income tax purposes, assuming compliance with all provisions of the
Indenture, Owner Trust Agreement and certain related documents, (i) the Notes
will be treated as indebtedness and (ii) the Issuer, as created pursuant to the
terms and conditions of the Owner Trust Agreement, will not be characterized as
an association (or publicly traded partnership within the meaning of Code
section 7704) taxable as a corporation
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or as a taxable mortgage pool within the meaning of Code section 7701(i). The
following discussion is based in part upon the OID Regulations. The OID
Regulations do not adequately address certain issues relevant to, and in some
instances provide that they are not applicable to, securities such as the Notes.
For purposes of this tax discussion, references to a "Noteholder" or a "holder"
are to the beneficial owner of a Note.
STATUS AS REAL PROPERTY LOANS
Notes held by a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code section 7701(a)(19)(C)(v); and (ii) Notes held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Code section 856(c)(5)(A) and interest on Notes will not be considered "interest
on obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
ORIGINAL ISSUE DISCOUNT, MARKET DISCOUNT AND PREMIUM
With respect to any series of Notes, the related Notes will be treated
identically with respect to original issue discount, market discount and premium
as REMIC Regular Certificates. See "-REMICs-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount," "-Market Discount" and "-Premium" below.
REALIZED LOSSES
With respect to any series of Notes, the related Notes will be treated
identically with respect to realized losses as REMIC Regular Certificates. See
"-REMICs-Taxation of Owners of REMIC Regular Certificates-Realized Losses"
below.
SALES OF NOTES
With respect to any series of Notes, the related Notes will be treated
identically with respect to sales of Notes as REMIC Regular Certificates except
that the special ordinary income rule for accrued income not in excess of 110%
of the applicable federal rate will not apply. See "-REMICs-Sales of REMIC
Certificates" below.
BACKUP WITHHOLDING
With respect to any series of Notes, the related Notes will be treated
identically with respect to backup withholding as REMIC Regular Certificates.
See "-REMICs-Backup Withholding With Respect to REMIC Certificates" below.
TAX TREATMENT OF FOREIGN INVESTORS
The tax treatment of foreign investors in any series of Notes will be
identical to such treatment for REMIC Regular Certificates. See "REMICs-Foreign
Investors in REMIC Certificates" below.
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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 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
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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.
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.
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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.
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.
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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.
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)
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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.
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
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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 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
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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 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
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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 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
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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 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
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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 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
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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 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".
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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 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.
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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 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
On December 24, 1996, the IRS released final regulations (the
"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 Mark-to-Market Regulations provide that for purposes of this mark-to-market
requirement, a REMIC Residual Certificate issued after January 4, 1995 is not
treated as a security and thus may not be marked to market. Prospective
purchasers of a REMIC Residual
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Certificate should consult their tax advisors regarding the possible application
of the mark-to-market requirement to REMIC Residual Certificates.
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 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
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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 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
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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 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
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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, 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.
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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.
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
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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 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, an estate whose income is subject to United
States federal income tax regardless of its source, or a trust if a court within
the United States is able to exercise primary jurisdiction over the
administration of the trust and one or more United States fiduciaries is able to
control all significant decisions of the trust. 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.
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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.
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 Securities 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
Securities 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 bank collective investment
funds and insurance company general 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,
state and local 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
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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.
Certain transactions involving a Trust Fund might be deemed to
constitute prohibited transactions under ERISA and the Code with respect to a
Plan that purchases the Securities, if the Residential Loans, Agency Securities,
Mortgage Securities and other assets included in such Trust Fund are deemed to
be assets of the Plan. The U.S. Department of Labor (the "DOL") has promulgated
regulations at 29 C.F.R. ss.2510.3-101 (the "DOL Regulations") defining the term
"Plan Assets" for purposes of applying the general fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and the
Code. Under the DOL Regulations, generally, when a Plan acquires an equity
interest in an entity, the 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" is not significant. For this purpose,
in general, equity 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," which include Plans, as well as any "employee benefit plan" (as
defined in Section 3(3) or ERISA) which is not subject to Title I of ERISA, such
as governmental plans (as defined in Section 3(32) of ERISA) and church plans
(as defined in Section 3(33) of ERISA) which have not made an election under
Section 410(d) of the Code, and any entity whose underlying assets include Plan
Assets by reason of a Plan's investment in the entity. Under the DOL
Regulations, Plan Assets will be deemed to include an interest in the instrument
evidencing the equity interest of a Plan (such as a Certificate or a Note with
"substantial equity features" as described below), and, because of the factual
nature of certain of the rules set forth in the DOL Regulations, Plan Assets may
be deemed to include an interest in the underlying assets of the entity in which
a Plan acquires an interest (such as a Trust Fund). Therefore, neither Plans nor
persons investing Plan Assets should acquire or hold Securities in reliance upon
the availability of any exception under the DOL Regulations.
In addition, the DOL Regulations provide that the term "equity
interest" means any interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has no "substantial
equity features." If Notes of a particular Series are deemed to be indebtedness
under applicable local law without any substantial equity features, an investing
Plan's assets would include such Notes, but would not, by reason of such
purchase, include the underlying assets of the related Trust Fund. However,
without regard to whether such Notes are treated as an equity interest for such
purposes, the purchase, sale or holding of Notes by or on behalf of a Plan could
be considered to result in a prohibited transaction if the Issuer or Trustee or
any of their respective affiliates is or becomes a Party in Interest with
respect to such Plan.
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"
subject to the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and the Code 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
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Securities 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 Securities 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, such as a
senior class of 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. (collectively, the "Exemption Rating Agencies").
Fourth, the Trustee cannot be an 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.
The Exemption also requires that the Trust Fund meet the following
requirements: (i) the Trust Fund must consist solely of assets of the type that
have been included in other investment pools; (ii) Securities evidencing
interests in such other investment pools must have been rated in one of the
three highest categories of one of the Exemption Rating Agencies for at least
one
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year prior to the acquisition of Securities by or on behalf of a Plan or with
Plan Assets; and (iii) Securities evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at least one
year prior to any acquisition of Securities by or on behalf of a Plan or with
Plan Assets.
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 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)
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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, a Plan fiduciary or other Plan Asset
investor should consider the availability of certain class exemptions granted by
the DOL ("Class Exemptions"), which may provide relief from certain of the
prohibited transaction provisions of ERISA and the related excise tax provisions
of the Code, including Prohibited Transaction Class Exemption ("PTCE") 83-1,
regarding transactions involving mortgage pool investment trusts; PTCE 84-14,
regarding transactions effected by a "qualified professional asset manager";
PTCE 90-1, regarding transactions by insurance company pooled separate accounts;
PTCE 91-38, regarding investments by bank collective investment funds; PTCE
95-60, regarding transactions by insurance company general accounts; and PTCE
96-23, regarding transactions effected by an "in-house asset manager."
In addition to any exemption that may be available under PTCE 95-60 for
the purchase, sale and holding of the Securities by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the Code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL is required to
issue final regulations ("401(c) Regulations") no later than December 31, 1997
which are to provide guidance for the purpose of determining, in cases where
insurance policies supported by an insurer's general account are issued to or
for the benefit of a Plan on or before December 31, 1998, which general account
assets constitute Plan Assets. Section 401(c) of ERISA generally provides that,
until the date which is 18 months after the 401(c) Regulations become final, no
person shall be subject to liability under Part 4 of Title I of ERISA and
Section 4975 of the Code on the basis of a claim that the assets of an insurance
company general account constitute Plan Assets, unless (i) as otherwise provided
by the Secretary of Labor in the 401(c) Regulations to prevent avoidance of the
regulations or (ii) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal or
state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a Plan after December 31, 1998 or issued to
Plans on or before December 31, 1998 for which the insurance company does not
comply with the 401(c) Regulations may be treated as Plan Assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan Assets of any Plan invested in
such separate account. Insurance companies contemplating the investment of
general account assets in the Securities should consult with their legal counsel
with respect to the applicability of Section 401(c) of ERISA, including the
general account's ability to continue to hold the Securities after the date
which is 18 months after the date the 401(c) Regulations become final.
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Because the exemptive relief afforded by the Exemption (or any similar
exemption that might be available) will not apply to the purchase, sale or
holding of certain Securities, such as Notes with "substantial equity features,"
subordinate Securities, REMIC Residual Certificates and certain Securities which
are not rated in one of the three highest generic rating categories by the
Exemption Rating Agencies transfers of any such Securities to a Plan, to a
trustee or other person acting on behalf of any Plan, or to any other person
investing Plan Assets to effect such acquisition will not be registered by the
Trustee unless the transferee provides the Depositor, the Trustee and the Master
Servicer with an opinion of counsel satisfactory to the Depositor, the Trustee
and the Master Servicer, which opinion will not be at the expense of the
Depositor, the Trustee or the Master Servicer, that the purchase of such
Securities by or on behalf of such Plan is permissible under applicable law,
will not constitute or result in any non-exempt prohibited transaction under
ERISA or Section 4975 of the Code and will not subject the Depositor, the
Trustee or the Master Servicer to any obligation in addition to those undertaken
in the related Agreement.
In lieu of such opinion of counsel, the transferee may provide a
certification substantially to the effect that the purchase of Securities by or
on behalf of such Plan is permissible under applicable law, will not constitute
or result in any non-exempt prohibited transaction under ERISA or Section 4975
of the Code, will not subject the Depositor, the Trustees or the Master Servicer
to any obligation in addition to those undertaken in the Agreement and the
following statements are correct: (i) the transferee is an insurance company,
(ii) the source of funds used to purchase such Securities is an "insurance
company general account" (as such term is defined in PTCE 95-60), (iii) the
conditions set forth in PTCE 95-60 have been satisfied and (iv) there is no Plan
with respect to which the amount of such general account's reserves and
liabilities for contracts held by or on behalf of such Plan and all other Plans
maintained by the same employer (or any "affiliate" thereof, as defined in PTCE
95-60) or by the same employee organization exceed 10% of the total of all
reserves and liabilities of such general account (as determined under PTCE
95-60) as of the date of the acquisition of such Securities.
An opinion of counsel or certification will not be required with
respect to the purchase of DTC registered Securities. Any purchaser of a DTC
registered Security will be deemed to have represented by such purchase that
either (a) such purchaser is not a Plan and is not purchasing such Securities on
behalf of, or with Plan Assets of, any Plan or (b) the purchase of any such
Security by or on behalf of, or with Plan Assets of, any Plan is permissible
under applicable law, will not result in any non-exempt prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Depositor, the
Trustees or the Master Servicer to any obligation in addition to those
undertaken in the related Agreement.
Any plan fiduciary which proposes to cause a Plan to purchase
Securities should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such 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 Securities 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 Securities may contain
additional information regarding the application of the Exemption or any other
exemption with respect to the Certificates offered thereby.
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ANY PLAN FIDUCIARY CONSIDERING WHETHER TO PURCHASE SECURITIES 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 Securities will specify
which, if any, of the classes of Securities 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 Securities 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 Securities 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 classes
of Securities, 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
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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 Securities 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
Securities. 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 Securities or to purchase any class of
Securities representing more than a specified percentage of the investors'
assets. The Depositor will make no representations as to the proper
characterization of any class of Securities for legal investment or other
purposes, or as to the ability of particular investors to purchase any class of
Securities under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of Securities. 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 Securities 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 Securities offered hereby and by the Supplements to this Prospectus
will be offered in Series. The distribution of the Securities may be effected
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices to be
determined at the time of sale or at the time of commitment therefor. If so
specified in the related Prospectus Supplement, the Securities 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 Securities agreed to be
purchased by purchasers pursuant to purchase agreements acceptable to the
Depositor. In connection with the sale of the Securities, underwriters may
receive compensation from the Depositor or from purchasers of the Securities 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
Securities will be distributed by PaineWebber acting as agent or in some cases
as principal with respect to
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Securities which it has previously purchased or agreed to purchase. If
PaineWebber acts as agent in the sale of Securities, PaineWebber will receive a
selling commission with respect to each Series of Securities, 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 Securities will be disclosed in the related Prospectus
Supplement. To the extent that PaineWebber elects to purchase Securities 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 Securities 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, or
their affiliates, 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 Securities.
The Depositor anticipates that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, 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 Securities. Securityholders should consult
with their legal advisors in this regard prior to any such reoffer or sale.
As to each Series of Securities, 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.
LEGAL MATTERS
Certain legal matters in connection with the Securities will be passed
upon for the Depositor by Thacher Proffitt & Wood, New York, New York or such
other counsel thereto as set forth in the Prospectus Supplement.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Securities 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 Securities.
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 Securities of each Series offered hereby and
by the Prospectus Supplement that
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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 Securities of such class will receive
payments to which such Securityholders 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 Securities. Such
rating should not be deemed a recommendation to purchase, hold or sell
Securities, 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 Security 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 Securities 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 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 Security 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
- ---------- -----------------
401(c) Regulations...........................................................153
Accessories ............................................................30
Accrual Certificates.......................................................7, 48
Accrued Certificate Interest..................................................56
Administration Fee Rate.......................................................72
Advance ............................................................13
Advances ........................................................47, 54
Agency Securities .............................................................1
Agreement .............................................................4
ARM Loans ............................................................25
Assumed Reinvestment Rate.....................................................57
Available Distribution Amount.................................................58
Balloon Loans ............................................................25
BIF ............................................................43
Buydown Loans ............................................................28
Buydown Period ............................................................28
Cash Flow Value ............................................................57
Certificate Principal Balance.................................................57
Charter Act ............................................................32
Class Exemptions ...........................................................152
Code .........................................................7, 14
Collateral Value ............................................................30
Commission .............................................................1
Committee Report ...........................................................123
Conservation Act ...........................................................112
Contracts ........................................................10, 24
Cooperative ........................................................10, 24
Cooperative Loans ........................................................10, 24
Cooperative Notes ............................................................28
Cooperative Unit ............................................................24
Corporate Trust Office........................................................47
Credit Insurance Instrument...................................................69
Cumulative Subordination Payments.............................................61
Cut-off Date .............................................................8
Deficiency Event ............................................................77
Deposit Period ............................................................62
Depositor .............................................................4
Distribution Date .........................................................8, 55
DOL ...........................................................149
DOL Regulations ...........................................................149
Due Period ............................................................58
Due-on-encumbrance............................................................40
Due-on-sale .......................................................40, 110
Equity Certificates............................................................5
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PAGE ON WHICH
TERM IN THE TERM IS DEFINED
PROSPECTUS IN THE PROSPECTUS
- ---------- -----------------
ERISA ...........................................................149
Event of Default ............................................................80
Events of Default ............................................................78
Exemption ...........................................................150
FDIC ............................................................43
FHA ............................................................12
FHA Loans ............................................................26
FHLMC .........................................................1, 12
FHLMC Act ............................................................33
FHLMC Certificate group.......................................................34
FHLMC Certificates........................................................12, 31
Final Distribution Date.......................................................55
FNMA .........................................................1, 12
FNMA Certificates ........................................................12, 31
FTC Rule ...........................................................107
Garn-St Germain Act..........................................................108
GNMA .........................................................1, 12
GNMA Certificates ........................................................12, 31
Grantor Trust Certificates....................................................14
Grantor Trust Fractional Interest Certificate................................116
Grantor Trust Strip Certificate..............................................116
Hazard Insurance Instrument...................................................69
Holder-in-Due-Course.........................................................107
Housing Act ............................................................29
Indenture .............................................................5
Initial Deposit ............................................................61
Insurability Representation...................................................52
Insurance Instrument..........................................................69
Insurance Proceeds............................................................54
Interest Rate ........................................................10, 24
Issuer .............................................................4
L/C Bank ............................................................93
Liquidation Proceeds..........................................................54
Loan-to-Value Ratio...........................................................30
Lockout Period ............................................................26
Manager ............................................................25
Manufactured home ............................................................28
Manufacturer's Invoice Price..................................................30
Master Servicer .............................................................4
Maximum Subordination Amount..................................................61
Mortgage Loans .........................................................9, 24
Mortgage Notes ............................................................26
Mortgaged Properties...........................................................9
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PAGE ON WHICH
TERM IN THE TERM IS DEFINED
PROSPECTUS IN THE PROSPECTUS
- ---------- -----------------
Mortgages ............................................................26
Multifamily Loans .........................................................9, 24
Net Interest Rate ............................................................48
Nonrecoverable Advance........................................................63
OID Regulations ...........................................................115
Optional Termination..........................................................14
OTS ...........................................................155
Owner Trust .............................................................4
Owner Trustee .............................................................5
Parties in Interest..........................................................149
Percentage Interest...........................................................47
Permitted Instruments.........................................................52
Plan Assets ...........................................................149
Plans ...........................................................149
Policy Statement ...........................................................155
Prepayment Period ............................................................38
Primary Hazard Insurance Policy...............................................86
PTCE ...........................................................152
PTCE 83-1 ...........................................................153
Purchase Price ............................................................44
Realized Loss ............................................................59
Refinance Loans ............................................................30
Regular Interests .......................................................48, 115
Relief Act ...........................................................114
REMIC .........................................................2, 48
REMIC Regular Certificates....................................................14
Reserve Fund ........................................................61, 92
Residential Loan Program......................................................36
Residential Loans .............................................................1
Residential Properties....................................................10, 24
Residual interests....................................................7, 48, 115
Restricted Group ...........................................................151
Retained Interest ............................................................47
Retained Interest Rate........................................................48
SAIF ............................................................43
Scheduled Principal Balance...................................................60
Securities .............................................................1
Security Interest Rate.........................................................5
Security Principal Balance.....................................................5
Senior Certificates........................................................6, 47
Senior Liens ............................................................26
Senior Percentage ............................................................60
Senior/Subordinate Series.....................................................47
iii
<PAGE>
PAGE ON WHICH
TERM IN THE TERM IS DEFINED
PROSPECTUS IN THE PROSPECTUS
- ---------- -----------------
Servicemen's Readjustment Act.................................................29
Servicing Default ............................................................79
SMMEA ...........................................................154
Special Hazard Amount.........................................................90
Special Hazard Insurer........................................................90
Special Hazard Losses.........................................................59
Special Hazard Subordination Amount...........................................59
Specified Reserve Fund Balance................................................61
Stated Principal Balance......................................................45
Strip Certificates.........................................................6, 48
Stripped Agency Securities....................................................35
Stripped Interest ............................................................37
Sub-Servicer ............................................................36
Sub-Servicing Account.........................................................53
Sub-Servicing Agreement.......................................................45
Subordinate Certificates...................................................6, 47
Subordination ............................................................54
Termination ............................................................54
Title V ...........................................................111
Title VIII ...........................................................112
Trust Account ............................................................12
Trust Agreement .............................................................4
Trust Fund .............................................................5
Trust Fund Asset .............................................................5
Trustee .............................................................4
Unaffiliated Sellers..........................................................24
Unrecovered Senior Portion....................................................60
VA ............................................................12
VA Loans ............................................................26
Window Period ...........................................................109
Window Period Loans..........................................................109
iv
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE __, 1997
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 JUNE __, 1997
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 JUNE __, 1997
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 JUNE __, 1997
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 JUNE __, 1997
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>
SUBJECT TO COMPLETION, DATED JUNE __, 1997
PROSPECTUS SUPPLEMENT [VERSION 6]
(TO PROSPECTUS DATED ______________ 1997)
$------------
---------------------
MASTER SERVICER AND SELLER
---------------------
COMPANY
_________________ TRUST SERIES 1997-1
COLLATERALIZED ASSET-BACKED BONDS, SERIES 1997-1
The ________________ Trust Series 1997-1 (the "Issuer") will be formed
pursuant to a Trust Agreement to be dated as of ___, 1997 between _____________
(the "Company") and __________________, the Owner Trustee. The Issuer will issue
$___________ aggregate principal amount of Collateralized Asset-Backed Bonds,
Series 1997-1 (the "Bonds"). The Bonds will be issued pursuant to an Indenture
to be dated as of ____, 1997, between the Issuer and ________________________,
the Indenture Trustee.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT AND THE INFORMATION
SET FORTH UNDER "RISK FACTORS" ON PAGE 13 OF THE PROSPECTUS BEFORE PURCHASING
ANY OF THE BONDS.
The Bonds will represent indebtedness of the trust fund (the "Trust
Fund") created by the Trust Agreement. The Trust Fund will consist of
adjustable-rate, conventional, one- to four-family, first lien mortgage loans
(the "Mortgage Loans"). In addition, the Bonds will have the benefit of an
irrevocable and unconditional financial guaranty insurance policy (the "Bond
Insurance Policy") issued by __________________ (the "Bond Insurer") as
described under "Description of the Bonds--Bond Insurance Policy" herein.
(CONTINUED ON FOLLOWING PAGE)
--------------------------
THE ASSETS PLEDGED TO SECURE THE BONDS AND PROCEEDS FROM THE BOND INSURANCE
POLICY ARE THE SOLE SOURCE OF PAYMENTS ON THE BONDS. THE BONDS WILL REPRESENT
OBLIGATIONS SOLELY OF THE ISSUER AND WILL NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE COMPANY, THE MASTER SERVICER, THE OWNER TRUSTEE, THE INDENTURE
TRUSTEE OR ANY OF THEIR AFFILIATES, OTHER THAN THE ISSUER. NEITHER THE BONDS
NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE BONDS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
There is currently no secondary market for the Bonds.
______________________ (together, the "Underwriters") intend to make a secondary
market in the Bonds, but are not obligated to do so. There can be no assurance
that a secondary market for the Bonds will develop or, if it does develop, that
it will continue or provide Bondholders with sufficient liquidity of investment.
The Bonds will not be listed on any securities exchange.
The Bonds will be purchased from the Company by the Underwriters and
will be offered by the Underwriters from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the Bonds are
expected to be approximately $____________________ before the deduction of
expenses payable by the Company estimated to be approximately
$_________________.
The Bonds are offered by the Underwriters subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject any order in whole or in part. It is expected
that delivery of the Bonds will be made on or about __________ 1997 in
book-entry form through the Same Day Funds Settlement System of The Depository
Trust Company as discussed herein, against payment therefor in immediately
available funds.
-------------------------------------
THE UNDERWRITERS ARE ACTING AS CO-LEAD MANAGERS IN CONNECTION WITH
ALL ACTIVITIES RELATING TO THIS OFFERING.
The date of this Prospectus Supplement is ___ __, 1997
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The interest rates on the Mortgage Loans will be subject to monthly,
semi-annual or annual adjustment commencing after the related Initial Period (as
defined herein) based on the related Index (as defined herein) and the
respective Gross Margins described herein, subject to certain periodic and
lifetime limitations as described more fully herein.
The Mortgage Loans were generally underwritten in accordance with the
underwriting standards described in "Description of the Mortgage
Pool--Underwriting" and Appendix A to this Prospectus Supplement. See also "Risk
Factors--Underwriting Standards" in this Prospectus Supplement. Approximately
____% of the Mortgage Loans, by aggregate principal balance as of the Cut-off
Date, are secured by Mortgaged Properties in California. See "Risk
Factors--Delinquencies and Potential Delinquencies" in this Prospectus
Supplement.
Payments on the Bonds will be made on the 25th day of each month or, if
such day is not a business day, then on the next business day, commencing in
_____ 1997 (each, a "Payment Date"). As described herein, interest will accrue
on the Bonds at a floating rate (the "Bond Interest Rate") equal, on the first
Payment Date, to ____%, and thereafter, equal to the lesser of (i) OneMonth
LIBOR (as defined herein) plus ____% per annum, except as described herein, and
(ii) the Available Funds Interest Rate (as defined herein). See "Description of
the Bonds--Interest Payments on the Bonds" herein. As described herein, interest
payable with respect to each Payment Date will accrue on the basis of a 360-day
year and the actual number of days elapsed during the period commencing on the
Payment Date immediately preceding the month in which such Payment Date occurs
and ending on the calendar day immediately preceding such Payment Date, except
with respect to the first Payment Date, which has an accrual period from ___ __,
1997 to _____ ___, 1997, and will be based on the Bond Principal Balance thereof
and the then-applicable Bond Interest Rate thereof, as reduced by certain
interest shortfalls. Payments in respect of principal of the Bonds will be made
as described herein under "Description of the Bonds--Priority of Payment."
The Bonds may be redeemed in whole, but not in part, by the Issuer on
any Payment Date on or after the earlier of (i) the Payment Date on which the
aggregate Principal Balance (as defined herein) of the Mortgage Loans is less
than or equal to 25% of the aggregate Principal Balance of the Mortgage Loans as
of the Cut-off Date or (ii) the Payment Date occurring in June 2004. See
"Description of the Bonds--Optional Redemption" herein.
The Bonds initially will be registered in the name of Cede & Co., as
nominee of The Depository Trust Company ("DTC"), as further described herein.
The interests of beneficial owners of the Bonds will be represented by book
entries on the records of DTC and the participating members of DTC. Definitive
certificates will be available for the Bonds only under the limited
circumstances described herein. See "Description of the Bonds--Book-Entry Bonds"
herein.
It is a condition of the issuance of the Bonds that they be rated "AAA"
by Standard & Poor's Ratings Services ("S&P") and "Aaa" by Moody's Investors
Service, Inc. ("Moody's").
THE YIELD TO MATURITY ON THE BONDS WILL DEPEND ON, AMONG OTHER THINGS,
THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, REPURCHASES,
DEFAULTS, LIQUIDATIONS AND NEGATIVE AMORTIZATION) ON THE MORTGAGE LOANS. THE
MORTGAGE LOANS GENERALLY MAY BE PREPAID IN FULL OR IN PART AT ANY TIME; HOWEVER,
PREPAYMENT MAY SUBJECT THE MORTGAGOR TO A PREPAYMENT CHARGE WITH RESPECT TO
APPROXIMATELY HALF OF THE MORTGAGE LOANS. IN ADDITION, THE YIELD ON THE BONDS
WILL BE SENSITIVE TO FLUCTUATIONS IN THE LEVEL OF ONE-MONTH LIBOR, WHICH MAY
VARY SIGNIFICANTLY OVER TIME. SEE "CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS"
HEREIN AND "YIELD AND PREPAYMENT CONSIDERATIONS" IN THE PROSPECTUS.
THE BONDS OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE PART OF A
SEPARATE SERIES OF BONDS BEING OFFERED PURSUANT TO THE COMPANY'S PROSPECTUS
DATED MARCH 24, 1997, 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. SALES OF THE BONDS MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE BONDS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS TO WHICH IT RELATES. THIS DELIVERY REQUIREMENT 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.
S-2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Capitalized terms used herein and not otherwise defined herein have the meanings
assigned in the Prospectus.
The Bonds..........................$_____________ Collateralized Asset-Backed
Bonds, Series 1997-1. Only the Bonds are
offered hereby. The Bonds will be issued
pursuant to an Indenture, dated as of ___ __,
1997 between the Issuer and the Indenture
Trustee.
Issuer.............................The Bonds will be issued by
__________________ Trust Series 1997-1 (the
"Issuer"), a Delaware business trust
established pursuant to the Trust Agreement,
dated as of _______ __, 1997 (the "Trust
Agreement"), between the Company and the
Owner Trustee. The Bonds will represent
obligations solely of the Issuer, and the
proceeds of the assets of the Issuer (such
assets, the "Trust Fund") and the Bond
Insurance Policy will be the sole source of
payments on the Bonds.
Company............................PaineWebber Mortgage Acceptance Corporation
IV (the "Company"). See "The Company" in the
Prospectus.
Master Servicer....................______________________ ( the "Master
Servicer"). See "Description of the Servicing
Agreement--The Master Servicer; the
Subservicer" herein.
Subservicer........................The Mortgage Loans will be subserviced by
_______ Funding, Inc. ("_____________"). See
"Description of the Servicing Agreement--The
Master Servicer; the Subservicer" herein.
Owner Trustee......................___________________ a _______ trust company.
Indenture Trustee..................___________________________, a ___________.
Cut-off Date......................._____ ___, 1997.
Delivery Date......................On or about ______ ___, 1997.
Payment Date.......................The 25th day of each month (or, if such day
is not a business day, the next business
day), beginning on ______ 25, 1997 (each, a
"Payment Date").
Denominations and
Registration.......................The Bonds will be issued, maintained and
transferred on the book-entry records of DTC
and its Participants (as defined in the
Prospectus). The Bonds will be offered in
registered form, in minimum denominations of
$25,000 and integral
S-3
<PAGE>
multiples of $1 in excess thereof. The Bonds
will be represented by one or more Bonds
registered in the name of Cede & Co., as
nominee of DTC. No Beneficial Owner will be
entitled to receive a Bond in fully
registered, certificated form (a "Definitive
Bond"), except under the limited
circumstances described herein. See
"Description of the Bonds--Book-Entry Bonds"
herein.
The Mortgage Pool..................The Mortgage Loans are secured by first liens
on one- to four-family real properties (each,
a "Mortgaged Property"). The Mortgage Loans
have individual principal balances at
origination of at least $________ but not
more than $_______ with an average principal
balance at origination of approximately
$__________ The Mortgage Loans have terms to
maturity of up to 30 years from the date of
origination and a weighted average remaining
term to stated maturity of approximately ____
months as of the Cut-off Date.
The Mortgage Rate on each Mortgage Loan will
be subject to monthly, semi-annual or annual
adjustment, commencing after an initial
period from origination of three months, six
months, eleven months, one year, two years or
three years (such period, the "Initial
Period"), on its Adjustment Date (as defined
herein), to equal the sum (rounded as
described herein) of the related Index
described below and a fixed percentage set
forth in the related Mortgage Note (the
"Gross Margin"). However, (i) on any
Adjustment Date such Mortgage Rate may not
increase or decrease by more than the
Periodic Rate Cap (as defined herein), except
as described herein, (ii) over the life of
such Mortgage Loan, such Mortgage Rate may
not exceed the related maximum Mortgage Rate
(the "Maximum Mortgage Rate"), which Maximum
Mortgage Rates will range from _______% to
________% and (iii) over the life of such
Mortgage Loan, such Mortgage Rate may not be
lower than the minimum Mortgage Rate (the
"Minimum Mortgage Rate"), which Minimum
Mortgage Rates will range from _______% to
________% per annum. As of the Cut-off Date,
the Mortgage Loans will have Mortgage Rates
of at least _______% per annum but not more
than _______% per annum, with a weighted
average of _____%. The Mortgage Loans will
have Gross Margins ranging from ______% to
_______% with a weighted average of ______%
as of the Cut-off Date.
Approximately ______% of the Mortgage Loans
(by aggregate principal balance as of the
Cut-off Date) (the "Convertible Mortgage
Loans") provide that, at the option
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of the related Mortgagors, the adjustable
interest rate on such Mortgage Loan may be
converted to a fixed interest rate, provided
that certain conditions have been satisfied.
Such Convertible Mortgage Loans will be
repurchased upon conversion by the Master
Servicer as described herein. See
"Description of the Mortgage Pool-Convertible
Mortgage Loans" herein.
Approximately _____% of the Mortgage Loans
(by aggregate principal balance as of the
Cut-off Date) (the "Negative Amortization
Loans") provide for negative amortization. To
the extent that accrued interest on any
Negative Amortization Loan exceeds the
related monthly payment, such excess
("Deferred Interest") is added to the
principal balance of such Mortgage Loan on
the Due Date and thereafter accrues interest
at the related Mortgage Rate. Investors
should consider the potential effect of the
negative amortization feature on the rate of
default and loss on the Negative Amortization
Loans. See "Certain Yield and Prepayment
Considerations" and "Description of the
Mortgage Pool-Negative Amortization Loans"
herein.
For a further description of the Mortgage
Loans, see "Description of the Mortgage Pool"
herein.
The Indices........................As of any Adjustment Date with respect to any
Mortgage Loan, the Index applicable to the
determination of the related Mortgage Rate
will be one of the following: (i) the average
of the interbank offered rates for one month
U.S. dollar deposits in the London market
based on quotations of major banks as most
recently available generally 45 days prior to
the Adjustment Date ("Negative Amortization
Loan One-Month LIBOR"); (ii) the average of
the interbank offered rates for six month
U.S. dollar deposits in the London market
based on quotations of major banks as most
recently available generally 45 days prior to
the Adjustment Date ("Six-Month LIBOR");
(iii) the weekly average yield on U.S.
Treasury securities adjusted to a constant
maturity of six months ("Six-Month CMT") as
published by the Federal Reserve Board in
Statistical Release H.15(519) and most
recently available as of the first business
day generally 45 days prior to the Adjustment
Date; or (iv) the weekly average yield on
U.S. Treasury securities adjusted to a
constant maturity of one year ("One-Year
CMT") as published by the Federal Reserve
Board in Statistical Release H.15(519) and
most recently available as of the first
business day generally 45 days prior to the
Adjustment Date. The Negative Amortization
Loans will have an Index of Negative
Amortization Loan One-Month LIBOR, the
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other Mortgage Loans will have an Index of
Six-Month LIBOR, Six-Month CMT or One-Year
CMT.
Interest Payments .................Interest on the Bonds will be paid monthly on
each Payment Date, commencing in _____ 1997,
in an amount (the "Interest Payment Amount")
equal to interest accrued on the Bond
Principal Balance thereof immediately prior
to such Payment Date at the Bond Interest
Rate for the related Interest Period (as
defined below), minus (i) any Prepayment
Interest Shortfalls and Relief Act Shortfalls
(each as defined herein) to the extent not
covered by the Master Servicer by
Compensating Interest (as defined herein) for
such Payment Date and (ii) any Deferred
Interest (as defined herein) allocated
thereto on such Payment Date as described
herein. The Bond Interest Rate on each
Payment Date after the first Payment Date
will be a floating rate equal to the lesser
of (i)(a) with respect to each Payment Date
up to and including the earlier of (x) the
Payment Date in _____ 2004 and (y) the
Payment Date which occurs on or prior to the
date on which the aggregate Principal Balance
of the Mortgage Loans is less than 25% of the
aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date, One-Month LIBOR
(as defined herein) plus _____%, and (b) with
respect to each Payment Date thereafter,
One-Month LIBOR plus _____% and (ii) the
Available Funds Interest Rate with respect to
such Payment Date. The Bond Interest Rate for
the first Payment Date will equal _______%
per annum. Interest on the Bonds in respect
of any Payment Date will accrue from the
preceding Payment Date (or in the case of the
first Payment Date, from the Delivery Date
through the day preceding such Payment Date
(each such period, an "Interest Period")) on
the basis of the actual number of days in the
Interest Period and a 360-day year.
The "Available Funds Interest Rate" for any
Payment Date is a rate per annum equal to the
lesser of (x) the fraction, expressed as a
percentage, the numerator of which is (i) an
amount equal to (A) 1/12 of the aggregate
Principal Balance of the then outstanding
Mortgage Loans times the weighted average of
the Expense Adjusted Mortgage Rates on the
then outstanding Mortgage Loans minus (B) the
amount of the fee payable to the Owner
Trustee with respect to the Trust Agreement
and the premium with respect to the Bonds
payable to the Bond Insurer with respect to
the Bond Insurance Policy for such Payment
Date, and the denominator of which is (ii) an
amount equal to (A) the then outstanding
aggregate Bond Principal Balance of the Bonds
multiplied by (B) the actual number of days
elapsed in the related Interest Period
divided by 360 and (y) _________%
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per annum (the "Maximum Bond Interest Rate").
The amount of the fee payable to the Owner
Trustee together with the amount of the
premium payable to the Bond Insurer
(together, the "Administrative Fee") will
accrue at ______% per annum based on the Bond
Principal Balance of the Bonds.
The "Expense Adjusted Mortgage Rate" on any
Mortgage Loan is equal to the then applicable
Mortgage Rate thereon minus the sum of (i)
the Minimum Spread, (ii) the Servicing Fee
Rate and (iii) the Indenture Trustee Fee
Rate. For any Payment Date, the Minimum
Spread is equal to 0.500% per annum, the
Servicing Fee Rate is equal to 0.500% per
annum and the Indenture Trustee Fee Rate is
equal to 0.015% per annum.
As further described herein, with respect to
the Bonds and any Payment Date, to the extent
that (a) the lesser of (x) the amount payable
if clause (i) of the definition of Bond
Interest Rate above is used to calculate
interest and (y) the amount payable if the
Maximum Bond Interest Rate is used to
calculate interest exceeds (b) the amount
payable if clause (ii) of the definition of
Bond Interest Rate above is used to calculate
interest (such excess, the "Available Funds
Cap Carry-Forward Amount"), the holders of
the Bonds will be paid the amount of such
Available Funds Cap Carry- Forward Amount
with interest thereon at the Bond Interest
Rate for the Bonds applicable from time to
time after certain payments to the holders of
the Bonds and the Bond Insurer to the extent
of available funds. The Bond Insurance Policy
does not cover the Available Funds Cap
Carry-Forward Amount, nor do the ratings
assigned to the Bonds address the payment of
the Available Funds Cap Carry-Forward Amount.
To the extent that Deferred Interest causes a
shortfall in interest collections on the
Mortgage Loans that would otherwise cause a
shortfall in the amount of interest payable
to the Bondholders, such amount will be paid
using principal collections on the Mortgage
Loans through the priority of payment
provisions described herein. To the extent
that the Interest Payment Amount for any
Payment Date exceeds Available Funds for such
Payment Date, the lesser of such excess and
the aggregate amount of Deferred Interest, if
any, that is added to the principal balance
of the Negative Amortization Loans on the Due
Date occurring in the month in which such
Payment Date occurs will be added to the Bond
Principal Balance of the Bonds and subtracted
from the Interest Payment Amount for such
Payment Date.
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Principal Payments ................Principal payments will be payable on the
Bonds on each Payment Date in an aggregate
amount equal to the Principal Payment Amount
for such Payment Date. The Principal Payment
Amount will include, to the extent of
available funds and except as otherwise
described herein, the principal portion of
all scheduled monthly payments (whether
received or advanced) due from Mortgagors on
the related Due Date, and all unscheduled
amounts received during the preceding
calendar month that are allocable to
principal (including proceeds of repurchases,
prepayments, liquidations and insurance
(excluding proceeds paid in respect of the
Bond Insurance Policy)) and may be reduced as
a result of overcollateralization in excess
of the required level, as described herein.
In addition, on any Payment Date, to the
extent of funds available therefor,
Bondholders will also be entitled to receive
payments generally equal to the amount, if
any, necessary to bring the Subordination
Amount up to the Required Subordination
Amount (such amount, the "Subordination
Increase Amount"). On the Payment Date in
_____ ____, principal will be payable on the
Bonds in an amount equal to the Bond
Principal Balance on such Payment Date.
The "Bond Principal Balance" of the Bonds on
any date of determination is the initial
principal balance thereof as of the Delivery
Date, increased by any Deferred Interest
allocated thereto, and reduced by all
payments of principal thereon prior to such
date of determination.
Bond Insurer.......................___________________ (the "Bond Insurer"). See
_________ _______________ herein.
Bond Insurance Policy..............On the Delivery Date, the Bond Insurer will
issue a Bond Insurance Policy in favor of the
Indenture Trustee on behalf of the holders of
the Bonds. On each Payment Date, a draw will
be made on the Bond Insurance Policy to cover
(a) any shortfall in amounts available to
make payments of the Interest Payment Amount
and (b) the Subordination Deficit (as defined
herein). The Bond Insurance Policy will also
cover any unpaid Preference Amount. In
addition, the Bond Insurance Policy will
guarantee the payment of the outstanding Bond
Principal Balance of each Bond on the Payment
Date in _____ _________(after giving effect
to all other amounts distributable and
allocable to principal on such Payment Date).
The Bond Insurance Policy does not insure the
payment of the Available Funds Cap Carry-
Forward Amount (as defined herein). See
"Description of the Bonds--Bond Insurance
Policy" herein and "Description of Credit
Enhancement" in the Prospectus.
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The Certificates...................Trust Certificates, Series 1997-1. The
Certificates will be issued pursuant to the
Trust Agreement and will represent the
beneficial ownership interest in the Issuer.
The Certificates are not offered hereby.
Credit Enhancement.................The credit enhancement provided for the
benefit of the Bondholders consists solely of
(a) the overcollateralization provisions
which utilize the internal cash flows of the
Mortgage Loans and (b) the Bond Insurance
Policy.
OVERCOLLATERALIZATION. Initially, the
aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date will exceed the
aggregate Bond Principal Balance of the Bonds
as of the Delivery Date by approximately
$_____________ or _____% of the aggregate
Principal Balance of the Mortgage Loans as of
the Cut-off Date. This amount is the required
level of overcollateralization (the "Required
Subordination Amount") as of the Delivery
Date and may increase or decrease, subject to
certain trigger tests, in accordance with the
provisions of the Indenture. An increase
would result in a temporary period of
accelerated amortization of the Bonds to
increase the actual level of
overcollateralization to its required level;
a decrease would result in a temporary period
of decelerated amortization to reduce the
actual level of overcollateralization to its
required level. See "Description of the
Bonds--Overcollateralization Provisions."
THE BOND INSURANCE POLICY. The Bonds will
have the benefit of the Bond Insurance
Policy, as discussed more fully herein. See
"Description of the Bonds--Bond Insurance
Policy" herein.
Advances...........................The Master Servicer is required to make
advances ("Advances") in respect of
delinquent payments of principal and interest
on the Mortgage Loans, subject to the
limitations described herein. See
"Description of the Bonds--Advances" herein
and in the Prospectus.
Optional Redemption of
the Bonds.........................The Bonds may be redeemed in whole, but not
in part, by the Issuer on any Payment Date on
or after the earlier of (i) the Payment Date
on which the aggregate Principal Balance (as
defined herein) of the Mortgage Loans is less
than or equal to 25% of the aggregate
Principal Balance of the Mortgage Loans as of
the Cut-off Date or (ii) the Payment Date
occurring in ______ ______. See "Description
of the Bonds--Optional Redemption" herein and
"The
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<PAGE>
Agreements--Termination; Redemption of Bonds"
in the Prospectus.
Special Prepayment
Considerations...................The rate and timing of principal payments on
the Bonds will depend, among other things, on
the rate and timing of principal payments
(including prepayments, defaults,
liquidations, negative amortization and
purchases of the Mortgage Loans due to a
breach of a representation or warranty) on
the related Mortgage Loans. As is the case
with mortgage-backed securities generally,
the Bonds are subject to substantial inherent
cash-flow uncertainties because the Mortgage
Loans may be prepaid at any time; however, a
prepayment may subject the related Mortgagor
to a prepayment charge with respect to
approximately half of the Mortgage Loans.
Generally, when prevailing interest rates
increase, prepayment rates on mortgage loans
tend to decrease, resulting in a slower
return of principal to investors at a time
when reinvestment at such higher prevailing
rates would be desirable. Conversely, when
prevailing interest rates decline, prepayment
rates on mortgage loans tend to increase,
resulting in a faster return of principal to
investors at a time when reinvestment at
comparable yields may not be possible.
See "Certain Yield and Prepayment
Considerations" herein, and "Maturity and
Prepayment Considerations" in the Prospectus.
Special Yield
Considerations..................The yield to maturity on the Bonds will
depend on, among other things, the rate and
timing of principal payments (including
prepayments, defaults, liquidations, negative
amortization and purchases of the Mortgage
Loans due to a breach of a representation or
warranty) on the Mortgage Loans and the
allocation thereof to reduce the Bond
Principal Balance thereof. The yield to
maturity on the Bonds will also depend on the
Bond Interest Rate and the purchase price for
such Bonds.
If the Bonds are purchased at a premium and
principal payments 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 the
Bonds are purchased at a discount and
principal payments thereon occur at a rate
slower than that assumed at the time of
purchase, the investor's actual yield to
maturity will be lower than that assumed at
the time of purchase.
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<PAGE>
The Bonds were structured assuming, among
other things, a constant prepayment rate
("CPR") of 20% and corresponding weighted
average lives as described herein. The
prepayment, yield and other assumptions to be
used for pricing purposes for the Bonds may
vary as determined at the time of sale.
See "Certain Yield and Prepayment
Considerations" herein and "Yield
Considerations" in the Prospectus.
Federal Income Tax
Consequences......................In the opinion of Tax Counsel (as defined in
the Prospectus), for federal income tax
purposes, the Bonds will be characterized as
indebtedness and not as representing an
ownership interest in the Trust Fund or an
equity interest in the Issuer or the Company.
In addition, for federal income tax purposes,
the Issuer will not be (i) classified as an
association taxable as a corporation for
federal income tax purposes (other than as a
"qualified REIT subsidiary" as defined in
Section 856(i) of the Code), (ii) a taxable
mortgage pool as defined in Section 7701(i)
of the Code, or (iii) a "publicly traded
partnership" as defined in Treasury
Regulation Section 1.7704-1.
For further information regarding certain
federal income tax consequences of an
investment in the Bonds see "Federal Income
Tax Consequences" herein and "Federal Income
Tax Consequences" and "State and Other Tax
Consequences" in the Prospectus.
Legal Investment...................The Bonds will constitute "mortgage related
securities" for purposes of SMMEA for so long
as they are rated in at least the second
highest rating category by one or more
nationally recognized statistical rating
agencies. Institutions whose investment
activities are subject to legal investment
laws and regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the Bonds. See
"Legal Investment" herein.
Rating.............................It is a condition to the issuance of the
Bonds that they be rated "AAA" by Standard &
Poor's Ratings Services ("S&P") and "Aaa" by
Moody's Investors Service, Inc. ("Moody's").
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. A
security rating does not address the
frequency of prepayments of Mortgage Loans,
or the corresponding effect on yield to
investors.
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<PAGE>
The ratings do not represent any assessment
of the Master Servicer's ability to
repurchase any Converting Mortgage Loan
following the conversion of the related
Mortgage Rate to a fixed rate, or the effect
on the yield to Bondholders resulting from
any such conversion and the failure of the
Master Servicer to repurchase such Converting
Mortgage Loan. Also, the ratings issued by
S&P and Moody's on payment of principal and
interest on the Bonds do not cover the
payment of the Available Funds Cap
Carry-Forward Amount. See "Certain Yield and
Prepayment Considerations" and "Ratings"
herein.
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<PAGE>
RISK FACTORS
Prospective Bondholders should consider, among other things, the items
discussed under "Risk Factors" in the Prospectus and the following factors in
connection with the purchase of the Bonds:
UNDERWRITING STANDARDS
The Mortgage Loans were underwritten generally in accordance with
underwriting standards described in "Description of the Mortgage
Pool--Underwriting" below and Appendix A attached hereto which are primarily
intended to provide single family mortgage loans for non-conforming credits
which do not satisfy the requirements of typical "A" credit borrowers. A
"non-conforming credit" means a mortgage loan which is ineligible for purchase
by FNMA or FHLMC due to credit characteristics that do not meet the FNMA or
FHLMC underwriting guidelines, including mortgagors whose creditworthiness and
repayment ability do not satisfy such FNMA or FHLMC underwriting guidelines and
mortgagors who may have a record of credit write-offs, outstanding judgments,
prior bankruptcies and other credit items that do not satisfy such FNMA or FHLMC
underwriting guidelines. Accordingly, Mortgage Loans underwritten under the
Originators' non-conforming credit underwriting standards or to standards that
do not meet the requirements for typical "A" credit borrowers are likely to
experience rates of delinquency, foreclosure and loss that are higher, and may
be substantially higher, than mortgage loans originated in accordance with the
FNMA or FHLMC underwriting guidelines or to typical "A" credit borrowers.
POTENTIAL DELINQUENCIES
Approximately ______% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-off Date) are secured by Mortgaged Properties
located in the State of California. In the event California experiences a
decline in real estate values, losses on the Mortgage Loans may be greater than
otherwise would be the case.
Approximately _____% of the Mortgage Loans (by aggregate outstanding
principal balance as of the Cut-off Date) will have Loan-to-Value Ratios in
excess of 80% but will not be covered by a primary mortgage insurance policy.
Such Mortgage Loans will be affected to a greater extent than Mortgage Loans
with primary mortgage insurance or a Loan-to-Value Ratio equal to or less than
80% by any decline in the value of the related Mortgaged Property. No assurance
can be given that values of the Mortgaged Properties have remained or will
remain at their levels on the dates of origination of the related Mortgage
Loans. If the residential real estate market should experience an overall
decline in property values such that the outstanding balances of the Mortgage
Loans, and any secondary financing on the Mortgaged Properties, become equal to
or greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could be higher than those now generally
experienced in the mortgage lending industry. Any decrease in the value of such
Mortgage Loans may result in the allocation of losses to the Bonds which are not
covered by overcollateralization or the Bond Insurance Policy. See "Primary
Mortgage Insurance, Hazard Insurance; Claims Thereunder" in the Prospectus.
__________ has limited historical delinquency and default experience
that may be referred to for purposes of estimating the future delinquency and
loss experience of the Mortgage Loans underwritten pursuant to the underwriting
standards described herein, which include those of non-related bulk purchasers.
There can be no assurance that the delinquency experience of the servicing
portfolios described herein with respect to mortgage loans serviced by
__________ will correspond to the delinquency experience of the Mortgage Loans
underwritten pursuant to such underwriting standards. See "Description of the
Servicing Agreement--The Master Servicer; the Subservicer" herein.
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<PAGE>
RISK OF MORTGAGE LOAN YIELD REDUCING BOND INTEREST RATE ON THE BONDS
The Bond Interest Rate is based upon, among other factors as described
herein under "Description of the Bonds--Interest Payments on the Bonds," the
value of an index (One-Month LIBOR (as defined herein)) which is different from
the value of the indices applicable to the Mortgage Loans (Negative Amortization
Loan One-Month LIBOR, Six-Month LIBOR, Six-Month CMT and One-Year CMT (each as
defined herein)), as described under "Description of the Mortgage Pool" herein.
Investors should note that the value of One-Month LIBOR on the Bonds may differ
from Negative Amortization Loan OneMonth LIBOR, due to the different reference
date. The Mortgage Rate of each Mortgage Loan adjusts monthly, semi-annually or
annually, commencing after the Initial Period, based upon the related Index,
whereas the Bond Interest Rate on the Bonds adjusts monthly based upon One-Month
LIBOR plus ____% (or after the earlier of (x) the Payment Date in June 2004 and
(y) the Payment Date which occurs on or prior to the date on which the aggregate
Principal Balance of the Mortgage Loans is less than 25% of the aggregate
Principal Balance of the Mortgage Loans as of the Cut-off Date, One-Month LIBOR
plus _____%), limited by the Available Funds Interest Rate (as defined herein).
In addition, One-Month LIBOR and the Indices on the Mortgage Loans may respond
differently to economic and market factors, and there is not necessarily any
correlation between them. Moreover, the Mortgage Loans are subject to Periodic
Rate Caps, Maximum Mortgage Rates and Minimum Mortgage Rates (each, as defined
herein). Thus, it is possible, for example, that One-Month LIBOR may rise during
periods in which the Indices are stable or falling or that, even if both
One-Month LIBOR and the Indices rise during the same period, One-Month LIBOR may
rise much more rapidly than the Indices. See "Description of the Bonds--Interest
Payments on the Bonds."
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Mortgage Pool will consist of conventional, adjustable-rate,
monthly payment, first lien mortgage loans with terms to maturity of not more
than 30 years from the date of origination or modification. As of the Cut-off
Date, the principal balance of the Mortgage Loans was equal to $__________. The
Company will acquire the Mortgage Loans to be included in the Mortgage Pool from
__________________ (_______), the parent of the Company, which in turn acquired
them from ICI Funding (in such capacity, the "Seller"), which in turn acquired
them pursuant to various agreements from affiliates of ____________ and various
mortgage loan conduit sellers (collectively, the "Originators"). All of the
Mortgage Loans will be subserviced by ______________. The Company will convey
the Mortgage Loans to the Issuer on the Delivery Date pursuant to the Trust
Agreement. ________________ will make certain representations and warranties
with respect to the Mortgage Loans and, as more particularly described in the
Prospectus, will have certain repurchase or substitution obligations in
connection with a breach of any such representation or warranty, as well as in
connection with an omission or defect in respect of certain constituent
documents required to be delivered with respect to the Mortgage Loans, in any
event if such breach, omission or defect cannot be cured and it materially and
adversely affects the interests of holders of the Securities or the Bond
Insurer. See "Description of the Mortgage Pool--Representations by Sellers" and
"Description of the Bonds--Assignment of Trust Fund Assets" in the Prospectus.
The Mortgage Loans will have been originated or acquired by the Originators in
accordance with the underwriting criteria described herein.
See "--Underwriting" below and Appendix A.
The representations and warranties made by ______________ will be
pledged to the Indenture Trustee for the benefit of the Bondholders and the Bond
Insurer.
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Approximately ________% of the Mortgage Loans, by aggregate principal
balance as of the Cutoff Date, will have Loan-to-Value Ratios in excess of 80%
but will not be covered by a primary mortgage insurance policy. Each other
Mortgage Loan with a Loan-to-Value Ratio in excess of 80% will be covered by a
primary mortgage insurance policy. See "Primary Mortgage Insurance, Hazard
Insurance; Claims Thereunder" in the Prospectus.
MORTGAGE LOANS
MORTGAGE RATE ADJUSTMENT
The Mortgage Rate on each Mortgage Loan will adjust monthly (with
respect to _____% of the Mortgage Loans), semi-annually (with respect to _____%
of the Mortgage Loans) or annually (with respect to _____% of the Mortgage
Loans) commencing after an initial period after origination (the "Initial
Period") of three months, six months, eleven months, one year, two years or
three years, in each case on each applicable Adjustment Date to a rate equal to
the sum, generally rounded to the nearest one-eighth of one percentage point
(12.5 basis points), of (i) the related Index plus (ii) a fixed percentage (the
"Gross Margin"). In addition, the Mortgage Rate on each Mortgage Loan (other
than the Negative Amortization Loans) is subject on its first Adjustment Date
following its origination to a cap (the "Initial Periodic Rate Cap") and on each
Adjustment Date thereafter to a periodic rate cap (the "Periodic Rate Cap"). All
of the Mortgage Loans are also subject to specified maximum and minimum lifetime
Mortgage Rates ("Maximum Mortgage Rates" and "Minimum Mortgage Rates,"
respectively). The Mortgage Loans were generally originated with an initial
Mortgage Rate below the sum of the current Index and the Gross Margin. Due to
the application of the Periodic Rate Caps, Maximum Mortgage Rates and Minimum
Mortgage Rates, the Mortgage Rate on any Mortgage Loan, as adjusted on any
related Adjustment Date, may not equal the sum of the related Index and the
Gross Margin. The Due Date for each Mortgage Loan is the first day of the month.
Approximately _____% of the Mortgage Loans will not have reached their
first Adjustment Date as of the Delivery Date. All of the Mortgage Loans with an
Initial Period of three months have already reached their first Adjustment Date.
The initial Mortgage Rate is generally lower than the rate that would have been
produced if the applicable Gross Margin had been added to the related Index in
effect at origination. Mortgage Loans that have not reached their first
Adjustment Date are, therefore, more likely to be subject to the Periodic Rate
Cap on their first Adjustment Date.
SIX-MONTH LIBOR INDEX
The Index applicable to the determination of the Mortgage Rate on
approximately ______% of the Mortgage Loans (by principal balance as of the
Cut-off Date) will be the average of the interbank offered rates for six-month
United States dollar deposits in the London market as published by FNMA and as
most recently available as of the first business day generally 45 days prior to
such Adjustment Date.
The table below sets forth historical average rates of Six-Month LIBOR
for the months indicated as made available from FNMA. Such average rates may
fluctuate significantly from month to month as well as over longer periods and
may not increase or decrease in a constant pattern from period to period. There
can be no assurance that levels of Six-Month LIBOR published by FNMA, or
published on a different Reference Date would have been at the same levels as
those set forth below. The following does not purport to be representative of
future levels of Six-Month LIBOR (as published by FNMA). No assurance can be
given as to the level of Six-Month LIBOR on any Adjustment Date or during the
life of any Mortgage Loan based on Six-Month LIBOR.
S-15
<PAGE>
SIX-MONTH LIBOR
MONTH.............. 1993 1994 1995 1996 1997
- ----- ------ ------ ------ ------ -----
January............ 3.44% 3.39% 6.69% 5.34% 5.71%
February........... 3.33 4.00 6.44 5.29 5.68
March.............. 3.38 4.25 6.44 5.52 5.96
April.............. 3.31 4.63 6.31 5.42 6.08
May................ 3.44 5.00 6.06 5.64
June............... 3.56 5.25 5.88 5.84
July............... 3.56 5.33 5.88 5.92
August............. 3.44 5.33 5.94 5.74
September.......... 3.38 5.69 5.99 5.75
October............ 3.50 6.00 5.95 5.58
November........... 3.52 6.44 5.74 5.55
December........... 3.50 7.00 5.56 5.62
ONE-YEAR CMT INDEX
The Index applicable to the determination of the Mortgage Rate on
approximately 11.59% of the Mortgage Loans (by principal balance as of the
Cut-off Date) will be the weekly average yield on U.S. Treasury securities
adjusted to a constant maturity of one year as published by the Federal Reserve
Board in Statistical Release H.15(519) and most recently available as of the
first business day generally 45 days prior to the Adjustment Date.
The table below sets forth historical average rates of One-Year CMT
for the months indicated as made available from Telerate Page 7052. Such average
rates may fluctuate significantly from month to month as well as over longer
periods and may not increase or decrease in a constant pattern from period to
period. There can be no assurance that levels of One-Year CMT published by
Telerate Page 7052, or published on a different Reference Date would have been
at the same levels as those set forth below. The following does not purport to
be representative of future levels of One-Year CMT (as published by Telerate
Page 7052). No assurance can be given as to the level of One-Year CMT on any
Adjustment Date or during the life of any Mortgage Loan based on One-Year CMT.
S-16
<PAGE>
ONE-YEAR CMT
Month 1993 1994 1995 1996 1997
- ----- ------ ------ ------ ------ -----
January........... 3.50% 3.54% 7.08% 5.11% 5.60%
February.......... 3.38 3.85 6.73 4.94 5.52
March............. 3.33 4.28 6.43 5.31 5.79
April............. 3.25 4.74 6.27 5.53 5.99
May............... 3.36 5.31 6.02 5.64
June.............. 3.55 5.24 5.66 5.81
July.............. 3.45 5.47 5.59 5.84
August............ 3.47 5.56 5.72 5.69
September......... 3.36 5.74 5.64 5.84
October........... 3.38 6.11 5.60 5.57
November.......... 3.58 6.48 5.45 5.43
December.......... 3.61 7.10 5.32 5.47
NEGATIVE AMORTIZATION LOANS
Approximately _____% of the Mortgage Loans ("Negative Amortization
Loans") have a negative amortization feature whereby interest payments on such
Mortgage Loans may be deferred and may be added to the Principal Balance
thereof. The amount of the monthly payment on each Negative Amortization Loan
adjusts annually on each "Payment Adjustment Date" to an amount which would
amortize fully the outstanding principal balance of the Negative Amortization
Loan over its remaining term, and pay interest at the Mortgage Rate as adjusted
on the immediately preceding Rate Adjustment Date, subject to a payment cap (the
"Payment Cap") that limits any increase or decrease in the amount of the monthly
payment on any Payment Adjustment Date to an amount not greater than 7.5% of the
amount of the monthly payment due on the preceding Due Date, to the extent that
the related Mortgagor has elected to have the monthly payment limited by the
Payment Cap. The Payment Cap shall not be in effect on the fifth anniversary of
the first Due Date and on each fifth anniversary thereafter (each such
anniversary, a "Recast Date"). The weighted average first Recast Date of the
Negative Amortization Loans, rounded to the nearest Due Date, is _________ __,
____. If on any Rate Adjustment Date, due to the addition of Deferred Interest,
the principal balance of any Negative Amortization Loan would exceed 110% of the
original principal balance thereof (such limitation, a "Negative Amortization
Cap"), the related monthly payment will be recalculated, without regard to the
Payment Cap, to equal an amount sufficient to amortize such Negative
Amortization Loan over its remaining term at the Mortgage Rate as adjusted on
the immediately preceding Rate Adjustment Date. Any monthly payment so
recalculated will remain in effect until the earliest of the next Payment
Adjustment Date, the next Recast Date or the next Due Date on which the
principal balance of the related Negative Amortization Loan would exceed the
Negative Amortization Cap.
The Mortgage Notes provide that at least 30 days prior to any Payment
Adjustment Date the related Mortgagor must be notified of (i) the monthly
payment that would be sufficient to amortize fully the then outstanding
principal balance of the related Negative Amortization Loan over its remaining
term (the "Full Payment") and (ii) the monthly payment that would be equal to
the above amount subject to the Payment Cap (the "Limited Payment"). Upon timely
notice, a Mortgagor may elect to pay the Limited Payment, subject only to the
related Negative Amortization Cap and the applicable provisions on the related
Recast Date.
On any Rate Adjustment Date an increase in the Mortgage Rate on a
Negative Amortization Loan will result in a larger portion of each subsequent
monthly payment being allocated to interest and a smaller portion being
allocated to principal, and conversely, a decrease in the Mortgage Rate on a
S-17
<PAGE>
Negative Amortization Loan will result in a larger portion of each subsequent
monthly payment being allocated to principal and a smaller portion being
allocated to interest. However, because Mortgage Rates on the Negative
Amortization Loans adjust on a monthly basis but monthly payments due on the
Negative Amortization Loans adjust only annually, and because the application of
Payment Caps may limit the amount by which the monthly payments may adjust, the
amount of a monthly payment may be more or less than the amount necessary to
fully amortize the principal balance of the Negative Amortization Loan over its
then remaining term at the applicable Mortgage Rate. Accordingly, Negative
Amortization Loans may be subject to reduced amortization (if the monthly
payment due on a Due Date is sufficient to pay interest accrued during the
related accrual period at the applicable Mortgage Rate but is not sufficient to
reduce principal in accordance with a fully amortizing schedule); negative
amortization (if interest accrued during the related accrual period at the
applicable Mortgage Rate is greater than the entire monthly payment due on the
related Due Date (such excess accrued interest, "Deferred Interest")); or
accelerated amortization (if the monthly payment due on a Due Date is greater
than the amount necessary to pay interest accrued during the related accrual
period at the applicable Mortgage Rate and to reduce principal in accordance
with a fully amortizing schedule). In addition, subsequent to the final Recast
Date and the final Payment Adjustment Date, the addition of any Deferred
Interest to the principal balance of any Negative Amortization Loan that is not
offset by subsequent accelerated amortization will result in a final lump sum
payment at maturity greater than, and potentially substantially greater than,
the monthly payment due on the immediately preceding Due Date.
The maximum increase in the principal balance of a Negative
Amortization Loan due to the addition of Deferred Interest to the principal
balance of such Negative Amortization Loan and the resulting Loan-to-Value Ratio
on such Negative Amortization Loan will depend on the relationships between the
Payment Cap, the Maximum Mortgage Rate, the Negative Amortization Cap and the
related Index. If the outstanding principal balance of a Negative Amortization
Loan having a Loan-to-Value Ratio of 80% was to increase to an amount equal to
the Negative Amortization Cap, the Loan-to-Value Ratio (as based on the then
outstanding principal balance) thereof would in no event exceed approximately
88%.
CONVERTIBLE LOANS
Approximately ____% of the Mortgage Loans ("Convertible Mortgage
Loans") provide that, at the option of the related Mortgagors, the adjustable
interest rate on such Mortgage Loans may be converted to a fixed interest rate.
Upon conversion, the Mortgage Rate will be converted to a fixed interest rate
determined in accordance with the formula set forth in the related Mortgage Note
which formula is intended to result in a Mortgage Rate which is not less than
the then current market interest rate (subject to applicable usury laws). After
such conversion, the monthly payments of principal and interest will be adjusted
to provide for full amortization over the remaining term to scheduled maturity.
Upon notification from a Mortgagor of such Mortgagor's intent to convert from an
adjustable interest rate to a fixed interest rate and prior to the conversion of
any such Mortgage Loan (a "Converting Mortgage Loan"), the Master Servicer will
be obligated to purchase the Converting Mortgage Loan at a price equal to the
outstanding principal balance thereof plus accrued interest thereon at the
related Mortgage Rate plus any unreimbursed Advances with respect to such
Mortgage Loan net of any subservicing fees (the "Conversion Price").
In the event that the Master Servicer fails to purchase a Converting
Mortgage Loan (such Mortgage Loan, following its conversion, a "Converted
Mortgage Loan"), neither the Company nor any of its affiliates nor any other
entity is obligated to purchase or arrange for the purchase of any Converted
Mortgage Loan. Any such Converted Mortgage Loan will remain in the Mortgage Pool
as a fixed-rate Mortgage Loan and will result in the Mortgage Pool's having
fixed-rate Mortgage Loans and as a result the Bond Interest Rate may be reduced.
See "Certain Yield and Prepayment Considerations" herein.
S-18
<PAGE>
Following the purchase of any Converted Mortgage Loan as described
above, the purchaser will be entitled to receive an assignment from the
Indenture Trustee of such Mortgage Loan and the purchaser will thereafter own
such Mortgage Loan free of any further obligation to the Indenture Trustee or
the Bondholders with respect thereto.
MORTGAGE LOAN CHARACTERISTICS
All percentages of the Mortgage Loans described herein are approximate
percentages (except as otherwise indicated) by aggregate principal balance as of
the Cut-off Date.
The Mortgage Loans generally have original terms to stated maturity of
approximately 30 years.
Effective with the first payment due on a Mortgage Loan after each
related Adjustment Date, the Monthly Payment will be adjusted to an amount that
will fully amortize the outstanding principal balance of the Mortgage Loan over
its remaining term. The weighted average number of months from the Cut-off Date
to the next Adjustment Date is 12 months.
As of the Cut-off Date, each Mortgage Loan will have an unpaid
principal balance of not less than $_______ or more than $________ and the
average unpaid principal balance of the Mortgage Loans will be approximately
$________. The latest stated maturity date of any of the Mortgage Loans will be
_______ __, ______; however, the actual date on which any Mortgage Loan is paid
in full may be earlier than the stated maturity date due to unscheduled payments
of principal.
The weighted average remaining term to stated maturity of the Mortgage
Loans will be approximately ____ months.
The earliest year of origination of any Mortgage Loan is _____ and the
latest month and year of origination will be _________ ___.
None of the Mortgage Loans are Buydown Mortgage Loans.
Set forth below is a description of certain additional characteristics
of the Mortgage Loans as of the Cut-off Date (except as otherwise indicated).
Dollar amounts and percentages may not add up to totals due to rounding.
S-19
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
ORIGINAL PERCENTAGE OF CUT-OFF
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID DATE AGGREGATE
PRINCIPAL BALANCE($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------------- -------------- ----------------- -----------------
<S> <C> <C>
0.01 - 50,000.00. $ %
50,000.01 - 100,000.00..
100,000.01 - 150,000.00......................
150,000.01 - 200,000.00......................
200,000.01 - 250,000.00......................
250,000.01 - 300,000.00......................
300,000.01 - 350,000.00......................
350,000.01 - 400,000.00......................
400,000.01 - 450,000.00......................
450,000.01 - 500,000.00......................
500,000.01 - 550,000.00......................
550,000.01 - 600,000.00......................
650,000.01 - 700,000.00......................
Total........................................
</TABLE>
The average original principal balance of the Mortgage Loans will be
approximately $______.
S-20
<PAGE>
<TABLE>
CURRENT BALANCES OF THE MORTGAGE LOANS AT THE CUT-OFF DATE
<CAPTION>
PERCENTAGE OF
CURRENT CUT-OFF DATE
MORTGAGE LOAN NUMBER OF AGGREGATE UNPAID AGGREGATE
PRINCIPAL BALANCE($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C>
0.01 - 50,000.00 $ %
50,000.01 - 100,000.00
100,000.01 - 150,000.00...................
150,000.01 - 200,000.00...................
200,000.01 - 250,000.00...................
250,000.01 - 300,000.00...................
300,000.01 - 350,000.00...................
350,000.01 - 400,000.00...................
400,000.01 - 450,000.00...................
450,000.01 - 500,000.00...................
500,000.01 - 550,000.00...................
550,000.01 - 600,000.00...................
650,000.01 - 700,000.00...................
Total.....................................
</TABLE>
The average current principal balance of the Mortgage Loans will be
approximately $------------.
S-21
<PAGE>
<TABLE>
MORTGAGE RATES AT ORIGINATION
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE RATES(%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C>
3.000 - 3.499........................ $ %
4.000 - 4.499........................
4.500 - 4.999........................
5.000 - 5.499........................
5.500 - 5.999........................
6.000 - 6.499........................
6.500 - 6.999........................
7.000 - 7.499........................
7.500 - 7.999........................
8.000 - 8.499........................
8.500 - 8.999........................
9.000 - 9.499........................
9.500 - 9.999........................
10.000 - 10.499.......................
10.500 - 10.999.......................
11.000 - 11.499.......................
11.500 - 11.999.......................
12.000 - 12.499.......................
12.500 - 12.999.......................
13.000 - 13.499.......................
13.500 - 13.999.......................
14.000 - 14.499.......................
14.500 - 14.999.......................
15.500 - 15.999.......................
16.000 - 16.499.......................
Total............................
</TABLE>
The weighted average Mortgage Rate of the Mortgage Loans at
origination will be approximately ______% per annum.
S-22
<PAGE>
<TABLE>
MORTGAGE RATES AT CUT-OFF DATE
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE RATES(%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- -------------- ----------------- -----------------
<S> <C> <C>
5.000 - 5.499.................................. $ %
5.500 - 5.999..................................
6.000 - 6.499..................................
6.500 - 6.999..................................
7.000 - 7.499..................................
7.500 - 7.999..................................
8.000 - 8.499..................................
8.500 - 8.999..................................
9.000 - 9.499..................................
9.500 - 9.999..................................
10.000 - 10.499.................................
10.500 - 10.999.................................
11.000 - 11.499.................................
11.500 - 11.999.................................
12.000 - 12.499.................................
12.500 - 12.999.................................
13.000 - 13.499.................................
13.500 - 13.999.................................
14.000 - 14.499.................................
14.500 - 14.999.................................
15.500 - 15.999.................................
16.500 - 16.999.................................
Total......................................
</TABLE>
The weighted average Mortgage Rate of the Mortgage Loans as of the
Cut-off Date will be approximately _____% per annum.
S-23
<PAGE>
NEXT ADJUSTMENT DATE
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
NEXT ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------------------- -------------- ----------------- -----------------
The weighted average remaining months to the next Adjustment Date of
the Mortgage Loans will be approximately __ months.
S-24
<PAGE>
<TABLE>
<CAPTION>
GROSS MARGIN
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
GROSS MARGINS (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------- -------------- ----------------- -----------------
<S> <C> <C>
2.000-2.249............................ $ %
2.500-2.749............................
2.750-2.999............................
3.000-3.249............................
3.250-3.499............................
3.500-3.749............................
3.750-3.999............................
4.000-4.249............................
4.250-4.499............................
4.500-4.749............................
4.750-4.999............................
5.000-5.249
5.250-5.499............................
5.500-5.749............................
5.750-5.999............................
6.000-6.249............................
6.250-6.499
6.500-6.749............................
6.750-6.999............................
7.000-7.249............................
7.250-7.499............................
7.500-7.749............................
7.750-7.999............................
8.000-8.249............................
8.250-8.499............................
8.500-8.749............................
8.750-8.999............................
9.000-9.249
9.250-9.499............................
10.000-10.249..........................
10.750-10.999..........................
11.000-11.249..........................
Total..............................
</TABLE>
The weighted average Gross Margin of the Mortgage Loans will be
approximately _______% per annum.
S-25
<PAGE>
MAXIMUM MORTGAGE RATE
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MAXIMUM MORTGAGE RATE (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------- -------------- ----------------- -----------------
10.000 - 10.499
10.500 - 10.999.........
11.000 - 11.499.........
11.500 - 11.999.........
12.000 - 12.499.........
12.500 - 12.999.........
13.000 - 13.499.........
13.500 - 13.999.........
14.000 - 14.499.........
14.500 - 14.999.........
15.000 - 15.499.........
15.500 - 15.999.........
16.000 - 16.499.........
16.500 - 16.999.........
17.000 - 17.499.........
17.500 - 17.999.........
18.000 - 18.499.........
18.500 - 18.999.........
19.000 - 19.499.........
19.500 - 19.999.........
20.000 - 20.499.........
20.500 - 20.999.........
21.000 - 21.499.........
21.500 - 21.999.........
22.000 - 22.499.........
22.500 - 22.999.........
23.000 - 23.499.........
Total...............
The weighted average Maximum Mortgage Rate of the Mortgage Loans will
be approximately _____% per annum.
S-26
<PAGE>
<TABLE>
INDEX
<CAPTION>
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
INDEX MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C>
Negative Amortization Loan
One-Month LIBOR...................... $ %
Six-Month LIBOR...........................
Six-Month CMT.............................
One-Year CMT..............................
Total.................................
</TABLE>
For a description of the Indices, see "Summary-The Indices" herein.
<TABLE>
<CAPTION>
INITIAL PERIODIC RATE CAP
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
INITIAL PERIODIC RATE CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------- -------------- ----------------- -----------------
<S> <C> <C>
1.000........................................ $ %
1.500........................................
2.000........................................
3.000........................................
6.500........................................
Unlimited(1).................................
Total....................................
</TABLE>
(1) Subject to the Maximum Rate Cap and the Minimum Rate Cap.
<TABLE>
<CAPTION>
PERIODIC RATE CAP
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
PERIODIC RATE CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
--------------------- -------------- ----------------- -----------------
<S> <C> <C>
1.000..................................... $ %
1.500.....................................
2.000.....................................
Unlimited(1)..............................
Total.................................
</TABLE>
- -----------------
(1) Subject to the Maximum Rate Cap and the Minimum Rate Cap.
S-27
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIOS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------- -------------- ----------------- -----------------
<S> <C> <C>
Less than or equal to 25.00%............... $ %
25.01% - 30.00%............................
30.01% - 35.00%............................
35.01% - 40.00%............................
40.01% - 45.00%............................
45.01% - 50.00%............................
50.01% - 55.00%............................
55.01% - 60.00%............................
60.01% - 65.00%............................
65.01% - 70.00%............................
70.01% - 75.00%............................
75.01% - 80.00%............................
80.01% - 85.00%............................
85.01% - 90.00%............................
90.01% - 95.00%............................
95.01% - 100.00%...........................
Total..................................
</TABLE>
The minimum and maximum Loan-to-Value Ratios at origination of the
Mortgage Loans were approximately ______% and 100.00%, respectively, and the
weighted average Loan-to-Value Ratio at origination of the Mortgage Loans was
approximately _______%.
<TABLE>
<CAPTION>
MORTGAGE LOAN AMORTIZATION
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
-------------- ----------------- -----------------
<S> <C> <C> <C>
Level Amortization........................ $ %
Negative Amortization (110% Cap)..........
Total.................................
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
OCCUPANCY (AS INDICATED BY BORROWER) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------ -------------- ----------------------- --------------------
<S> <C> <C> <C>
Owner-Occupied Primary Residence......... $ %
Second Homes.............................
Non-Owner Occupied.......................
Total................................
</TABLE>
S-28
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE LOAN PROGRAM
Percentage of
Cut-off Date
NUMBER OF AGGREGATE UNPAID Aggregate
LOAN PROGRAM MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ -------------- ----------------------- ---------------------
<S> <C> <C> <C>
Full Documentation....................... $ %
Limited Documentation....................
No Ratio.................................
Alternate Documentation..................
No Income No Asset.......................
Lite (Self Employed B/C).................
Express..................................
Total................................
</TABLE>
See "--Underwriting" below and Appendix A attached hereto for a
description of each Originator's documentation programs.
RISK CATEGORIES OF MORTGAGE LOANS
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
CREDIT GRADE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ -------------- ----------------- -----------------
Total...................................
- -----------------
S-29
<PAGE>
<TABLE>
<CAPTION>
PROPERTY TYPES
PERCENTAGE OF CUT-OFF
NUMBER OF AGGREGATE UNPAID DATE AGGREGATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single-family............................... $ %
Planned Unit Development....................
Two- to Four-Family.........................
Condominium.................................
CondoSelect ................................
Manufactured Housing........................
Total....................................
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF MORTGAGED PROPERTIES
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
STATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
----- -------------- ----------------- -----------------
<S> <C> <C> <C>
California................................. $ %
Colorado...................................
Florida....................................
Georgia....................................
Hawaii.....................................
Illinois...................................
Maryland...................................
New Jersey.................................
Utah.......................................
Washington.................................
Other (no more than 3% in
any one state)....................
Total...................................
</TABLE>
No more than approximately ______% of the Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code.
S-30
<PAGE>
<TABLE>
<CAPTION>
PURPOSES OF MORTGAGE LOANS
PERCENTAGE OF
CUT-OFF DATE
NUMBER OF AGGREGATE UNPAID AGGREGATE
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
Purchase................................. $ %
Refinance/No Equity Take-Out.............
Refinance/Equity Take-Out................
Construction.............................
Total.................................
</TABLE>
In general, in the case of a Mortgage Loan made for "no equity
take-out" refinance purposes, substantially all of the proceeds are used to pay
in full the principal balance of a previous mortgage loan of the mortgagor with
respect to a Mortgaged Property and to pay origination and closing costs
associated with such refinancing. Mortgage Loans made for "equity take-out"
refinance purposes may involve the use of the proceeds to pay in full the
principal balance of a previous mortgage loan and related costs except that a
portion of the proceeds are generally retained by the mortgagor for uses
unrelated to the Mortgaged Property. The amount of such proceeds retained by the
mortgagor may be substantial.
See "--Underwriting" below and Appendix A attached hereto for a
description of each Originator's risk categories.
Specific information with respect to the Mortgage Loans will be
available to purchasers of the Bonds on or before the time of issuance of such
Bonds. If not included in the Prospectus Supplement, such information will be
included in the Form 8-K.
UNDERWRITING
The Mortgage Loans were acquired by _________ from the Originators.
Approximately ____% and ______% of the Mortgage Loans were underwritten pursuant
to _____________________________ and __________________________ respectively, as
described in Appendix A attached hereto. Approximately _______% of the Mortgage
Loans were acquired in bulk purchases from underwriters the underwriting
standards of whom were reviewed for acceptability by ______________; of such
loans, _____%, _____%, _______% and ______% were acquired from _____, _____,
_____, and _____ whose underwriting standards are generally described in
Appendix A attached hereto. All of the Mortgage Loans were generally
underwritten in accordance with the description in the Prospectus. All of the
Mortgage Loans were reviewed for all legal documentation and all of the Mortgage
Loans received collateral review. See "The Mortgage Pools-Underwriting
Standards" in the Prospectus.
S-31
<PAGE>
DELINQUENCY AND FORECLOSURE EXPERIENCE OF THE SELLER
Based solely upon information provided by the Seller, the following
tables summarize, for the respective dates indicated, the delinquency,
foreclosure, bankruptcy and REO property status with respect to all mortgage
loans originated or acquired by the Seller. The indicated periods of delinquency
are based on the number of days past due on a contractual basis. The monthly
payments under all of such mortgage loans are due on the first day of each
calendar month.
<TABLE>
<CAPTION>
At December 31, 1996 March 31, 1997
-----------------------------------------------------------------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Loans Outstanding............... $ $
DELINQUENCY (1)
Period of Delinquency:
30-59 Days.....................
60-89 Days.....................
90 Days or More................
Total Delinquencies...............
Delinquencies as a Percentage
of Total Loans Outstanding............
</TABLE>
- --------
1 The delinquency balances, percentages and numbers set forth under this
heading exclude (a) delinquent mortgage loans that were in foreclosure at
the respective dates indicated ("Foreclosure Loans"), (b) delinquent
mortgage loans as to which the related mortgagor was in bankruptcy
proceedings at the respective dates indicated ("Bankruptcy Loans") and (c)
REO properties that have been purchased upon foreclosure of the related
mortgage loans. All Foreclosure Loans, Bankruptcy Loans and REO properties
have been segregated into the sections of the table entitled "Foreclosures
Pending," "Bankruptcies Pending" and "REO Properties," respectively, and
are not included in the "30-59 Days," "60-89 Days," "90 Days or More" and
"Total Delinquencies" sections of the table. See the section of the table
entitled "Total Delinquencies plus Foreclosures Pending and Bankruptcies
Pending" for total delinquency balances, percentages and numbers which
include Foreclosure Loans and Bankruptcy Loans, and see the section of the
table entitled "REO Properties" for delinquency balances, percentages and
numbers related to REO properties that have been purchased upon foreclosure
of the related mortgage loans.
S-32
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1996 March 31, 1997
-----------------------------------------------------------------------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ -------- ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FORECLOSURES PENDING (2)..............
Foreclosures Pending as a
Percentage of Total Loans
Outstanding...........................
BANKRUPTCIES PENDING (3)..............
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding...........................
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending..................
Total Delinquencies plus
Foreclosures Pending and
Bankruptcies Pending as a
Percentage of Total Loans
Outstanding...........................
REO PROPERTIES4.......................
REO Properties as a Percentage
of Total Loans Outstanding............
</TABLE>
The above data on delinquency, foreclosure, bankruptcy and REO property
status are calculated on the basis of the total mortgage loans originated or
acquired by the Seller. However, the total amount of mortgage loans on which the
above data are based includes many mortgage loans which were not, as of the
respective dates indicated, outstanding long enough to give rise to some of the
indicated periods of delinquency or to foreclosure or bankruptcy proceedings or
REO property status. In the absence of such mortgage loans, the delinquency,
foreclosure, bankruptcy and REO property percentages indicated above would be
higher and could be substantially higher. Because the Mortgage Pool will consist
of a fixed group of Mortgage Loans, the actual delinquency, foreclosure,
bankruptcy and REO property percentages with respect to the Mortgage Pool may
therefore be expected to be higher, and may be substantially higher, than the
percentages indicated above.
- --------
2 Mortgage loans that are in foreclosure but as to which the mortgaged
property has not been liquidated at the respective dates indicated. It is
generally the Master Servicer's policy, with respect to mortgage loans
originated by the Seller, to commence foreclosure proceedings when a
mortgage loan is between 31 and 60 days delinquent.
3 Mortgage loans as to which the related mortgagor is in bankruptcy
proceedings at the respective dates indicated.
4 REO properties that have been purchased upon foreclosure of the related
mortgage loans, including mortgaged properties that were purchased by the
Seller after the respective dates indicated.
S-33
<PAGE>
Based solely on information provided by the Seller, the following table
presents the changes in the Seller's charge-off and recoveries for the period
indicated.
THREE MONTHS ENDED
MARCH 31, 1997
----------------------------
(DOLLARS IN THOUSANDS)
Charge-offs:
Mortgage Loan Properties....................
REO Properties..............................
Recoveries:
Mortgage Loan Properties....................
REO Properties..............................
Net charge-offs.............................
Ratio of net charge-offs to average loans
outstanding during the three months ended
March 31, 1997...................................
- ---------------
The above data on charge-offs and recoveries are calculated on the basis of
the total mortgage loans originated or acquired by the Seller. However, the
total amount of mortgage loans on which the above data are based includes many
mortgage loans which were not, as of the respective dates indicated, outstanding
long enough to give rise to some of the indicated charge-offs. In the absence of
such mortgage loans, the charge-off percentages indicated above would be higher
and could be substantially higher. Because the Mortgage Pool will consist of a
fixed group of Mortgage Loans, the actual charge-off percentages with respect to
the Mortgage Pool may therefore be expected to be higher, and may be
substantially higher, than the percentages indicated above.
The information set forth in the preceding paragraphs concerning
_____________ has been provided by ________________.
For loss and delinquency information with respect to mortgage loans serviced
by ______________, see "Description of the Servicing Agreement--The Master
Servicer; the Subservicer" herein.
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. The Company believes that the information
set forth herein will be substantially representative of the characteristics of
the Mortgage Pool as it will be constituted at the time the Bonds 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 Current Report on Form 8-K will be available to purchasers of the Bonds
and will be filed, together with the Servicing Agreement, the Trust Agreement
and the Indenture, with the Securities and Exchange Commission within fifteen
days after the initial issuance of the Bonds. In the event Mortgage Loans are
removed from or added to the Mortgage Pool as set forth in the preceding
paragraph, such removal or addition will be noted in the Current Report on Form
8-K.
See "The Mortgage Pools" and "Certain Legal Aspects of Mortgage Loans" in
the Prospectus.
S-34
<PAGE>
THE ISSUER
The _______________ Trust Series 1997-1, is a business trust formed under
the laws of the State of Delaware pursuant to the Trust Agreement dated as of
__________, 1997 between the Company and ____________________ as the Owner
Trustee for the transactions described in this Prospectus Supplement. The Trust
Agreement constitutes the "governing instrument" under the laws of the State of
Delaware relating to business trusts. After its formation, the Issuer will not
engage in any activity other than (i) acquiring and holding the Mortgage Loans
and the other assets of the Issuer and proceeds therefrom, (ii) issuing the
Bonds and the Certificates, (iii) making payments on the Bonds and the
Certificates and (iv) engaging in other activities that are necessary, suitable
or convenient to accomplish the foregoing or are incidental thereto or connected
therewith.
The assets of the Issuer will consist of the Mortgage Loans and certain
related assets.
The Issuer's principal offices are in _________________________________, in
care of ___________________________, as Owner Trustee, at the address listed
below.
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement. The
Owner Trustee is a ________________ banking corporation and its principal
offices are located in _______________.
Neither the Owner Trustee nor any director, officer or employee of the Owner
Trustee will be under any liability to the Issuer or the Bondholders under the
Trust Agreement under any circumstances, except for the Owner Trustee's own
misconduct, gross negligence, bad faith or grossly negligent failure to act or
in the case of the inaccuracy of certain representations made by the Owner
Trustee in the Trust Agreement. All persons into which the Owner Trustee may be
merged or with which it may be consolidated or any person resulting from such
merger or consolidation shall be the successor of the Owner Trustee under the
Trust Agreement.
THE INDENTURE TRUSTEE
_______________________________ will act as Indenture Trustee with respect
to the Indenture. The Indenture Trustee will provide to a prospective or actual
Bondholder without charge, upon written request, a copy of the Indenture.
Requests should be addressed to the Indenture Trustee at ______
____________________________________________________________________________.
[BOND INSURER]
DESCRIPTION OF THE BONDS
GENERAL
The Bonds will be issued pursuant to the Indenture dated as of _____, 1997,
between the Issuer and ____________________________, as Indenture Trustee. The
Certificates (together with the Bonds, the "Securities") will be issued pursuant
to the Trust Agreement dated as of ________________, 1997, between the Company
and _______________________, as Owner Trustee. The following summaries
S-35
<PAGE>
describe certain provisions of the Securities, the Indenture, the Trust
Agreement and the Servicing Agreement. The summaries do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the applicable agreement. Only the Bonds are offered hereby.
The Bonds will be secured by the pledge by the Issuer of its assets to the
Indenture Trustee pursuant to the Indenture which will consist of the following
(such assets, collectively, the "Trust Fund"): (i) the Mortgage Loans; (ii)
collections in respect of principal and interest of the Mortgage Loans received
after the Cut-Off Date (other than payments due on or before the Cut-off Date);
(iii) the amounts on deposit in any Collection Account (as defined in the
Prospectus), including the account in which amounts are deposited prior to
payment to the Bondholders (the "Payment Account"), including net earnings
thereon; (iv) certain insurance policies maintained by the Mortgagors or by or
on behalf of the Master Servicer or related subservicer in respect of the
Mortgage Loans; (v) an assignment of the Company's rights under the Purchase
Agreement and the Servicing Agreement; and (vi) proceeds of the foregoing.
The Bonds will be issued in denominations of $25,000 and integral multiples
of $1 in excess thereof. See "--Book-Entry Bonds" below.
BOOK-ENTRY BONDS
GENERAL. Beneficial Owners that are not Participants or Intermediaries (as
defined in the Prospectus) but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, the related BookEntry Bonds may do so only
through Participants and Intermediaries. In addition, Beneficial Owners will
receive all payments of principal of and interest on the related Book-Entry
Bonds from the Paying Agent (as defined in the Prospectus) through DTC and
Participants. Accordingly, Beneficial Owners may experience delays in their
receipt of payments. Unless and until Definitive Bonds are issued for the
related Book-Entry Bonds, it is anticipated that the only registered Bondholder
of such Book-Entry Bonds will be Cede, as nominee of DTC. Beneficial Owners will
not be recognized by the Indenture Trustee or the Master Servicer as
Bondholders, as such term is used in the Indenture, and Beneficial Owners will
be permitted to receive information furnished to Bondholders and to exercise the
rights of Bondholders only indirectly through DTC, its Participants and
Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Book-Entry Bonds among Participants and to receive and transmit payments of
principal of, and interest on, such Book-Entry Bonds. Participants and
Intermediaries with which Beneficial Owners have accounts with respect to such
Book-Entry Bonds similarly are required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Beneficial Owners.
Accordingly, although Beneficial Owners will not possess physical certificates
evidencing their interests in the Book-Entry Bonds, the Rules provide a
mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive payments and will be able to transfer their
interests in the Book-Entry Bonds.
None of the Company, the Master Servicer, the Bond Insurer, the Owner
Trustee or the Indenture Trustee will have any liability for any actions taken
by DTC or its nominee, including, without limitation, actions for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Book-Entry Bonds held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE BONDS. Definitive Bonds will be issued to Beneficial Owners or
their nominees, respectively, rather than to DTC or its nominee, only under the
limited conditions set forth in the Prospectus under "Description of the
Bonds--Form of Bonds."
S-36
<PAGE>
Upon the occurrence of an event described in the Prospectus in the third
paragraph under "Description of the Bonds--Form of Bonds," the Indenture Trustee
is required to notify, through DTC, Participants who have ownership of
Book-Entry Bonds as indicated on the records of DTC of the availability of
Definitive Bonds for their Book-Entry Bonds. Upon surrender by DTC of the
definitive certificates representing the Book-Entry Bonds and upon receipt of
instructions from DTC for re-registration, the Indenture Trustee will reissue
the Book-Entry Bonds as Definitive Bonds issued in the respective principal
amounts owned by individual Beneficial Owners, and thereafter the Indenture
Trustee will recognize the holders of such Definitive Bonds as Bondholders under
the Indenture.
For additional information regarding DTC and the Book-Entry Bonds, see
"Description of the Bonds--Form of Bonds" in the Prospectus.
PAYMENTS
Payments on the Bonds will be made by the Indenture Trustee or the Paying
Agent on the 25th day of each month or, if such day is not a Business Day, then
the next succeeding Business Day, commencing in ________ 1997. Payments on the
Bonds will be made to the persons in whose names such Bonds are registered at
the close of business on the day prior to each Payment Date or, if the Bonds are
no longer Book-Entry Bonds, on the Record Date. See "Description of the
Bonds--Payments" in the Prospectus. Payments will be made by check or money
order mailed (or upon the request, at least five Business Days prior to the
related Record Date, of a Holder owning Bonds having denominations aggregating
at least $5,000,000, by wire transfer or otherwise) to the address of the person
entitled thereto (which, in the case of Book-Entry Bonds, will be DTC or its
nominee) as it appears on the Security Register in amounts calculated as
described herein as of the Determination Date. However, the final payment in
respect of the Bonds will be made only upon presentation and surrender thereof
at the office or the agency of the Indenture Trustee specified in the notice to
Holders of such final payment. A "Business Day" is any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in New York City,
Delaware, California or in the city in which the corporate trust offices of the
Indenture Trustee or the principal office of the Bond Insurer are located, are
required or authorized by law to be closed.
AVAILABLE FUNDS
The "Available Funds" for any Payment Date will equal the amount received by
the Indenture Trustee and available in the Payment Account on each Payment Date.
The Available Funds will generally be equal to the sum of (i) the aggregate
amount of scheduled payments on the related Mortgage Loans due on the related
Due Date and received on or prior to the related Determination Date, (ii) any
amounts representing interest on amounts in the Payment Account and
miscellaneous fees and collections, including assumption fees, to the extent not
paid to any Subservicer, (iii) any unscheduled payments and receipts, including
Mortgagor prepayments on such Mortgage Loans, received during the related
Prepayment Period, and (iv) all Advances made for such Payment Date in respect
of such Mortgage Loans, in each case net of amounts reimbursable therefrom to
the Master Servicer and any Subservicer and reduced by Servicing Fees,
Administrative Fees and fees of the Indenture Trustee paid by the Master
Servicer. With respect to any Payment Date, (i) the Due Date is the first day of
the month in which such Payment Date occurs, and (ii) the Determination Date is
the fourth Business Day prior to such Payment Date, or if such day is not a
business day, the immediately preceding business day.
S-37
<PAGE>
INTEREST PAYMENTS ON THE BONDS
On each Payment Date, holders of the Bonds will be entitled to receive an
amount (the "Interest Payment Amount") equal to interest accrued during the
related Interest Period (as defined herein) on the Bond Principal Balance
thereof at the then-applicable Bond Interest Rate (as defined below), minus (i)
any Prepayment Interest Shortfalls and Relief Act Shortfalls (each as defined
below) to the extent not covered by the Master Servicer by Compensating Interest
(as defined below) for such Payment Date and (ii) any Deferred Interest for such
Payment Date allocated thereto as described below. With respect to each Payment
Date, interest payable on the Bonds will accrue during the Interest Period.
Interest will be calculated on the basis of the actual number of days in the
Interest Period and an a 360-day year. Notwithstanding the foregoing, if
payments are not made as required under the Bond Insurance Policy, additional
interest shortfalls may be allocated to the Bonds as described below. See
"Description of the Bonds--Bond Insurance Policy."
To the extent that Deferred Interest causes a shortfall in interest
collections on the Mortgage Loans that would otherwise cause a shortfall in the
amount of interest payable to the Bondholders, such amount will be paid using
principal collections on the Mortgage Loans through the priority of payment
provisions described under "-Priority of Payment" below. To the extent that the
Interest Payment Amount for any Payment Date exceeds Available Funds for such
Payment Date, the lesser of such excess and the aggregate amount of Deferred
Interest, if any, that is added to the principal balance of the Negative
Amortization Loans on the Due Date occurring in the month in which such Payment
Date occurs will be added to the Bond Principal Balance of the Bonds and
subtracted from the Interest Payment Amount for such Payment Date.
The "Prepayment Interest Shortfall" for any Payment Date is equal to the
aggregate shortfall, if any, in collections of interest resulting from Mortgagor
prepayments on the Mortgage Loans during the preceding calendar month. Such
shortfalls will result because interest on prepayments in full is distributed
only to the date of prepayment, and because no interest is distributed on
prepayments in part, as such prepayments in part are applied to reduce the
outstanding principal balance of the related Mortgage Loans as of the Due Date
in the month of prepayment. However, with respect to any Payment Date, any
Prepayment Interest Shortfalls during the preceding calendar month will be
offset by the Master Servicer, but only to the extent such Prepayment Interest
Shortfalls do not exceed an amount equal to the total servicing fee payable to
the Master Servicer and any Subservicer with respect to such Payment Date. No
assurance can be given that the servicing compensation available to cover
Prepayment Interest Shortfalls will be sufficient therefor. See "The Servicing
Agreement--Servicing and Other Compensation and Payment of Expenses." The
"Relief Act Shortfalls" for any Payment Date are any shortfalls relating to the
Relief Act (as defined in the Prospectus) or similar legislation or regulations.
On each Payment Date after the first Payment Date, the Bond Interest Rate
will be a floating rate equal to the lesser of (i)(a) with respect to each
Payment Date up to and including the earlier of (x) the Payment Date in ________
_______ and (y) the Payment Date which occurs on or prior to the date on which
the aggregate Principal Balance of the Mortgage Loans is less than 25% of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date,
One-Month LIBOR (as defined herein) plus 0.22%, and (b) with respect to each
Payment Date thereafter, One-Month LIBOR plus 0.44% and (ii) the Available Funds
Interest Rate with respect to such Payment Date. On the first Payment Date, the
Bond Interest Rate will be equal to _______% per annum.
The "Available Funds Interest Rate" for any Payment Date is a rate per annum
equal to the lesser of (x) the fraction, expressed as a percentage, the
numerator of which is (i) an amount equal to (A) 1/12 of the aggregate Principal
Balance of the then outstanding Mortgage Loans times the weighted average of the
Expense Adjusted Mortgage Rates on the then outstanding Mortgage Loans minus (B)
the amount of the fee payable to the Owner Trustee with respect to the Trust
Agreement and the premium with
S-38
<PAGE>
respect to the Bonds payable to the Bond Insurer with respect to the Bond
Insurance Policy for such Payment Date, and the denominator of which is (ii) an
amount equal to (A) the then outstanding aggregate Bond Principal Balance of the
Bonds multiplied by (B) the actual number of days elapsed in the related
Interest Period (as defined herein) divided by 360 and (y) ________% per annum
(the "Maximum Bond Interest Rate"). The amount of the fee payable to the Owner
Trustee together with the amount of the premium payable to the Bond Insurer
(together, the "Administrative Fee") will accrue at ________% per annum based on
the Bond Principal Balance of the Bonds.
The "Expense Adjusted Mortgage Rate" on any Mortgage Loan is equal to the
then applicable Mortgage Rate thereon minus the sum of (i) the Minimum Spread
and (ii) the Servicing Fee Rate and (iii) the Indenture Trustee Fee Rate. For
any Payment Date, the Minimum Spread is equal to 0.500% per annum, the Servicing
Fee Rate is equal to 0.500% per annum and the Indenture Trustee Fee Rate is
equal to 0.015% per annum.
As further described herein, with respect to the Bonds and any Payment Date,
to the extent that (a) the lesser of (x) the amount payable if clause (i) of the
definition of Bond Interest Rate above is used to calculate interest and (y) the
amount payable if the Maximum Bond Interest Rate is used to calculate interest
exceeds (b) the amount payable if clause (ii) of the definition of Bond Interest
Rate above is used to calculate interest (such excess, the "Available Funds Cap
Carry-Forward Amount"), the holders of the Bonds will be paid the amount of such
Available Funds Cap Carry-Forward Amount with interest thereon at the Bond
Interest Rate for the Bonds applicable from time to time after certain payments
to the holders of the Bonds and the Bond Insurer to the extent of available
funds. The Bond Insurance Policy does not cover the Available Funds Cap
Carry-Forward Amount, nor do the ratings assigned to the Bonds address the
payment of the Available Funds Cap Carry-Forward Amount.
As described herein, the Interest Payment Amount allocable to the Bonds is
based on their Bond Principal Balance. The "Bond Principal Balance" of any Bond
as of any date of determination is equal to the initial Bond Principal Balance
thereof, increased by any Deferred Interest allocated thereto, and reduced by
all amounts allocable to the Principal Payment Amount and the Subordination
Increase Amount previously distributed with respect to such Bond.
The "Principal Balance" of any Mortgage Loan is, at any given time, the
Principal Balance as of the Cut-off Date of such Mortgage Loan, increased by all
Deferred Interest thereon, minus (a) the sum of all amounts paid or advanced
with respect to such Mortgage Loan with respect to principal and (b) the
principal portion of any losses with respect thereto for any previous Payment
Date.
CALCULATION OF ONE-MONTH LIBOR
On the second business day preceding each Payment Date, commencing with the
Payment Date occurring in ________ 1997 (each such date, an "Interest
Determination Date"), the Indenture Trustee will determine the London interbank
offered rate for one-month United States dollar deposits ("OneMonth LIBOR") for
the next Interest Period for the Bonds on the basis of the offered rates of the
Reference Banks for one-month United States dollar deposits, as such rates
appear on the Reuter Screen LIBO Page, as of 11:00 a.m. (London time) on such
Interest Determination Date. As used in this section, "business day" means a day
on which banks are open for dealing in foreign currency and exchange in London
and New York City; "Reuter Screen LIBO Page" means the display designated as
page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks); and "Reference Banks" means leading
banks selected by the Indenture Trustee and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market (i) with an
established place of business in London, (ii) whose quotations appear on the
Reuter Screen LIBO Page on the Interest Determination
S-39
<PAGE>
Date in question, (iii) which have been designated as such by the Indenture
Trustee and (iv) not controlling, controlled by, or under common control with,
the Company or the Seller.
On each Interest Determination Date, One-Month LIBOR for the related
Interest Period for the Bonds will be established by the Indenture Trustee as
follows:
(a) If on such Interest Determination Date two or more Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Interest Period shall be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole multiple of 0.0625%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Interest Period shall be the higher of (x) OneMonth LIBOR as determined on
the previous Interest Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum that the Indenture
Trustee determines to be either (i) the arithmetic mean (rounded upwards if
necessary to the nearest whole multiple of 0.0625%) of the one-month United
States dollar lending rates which New York City banks selected by the
Indenture Trustee are quoting on the relevant Interest Determination Date
to the principal London offices of leading banks in the London interbank
market or (ii) in the event that the Indenture Trustee can determine no
such arithmetic mean, the lowest one-month United States dollar lending
rate which New York City banks selected by the Indenture Trustee are
quoting on such Interest Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination Date by
the Indenture Trustee and the Indenture Trustee's calculation of the rate of
interest applicable to the Bonds for the related Interest Period shall (in the
absence of manifest error) be final and binding.
PRINCIPAL PAYMENTS ON THE BONDS
The "Principal Payment Amount" for any Payment Date will be equal to the
lesser of (a) the sum of the Available Funds remaining after distributions
pursuant to clause (i) of "--Priority of Payment" below and any portion of any
Insured Amount for such Payment Date representing a Subordination Deficit and
(b) the sum of:
(i) the principal portion of all scheduled monthly payments on the
Mortgage Loans received or Advanced (as defined herein) on the Mortgage
Loans with respect to the related Due Date;
(ii) the principal portion of all proceeds of the repurchase of a
Mortgage Loan (or, in the case of a substitution, certain amounts
representing a principal adjustment) pursuant to the Servicing Agreement
during the preceding calendar month;
(iii) the principal portion of all other unscheduled collections
received during the related Prepayment Period (or deemed to be received
during the related Prepayment Period) (including, without limitation, full
and partial Principal Prepayments made by the respective Mortgagors,
Liquidation Proceeds and Insurance Proceeds (excluding proceeds paid in
respect of the Bond Insurance Policy)), to the extent not distributed in
the preceding month; and
(iv) any Insured Payment made with respect to any Subordination
Deficit;
MINUS
(v) the amount of any Subordination Reduction Amount for such
Payment Date.
S-40
<PAGE>
In no event will the Principal Payment Amount with respect to any Payment Date
be (x) less than zero or (y) greater than the then outstanding Bond Principal
Balance of the Bonds.
PRIORITY OF PAYMENT
On each Payment Date, Available Funds and any Insured Amount with respect
to such Payment Date will be allocated to the Securities in the following order
of priority, in each case to the extent of Available Funds remaining:
(i) to the Bondholders, the Interest Payment Amount with respect to
such Payment Date;
(ii) to the Bondholders, the Principal Payment Amount with respect to
such Payment Date;
(iii) to the Bond Insurer, the aggregate of all payments, if any, made by
the Bond Insurer under the Bond Insurance Policy and any other amounts due
to the Bond Insurer pursuant to the Insurance Agreement, to the extent not
previously paid or reimbursed (the "Reimbursement Amount");
(iv) to the Bondholders, the Subordination Increase Amount (as defined
in "--Overcollateralization Provisions" below), in reduction of the Bond
Principal Balance thereof, until the Bond Principal Balance has been
reduced to zero;
(v) to the Bondholders, any Available Funds Cap Carry-Forward Amount
for such Payment Date;
(vi) to the Indenture Trustee, for any amounts owing to the Indenture
Trustee; and
(vii) any remaining amounts to the holders of the Certificates.
OVERCOLLATERALIZATION PROVISIONS
OVERCOLLATERALIZATION RESULTING FROM CASH FLOW STRUCTURE.
With respect to any Payment Date, the excess, if any, of (x) the sum of the
aggregate Principal Balances of the Mortgage Loans as of the close of business
on the last day of the period commencing on the second day of the month
preceding the month of such Payment Date (or, with respect to the first Payment
Date, the day following the Cut-Off Date) and ending on the related Due Date
(such period, the "Due Period") over (y) the Bond Principal Balance of the Bonds
as of such Payment Date (and following the making of all payments made on such
Payment Date) is the "Subordination Amount" as of such Payment Date. The
Indenture requires that, on each Payment Date, the Net Monthly Excess Cashflow,
if any, be applied on such Payment Date as an accelerated payment of principal
on the Bonds, but only to the limited extent hereafter described. The "Net
Monthly Excess Cashflow" for any Payment Date is equal to the amount of
Available Funds remaining after application to items (i) through (iii) under
"--Priority of Payment" herein. This application has the effect of accelerating
the amortization of the Bonds relative to the amortization of the Mortgage
Loans. The Indenture requires that the Net Monthly Excess Cashflow will be
applied as an accelerated payment of principal on the Bonds until the
Subordination Amount has increased to the level equal to the Required
Subordination Amount for such Payment Date.
Any amount of Net Monthly Excess Cashflow actually applied as an
accelerated payment of principal is a "Subordination Increase Amount." The
required level of the Subordination Amount with respect to a Payment Date is the
"Required Subordination Amount" with respect to such Payment Date. Initially,
the aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date
will exceed the aggregate
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Bond Principal Balance of the Bonds as of the Delivery Date by approximately
$_____________ or _____% of the aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date. This amount is the initial Required Subordination
Amount. The Indenture generally provides that the Required Subordination Amount
may, over time, decrease, or increase, subject to certain floors, caps and
triggers.
In the event that the Required Subordination Amount is permitted to
decrease or "step down" on a Payment Date in the future, the Indenture provides
that a portion of the principal which would otherwise be distributed to the
Holders of the Bonds on such Payment Date shall be distributed to the Holders of
the Certificates on such Payment Date. This has the effect of decelerating the
amortization of the Bonds relative to the amortization of the Mortgage Loans,
and of reducing the Subordination Amount. With respect to any Payment Date, the
difference, if any, between (a) the Subordination Amount that would result on
such Payment Date after taking into account all payments to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts (as described below) on such Payment Date) and (b) the
Required Subordination Amount for such Payment Date is the "Excess Subordination
Amount" with respect to such Payment Date. With respect to any Payment Date, an
amount equal to the lesser of (a) the Excess Subordination Amount and (b) the
principal collections received by the Master Servicer with respect to the prior
Due Period is the "Subordination Reduction Amount." In addition, a Subordination
Reduction Amount may result even prior to the occurrence of any decrease or
"step down" in the Required Subordination Amount. This is because the Holders of
the Bonds will generally be entitled to receive 100% of collected principal,
even though the Bond Principal Balance of the Bonds will represent less than
100% of the Mortgage Loans' principal balance. In the absence of the provisions
relating to the Subordination Reduction Amount, the foregoing may otherwise
increase the Subordination Amount above the Required Subordination Amount even
without the application of any Net Monthly Excess Cashflow.
The Indenture provides that, on any Payment Date, all unscheduled
collections on account of principal (other than any such amount applied to the
payment of a Subordination Reduction Amount) with respect to Mortgage Loans
during the calendar month preceding the calendar month in which such Payment
Date occurs (the "Prepayment Period") will be distributed to the Holders of the
Bonds on such Payment Date. If any Mortgage Loan became a Liquidated Mortgage
Loan (as defined below) during such Prepayment Period, the net Liquidation
Proceeds (as defined in the Prospectus) related thereto and allocated to
principal may be less than the Principal Balance of the related Mortgage Loan;
the amount of any such insufficiency is generally defined as a "Realized Loss."
A "Liquidated Mortgage Loan" is, in general, a defaulted Mortgage Loan as to
which the Master Servicer has determined that all amounts that it expects to
recover on such Mortgage Loan have been recovered (exclusive of any possibility
of a deficiency judgment). The principal balance of any Mortgage Loan after it
becomes a Liquidated Mortgage Loan shall equal zero. The Indenture does not
contain any provision which requires that the amount of any Realized Loss should
be distributed to the Holders of the Bonds on the Payment Date which immediately
follows the event of loss; I.E., the Indenture does not require the current
recovery of losses. However, the occurrence of a Realized Loss will reduce the
Subordination Amount, which, to the extent that such reduction causes the
Subordination Amount to be less than the Required Subordination Amount
applicable to the related Payment Date, will require the payment of a
Subordination Increase Amount on such Payment Date (or, if insufficient funds
are available on such Payment Date, on subsequent Payment Dates, until the
Subordination Amount equals the Required Subordination Amount). The effect of
the foregoing is to allocate losses to overcollateralization by reducing, or
eliminating entirely, payments of Net Monthly Excess Cashflow and of
Subordination Reduction Amounts which the holders of the Certificates would
otherwise receive.
OVERCOLLATERALIZATION AND THE BOND INSURANCE POLICY. The Indenture defines
a "Subordination Deficit" with respect to a Payment Date to be the amount, if
any, by which (x) the aggregate Bond Principal Balance of the Bonds as of such
Payment Date, and following the making of all payments to be made on such
Payment Date (except for any payment to be made as to principal from proceeds of
the
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Bond Insurance Policy), exceeds (y) the aggregate Principal Balances of the
Mortgage Loans as of the close of business on the Due Date preceding such
Payment Date. The Indenture requires the Indenture Trustee to make a claim for
an Insured Amount under the Bond Insurance Policy not later than the third
Business Day prior to any Payment Date as to which the Indenture Trustee has
determined that a Subordination Deficit will occur for the purpose of applying
the proceeds of such Insured Amount as a payment of principal to the Holders of
the Bonds on such Payment Date. Investors in the Bonds should realize that,
under extreme loss or delinquency scenarios, they may temporarily receive no
payments of principal.
BOND INSURANCE POLICY
The following summary describes certain terms of the Bond Insurance Policy,
to be dated as of the Delivery Date. The summary does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the provisions
of the Bond Insurance Policy.
On the Delivery Date, the Bond Insurer will issue the Bond Insurance Policy
in favor of the Indenture Trustee on behalf of the Bondholders. The Bond
Insurance Policy will unconditionally and irrevocably guarantee certain payments
on the Bonds. Draws will be made on the Bond Insurance Policy (any such draw, an
"Insured Amount") to cover Deficiency Amounts and Preference Amounts. A
"Deficiency Amount" means (A) with respect to each Payment Date prior to the
Final Scheduled Payment Date, an amount equal to the sum of (i) the excess, if
any, of the Interest Payment Amount over the Available Funds for such Payment
Date and (ii) any Subordination Deficit; (B) with respect to the Final Scheduled
Payment Date, an amount equal to the sum of (i) the excess, if any, of the
Interest Payment Amount over the Available Funds for such Payment Date and (ii)
the excess, if any, of the Bond Principal Balance of all Outstanding Bonds due
on such Final Scheduled Payment Date over Available Funds not used to pay the
Interest Payment Amount for such Final Scheduled Payment Date; and (C) for any
date on which the acceleration of the Bonds has been directed or consented to by
the Bond Insurer pursuant to Section 5.02 of the Indenture, an amount equal to
the excess, if any, of the sum of the Bond Principal Balance of the Bonds,
together with accrued and unpaid interest thereon through the date of payment of
such accelerated Bonds, over the Available Funds for such date of payment. For
purposes of the foregoing, amounts in the Payment Account available for interest
distributions on any Payment Date shall be deemed to include all amounts in the
Payment Account for such Payment Date available for distribution on such Payment
Date. A "Preference Amount" means any amount previously distributed to a
Bondholder that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction. Prepayment
Interest Shortfalls, Relief Act Shortfalls and any Available Funds Cap
Carry-Forward Amount will not be covered by the Bond Insurance Policy. Deferred
Interest will not be covered by the Bond Insurance Policy except with respect to
Deferred Interest which is added to the Bond Principal Balance of the Bonds.
Pursuant to the terms of the Indenture, draws under the Bond Insurance Policy in
respect of any Subordination Deficit will be paid to the Bondholders by the
Paying Agent as principal. In the absence of payments under the Bond Insurance
Policy, Bondholders will directly bear the credit risks associated with their
investment to the extent such risks are not covered by the Subordination Amount
or otherwise.
ADVANCES
Prior to each Payment Date, the Master Servicer is required under the
Servicing Agreement to make Advances (out of its own funds, advances made by a
Subservicer, or funds held in the Collection Account (as described in the
Prospectus) for future payment or withdrawal) with respect to any payments of
principal and interest (net of the Servicing Fee Rate) which were due on the
Mortgage Loans on the immediately preceding Due Date and which are delinquent on
the business day next preceding the related Determination Date.
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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. The purpose of making such Advances is to
maintain a regular cash flow to the Bondholders, rather than to guarantee or
insure against losses. Any failure by the Master Servicer to make an Advance as
required under the Servicing Agreement will constitute an Event of Default
thereunder, in which case the Indenture Trustee, as successor Master Servicer,
will be obligated to make any such Advance, in accordance with the terms of the
Servicing Agreement.
All Advances will be reimbursable to the Master Servicer on a first
priority basis from late collections, Insurance Proceeds or Liquidation Proceeds
from the Mortgage Loan as to which such unreimbursed Advance was made. In
addition, any Advances previously made which are deemed by the Master Servicer
to be nonrecoverable from related late collections, Insurance Proceeds and
Liquidation Proceeds may be reimbursed to the Master Servicer out of any funds
in the Collection Account prior to payments on the Bonds.
THE PAYING AGENT
The Paying Agent shall initially be the Indenture Trustee. The Paying Agent
shall have the revocable power to withdraw funds from the Payment Account for
the purpose of making payments to the Bondholders.
OPTIONAL REDEMPTION
The Bonds may be redeemed in whole, but not in part, by the Issuer on any
Payment Date on or after the earlier of (i) the Payment Date on which the
aggregate Principal Balance of the Mortgage Loans is less than or equal to 25%
of the aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date
or (ii) the Payment Date occurring in _______ ______. The purchase price will be
equal to 100% of the aggregate outstanding Bond Principal Balance and accrued
and unpaid interest thereon (including any Available Funds Cap Carry-Forward
Amount) at the Bond Interest Rate through the date on which the Bonds are
redeemed in full together with all amounts due and owing to the Bond Insurer and
the Indenture Trustee. The "Final Scheduled Payment Date" is the Payment Date
occurring in __________.
CERTAIN YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of the Bonds will depend on the price paid by the
holder for such Bond, the Bond Interest Rate and the rate and timing of
principal payments (including payments in excess of required installments,
prepayments or terminations, liquidations, repurchases and negative
amortization) on the Mortgage Loans and the allocation thereof. Such yield may
be adversely affected by a higher or lower than anticipated rate of principal
payments on the Mortgage Loans in the Trust Fund. The rate of principal payments
on such Mortgage Loans will in turn be affected by the amortization schedules of
the Mortgage Loans, the rate and timing of principal prepayments thereon by the
Mortgagors and liquidations of defaulted Mortgage Loans, the negative
amortization feature of the Negative Amortization Loans and purchases of
Mortgage Loans due to certain breaches of representations and warranties or the
conversion of Convertible Mortgage Loans. The timing of changes in the rate of
prepayments, liquidations, repurchases and negative amortization of the Mortgage
Loans may, and the timing of losses will, significantly affect the yield to an
investor, even if the average rate of principal payments experienced over time
is consistent with an investor's expectation. Since the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on 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 timing of principal payments on
the Bonds. In the event that substantial numbers of Mortgagors exercise their
conversion rights with respect
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to Convertible Mortgage Loans, and the related Subservicers or the Master
Servicer purchase the Converting and Converted Mortgage Loans, the Mortgage Pool
will experience some prepayment of principal.
Certain of the Mortgage Loans may be prepaid in full or in part at any time
without penalty. The Mortgage Loans (except for the Convertible Mortgage Loans)
generally are assumable under certain circumstances if, in the sole judgment of
the Master Servicer or Subservicer, the prospective purchaser of a Mortgaged
Property is creditworthy and the security for such Mortgage Loan is not impaired
by the assumption. The Convertible Mortgage Loans are not assumable if the
related Mortgagor has exercised its option to convert such Mortgage Loan into a
fixed rate mortgage loan, in which case the Mortgage Note with respect to such
mortgage loan would generally contain a customary "due on sale" provision. The
Master Servicer shall enforce any due-on-sale clause contained in any Mortgage
Note or Mortgage, to the extent permitted under applicable law and governmental
regulations; provided, however, if the Master Servicer determines that it is
reasonably likely that any Mortgagor will bring, or if any Mortgagor does bring,
legal action to declare invalid or otherwise avoid enforcement of a due-on-sale
clause contained in any Mortgage Note or Mortgage, the Master Servicer shall not
be required to enforce the due-on-sale clause or to contest such action. 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
Bonds and may result in a prepayment experience on the Mortgage Loans that
differs from that on other conventional mortgage loans. See "Maturity and
Prepayment Considerations" in the Prospectus. Prepayments, liquidations and
purchases of the Mortgage Loans will result in payments to holders of the Bonds
of principal amounts which would otherwise be distributed over the remaining
terms of the Mortgage Loans. Factors affecting prepayment (including defaults
and liquidations) of mortgage loans (other than mortgage loans similar to the
CondoSelect Loans, as described below) include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties, changes in the value of the mortgaged properties, mortgage market
interest rates and servicing decisions.
To accommodate changes in the interest portion of the monthly payment due
on each Negative Amortization Loan resulting from monthly changes in the
Mortgage Rate, the monthly payment will be adjusted annually on each Payment
Adjustment Date, subject to an increase or decrease of not more than 7.5% in the
monthly payment from that in effect immediately prior to such Payment Adjustment
Date, except as otherwise provided under "Description of the Mortgage
Pool-Negative Amortization Loans" herein. However, due to the Payment Cap and
the fact that the Mortgage Rates on the Negative Amortization Loans are subject
to change monthly while the monthly payments due thereon are only subject to
change annually, the portion of each monthly payment allocated to interest and
that allocated to principal could vary significantly. If an adjustment of the
Mortgage Rate on any Negative Amortization Loan results in Deferred Interest,
such Deferred Interest will be added to the principal balance of the Negative
Amortization Loan, resulting in negative amortization. If an adjustment to the
Mortgage Rate on any Negative Amortization Loan causes the amount of the accrued
interest to exceed the scheduled interest component of the monthly payment and
to be less than the entire monthly payment, the principal balance will not be
reduced in accordance with a fully amortizing schedule, and therefore reduced
amortization will result. If an adjustment to the Mortgage Rate on any Negative
Amortization Loan causes the amount of interest accrued in any month to be less
than the scheduled interest component of the then current monthly payment, such
excess will be applied to reduce the outstanding principal balance on the
related Negative Amortization Loan, thereby resulting in accelerated
amortization of such Negative Amortization Loan.
Several factors contribute to the increased risk of default in connection
with negatively amortizing mortgage loans. The outstanding principal balance of
a mortgage loan which is subject to negative amortization increases by the
amount of interest which is deferred as herein described. During periods in
which the outstanding principal balance of a Negative Amortization Loan is
increasing due to the
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addition of Deferred Interest thereto, such increasing principal balance of the
Negative Amortization Loan may approach or exceed the value of the related
Mortgaged Property, thus increasing the likelihood of defaults as well as the
amount of any loss experienced with respect to any such Negative Amortization
Loan that is required to be liquidated. Additionally, although increases in the
amount of the related monthly payments are subject to Payment Caps, such Payment
Caps are not in effect on any of the Recast Dates, as described herein, or when
the outstanding principal balance exceeds the Negative Amortization Cap, in
which cases the monthly payment for each such Negative Amortization Loan will be
recalculated to equal an amount which would be sufficient to fully amortize such
Negative Amortization Loan over its remaining term at the Mortgage Rate as
adjusted on the immediately preceding Rate Adjustment Date. The amount of such
increased monthly payment may be substantially higher than the monthly payment
in effect prior to such recalculation and the repayment of the Negative
Amortization Loans will be dependent on the ability of the Mortgagor to make
such larger monthly payments. Furthermore, each Negative Amortization Loan
provides for the payment of any remaining unamortized principal balance of such
Negative Amortization Loan (due to the addition of Deferred Interest, if any, to
the principal balance of such Negative Amortization Loan) in a single payment at
the maturity of the Negative Amortization Loan. Because the Mortgagors may be so
required to make a larger single payment upon maturity, it is possible that the
default risk associated with the Negative Amortization Loans is greater then
that associated with fully amortizing mortgage loans.
The Convertible Mortgage Loans provide that the Mortgagors may, during a
specified period of time, convert the adjustable interest rate of such Mortgage
Loans to a fixed interest rate. The Company is not aware of any publicly
available statistics that set forth principal prepayment, conversion experience
or conversion forecasts of adjustable-rate mortgage loans over an extended
period of time, and its experience with respect to adjustable-rate mortgages is
insufficient to draw any conclusions with respect to the expected prepayment or
conversion rates on the Convertible Mortgage Loans. As is the case with
conventional, fixed-rate mortgage loans originated in a high interest rate
environment which may be subject to a greater rate of principal prepayments when
interest rates decrease, adjustable-rate mortgage loans may be subject to a
greater rate of principal prepayments (or purchases by the related Subservicer
or the Master Servicer) due to their refinancing or conversion to fixed interest
rate loans in a low interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable-rate mortgage loans could be
subject to higher prepayment and conversion rates than if prevailing interest
rates remain constant because the availability of fixed-rate or other
adjustable-rate mortgage loans at competitive interest rates may encourage
Mortgagors to refinance their adjustable-rate mortgages to "lock in" a lower
fixed interest rate or to take advantage of the availability of such other
adjustable-rate mortgage loans, or, in the case of convertible adjustable-rate
mortgage loans, to exercise their option to convert the adjustable interest
rates to fixed interest rates. The conversion feature may also be exercised in a
rising interest rate environment as Mortgagors attempt to limit their risk of
higher rates. Such a rising interest rate environment may also result in an
increase in the rate of defaults on the Mortgage Loans. If the related
Subservicer or the Master Servicer purchases Converting or Converted Mortgage
Loans, a Mortgagor's exercise of the conversion option will result in a payment
of the principal portion thereof to the Bondholders, as described herein.
Alternatively, to the extent Subservicers fail to purchase Converting Mortgage
Loans and the Master Servicer does not purchase Converted Mortgage Loans, the
Mortgage Pool will include additional fixed-rate Mortgage Loans.
The rate of defaults on the Mortgage Loans will also affect the rate and
timing of principal payments on the Mortgage Loans. In general, defaults on
mortgage loans are expected to occur with greater frequency in their early
years. Increases in the monthly payments of the Mortgage Loans to an amount in
excess of the monthly payment required at the time of origination may result in
a default rate higher than that on level payment mortgage loans, particularly
since the Mortgagor under each Mortgage Loan was qualified on the basis of the
Mortgage Rate in effect at origination. The repayment of such Mortgage Loans
will be dependent on the ability of the Mortgagor to make larger monthly
payments as the Mortgage Rate increases. In addition, the rate of default on
Mortgage Loans which are refinance or
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limited documentation mortgage loans, and on Mortgage Loans with high
Loan-to-Value Ratios, may be higher than for other types of Mortgage Loans.
Furthermore, the rate and timing of prepayments, defaults and liquidations on
the Mortgage Loans will be affected by the general economic condition of the
region of the country in which the related Mortgaged Properties are located. The
risk of delinquencies and loss is greater and prepayments are less likely in
regions where a weak or deteriorating economy exists, as may be evidenced by,
among other factors, increasing unemployment or falling property values. See
"Maturity and Prepayment Considerations" in the Prospectus.
The amount of interest otherwise payable to holders of the Bonds will be
reduced by any interest shortfalls to the extent not covered by the Bond
Insurance Policy or by the Master Servicer as described herein. If payments were
not made as required under the Bond Insurance Policy, interest shortfalls not
allocable to Overcollateralization and not covered by the Master Servicer will
be allocated to the Bonds as described herein. See "Yield Considerations" in the
Prospectus and "Description of the Bonds-Interest Payments on the Bonds" herein
for a discussion of the effect of principal prepayments on the Mortgage Loans on
the yield to maturity of the Bonds and certain possible shortfalls in the
collection of interest.
In addition, the yield to maturity of the Bonds will depend on, among other
things, the price paid by the holders of the Bonds and the then applicable Bond
Interest Rate. The extent to which the yield to maturity of a Bond is sensitive
to prepayments will depend, in part, upon the degree to which it is purchased at
a discount or premium. In general, if a Bond is purchased at a premium and
principal payments 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 Bond is purchased at a
discount and principal payments thereon occur at a rate slower than that assumed
at the time of purchase, the investor's actual yield to maturity will be lower
than that assumed at the time of purchase. For additional considerations
relating to the yield on the Bonds, see "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
In addition, the yield to maturity on the Bonds may be affected by
shortfalls with respect to interest in the event that the interest accrued on
the Bonds at the Bond Interest Rate is greater than the amount of interest
accrued on the Mortgage Loans at the related Mortgage Rates less the sum of the
Servicing Fee Rate, the Indenture Trustee Fee Rate and the Administrative Fee
Rate. In such event, the resulting shortfall will only be payable to the extent
that on any future Payment Date interest accrued on the Mortgage Loans at the
related Mortgage Rates less such rates is greater than the interest accrued on
the Bonds, and only to the extent of Available Funds following distributions to
the Bondholders pursuant to clauses (i) through (iv) under "Description of the
Securities-Priority of Payment."
The Bond Interest Rate is based upon, among other factors as described
herein under "Description of the Bonds--Interest Payments on the Bonds," the
value of an index (One-Month LIBOR (as defined herein)) which is different from
the value of the indices applicable to the Mortgage Loans (Negative Amortization
Loan One-Month LIBOR, Six-Month LIBOR, Six-Month CMT and One-Year CMT).
Investors should note that the value of One-Month LIBOR on the Bonds may differ
from Negative Amortization Loan One- Month LIBOR, due to the different reference
date. The Mortgage Rate of each Mortgage Loan adjusts monthly, semi-annually or
annually, commencing after the Initial Period, based upon the related Index,
whereas the Bond Interest Rate on the Bonds adjusts monthly based upon One-Month
LIBOR plus 0.22% (or after the earlier of (x) the Payment Date in _____ _______
and (y) the Payment Date which occurs on or prior to the date on which the
aggregate Principal Balance of the Mortgage Loans is less than 25% of the
aggregate Principal Balance of the Mortgage Loans as of the Cut-off Date,
One-Month LIBOR plus 0.44%), limited by the Available Funds Interest Rate (as
defined herein). In addition, One-Month LIBOR and the Indices on the Mortgage
Loans may respond differently to economic and market factors, and there is not
necessarily any correlation between them. Moreover, the Mortgage Loans are
subject to Periodic Rate Caps, Maximum Mortgage Rates and Minimum Mortgage Rates
(each, as defined herein). Thus, it is possible, for example, that One-Month
LIBOR may
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rise during periods in which the Indices are stable or falling or that, even if
both One-Month LIBOR and the Indices rise during the same period, One-Month
LIBOR may rise much more rapidly than the Indices.
Although the Mortgage Rates on the Mortgage Loans will adjust monthly,
semi-annually or annually, such increases and decreases may be limited by the
Periodic Rate Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate, if
applicable, on each such Mortgage Loan, and will be based on the applicable
Index (which may not rise and fall consistently with prevailing mortgage rates)
plus the related Gross Margin (which may be different from the prevailing
margins on other mortgage loans). As a result, the Mortgage Rates on the
Mortgage Loans at any time may not equal the prevailing rates for other
adjustable-rate loans and accordingly, the rate of prepayment may be lower or
higher than would otherwise be anticipated. In addition, because all of the
Mortgage Loans have Maximum Mortgage Rates, if prevailing mortgage rates were to
increase above the Maximum Mortgage Rates, the rate of prepayment on the
Mortgage Loans may be slower than would otherwise be the case. In general, if
prevailing mortgage rates fall significantly below the Mortgage Rates on the
Mortgage Loans, the rate of prepayments (including refinancings) will be
expected to increase. Conversely, if prevailing mortgage rates rise
significantly above the Mortgage Rates on the Mortgage Loans, the rate of
prepayment on the Mortgage Loans will be expected to decrease.
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of payment to the investor
of each dollar distributed in reduction of principal of such security (assuming
no losses). The weighted average life of the Bonds will be influenced by, among
other things, the rate at which principal of the Mortgage Loans is paid, which
may be in the form of scheduled amortization, prepayments or liquidations.
Because the amortization schedule of each Mortgage Loan will be recalculated
monthly, semi-annually or annually after the initial Adjustment Date for such
Mortgage Loan, any partial prepayments thereof will not reduce the term to
maturity of such Mortgage Loan. In addition, an increase in the Mortgage Rate on
a Mortgage Loan will result in a larger monthly payment and in a larger
percentage of such monthly payment being allocated to interest and a smaller
percentage being allocated to principal, and conversely, a decrease in the
Mortgage Rate on the Mortgage Loan will result in a lower monthly payment and in
a larger percentage of each monthly payment being allocated to principal and a
smaller percentage being allocated to interest.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Constant Prepayment Rate model ("CPR"), assumes that the outstanding principal
balance of a pool of mortgage loans prepays at a specified constant annual rate
or CPR. In generating monthly cash flows, this rate is converted to an
equivalent constant monthly rate. To assume a 20% CPR or any other CPR
percentage is to assume that the stated percentage of the outstanding principal
balance of the pool is prepaid over the course of a year. No representation is
made that the Mortgage Loans will prepay at that or any other rate.
The table set forth below has been prepared on the basis of certain
assumptions as described below regarding the weighted average characteristics of
the Mortgage Loans that are expected to be included in the Trust Fund as
described under "Description of the Mortgage Pool" herein and the performance
thereof. The table assumes, among other things, that: (i) the Mortgage Pool
consists of five Mortgage Loans with the following characteristics:
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<TABLE>
<CAPTION>
Original Months to Remaining
Term to Next Rate Term to Maximum Minimum Initial
Principal Mortgage Maturity Adjustment Maturity Gross Mortgage Mortgage Periodic Periodic
Balance Rate (In Months) Date (In Months) Margin Rate Rate Cap Cap
------- ---- ----------- ---- ----------- ------ ---- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$
</TABLE>
(ii) the first and second mortgage loans listed above have an Index of Six-Month
LIBOR, (iii) the third mortgage loan listed above is a negative amortization
loan with the same characteristics as the Negative Amortization Loans and an
Index of Negative Amortization Loan One-Month LIBOR; (iv) the fourth and fifth
mortgage loans listed above have an Index of One-Year CMT; (v) Negative
Amortization Loan OneMonth LIBOR, Six-Month LIBOR and One-Year CMT remain
constant at _____%, ____% and ______%, respectively; (vi) payments on the Bonds
are based upon the actual number of days in the month and a 360-day year and are
received, in cash, on the 25th day of each month, commencing in ____ 1997; (vii)
there are no delinquencies or losses on the Mortgage Loans, there are no
conversions of Mortgage Loans from adjustable to fixed rates and principal
payments on the Mortgage Loans are timely received together with prepayments, if
any, at the respective constant percentages of CPR set forth in the following
table; (viii) there are no repurchases of the Mortgage Loans; (ix) there is no
Prepayment Interest Shortfall or any other interest shortfall in any month; (x)
the scheduled monthly payment for the Mortgage Loan is calculated based on its
principal balance, Mortgage Rate and remaining term to maturity such that such
Mortgage Loan will amortize in amounts sufficient to repay the remaining
principal balance of such Mortgage Loan by its remaining term to maturity, (xi)
the Indices remain constant at the rates listed above and the Mortgage Rate on
the Mortgage Loan is adjusted on the next Adjustment Date (and on subsequent
Adjustment Dates, as necessary) to equal the related Index plus the applicable
Gross Margin, subject to the Maximum Mortgage Rate listed below and the related
Periodic Rate Cap; (xii) with respect to each Mortgage Loan (other than the
Negative Amortization Loans), the monthly payment on the Mortgage Loan is
adjusted on the Due Date immediately following the next related Adjustment Date
(and on subsequent Adjustment Dates, as necessary) to equal a fully amortizing
payment as described in clause (x) above; (xiii) payments on the Mortgage Loans
earn no reinvestment return; (xiv) the Administrative Fee Rate is ________% per
annum, the Indenture Trustee Fee Rate is ______% per annum and the Servicing Fee
Rate is 0.50% per annum; (xv) there are no additional ongoing Trust Fund
expenses payable out of the Trust Fund; (xvi) there are no investment earnings
on amounts in any Collection Account, including the Payment Account, and no
other miscellaneous servicing fees are passed through to the Bondholders; and
(xvii) the Bonds will be purchased on ____ ___, 1997.
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the table set forth below,
which is hypothetical in nature and is provided only to give a general sense of
how the principal cash flows might behave under varying prepayment scenarios.
For example, it is very unlikely that the Mortgage Loans will prepay at a
constant level of CPR until maturity or that all of the Mortgage Loans will
prepay at the same level of CPR. Moreover, the diverse remaining terms to stated
maturity of the Mortgage Loans could produce slower or faster principal payments
than indicated in the table at the various constant percentages of CPR
specified, even if the weighted average remaining term to stated maturity of the
Mortgage Loans is as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Mortgage Loans, or actual
prepayment experience, will affect the percentages of initial Bond Principal
Balance outstanding over time and the weighted average life of the Bonds.
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of the Bonds, and sets forth the percentages
of the initial Bond
S-49
<PAGE>
Principal Balance of the Bonds that would be outstanding after each of the dates
shown at various percentages of CPR.
<TABLE>
<CAPTION>
PERCENT OF INITIAL BOND PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING PERCENTAGES OF CPR
BONDS
PAYMENT DATE 0% 10% 15% 20% 25% 30% 40%
- ------------ -- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...............
</TABLE>
Weighted Average Life in Years**...........................
Weighted Average Life in Years***..........................
(*) Indicates a number that is greater than zero but less than 0.5%.
(**) The weighted average life of a Bond is determined by (i) multiplying
the net reduction, if any, of Bond Principal Balance by the number of
years from the date of issuance of the Bond to the related Payment
Date, (ii) adding the results, and (iii) dividing the sum by the
aggregate of the net reductions of the Bond Principal Balance described
in (i) above.
(***) Calculated pursuant to footnote **, but assumes the Issuer exercises
its option to redeem the Bonds on the first Payment Date on which it
would be permitted to do so. See "Description of the Bonds--Optional
Redemption" herein.
S-50
<PAGE>
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED IN THE SECOND
PARAGRAPH PRECEDING THIS TABLE (INCLUDING THE ASSUMPTIONS REGARDING THE
CHARACTERISTICS AND PERFORMANCE OF THE MORTGAGE LOANS WHICH DIFFER FROM THE
ACTUAL CHARACTERISTICS AND PERFORMANCE THEREOF) AND SHOULD BE READ IN
CONJUNCTION THEREWITH.
DESCRIPTION OF THE SERVICING AGREEMENT
The following summary describes certain terms of the Servicing
Agreement, dated as of ____, 1997 between the Company and the Master Servicer
(the "Servicing Agreement"). The summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Servicing Agreement. Whenever particular sections or defined terms of the
Servicing Agreement are referred to, such sections or defined terms are thereby
incorporated herein by reference.
THE MASTER SERVICER; THE SUBSERVICER
_________ _____ (in its capacity as master servicer, the "Master
Servicer") will act as master servicer for the Mortgage Loans pursuant to the
Servicing Agreement. See ____________ in the Prospectus. _________________ has
entered into subservicing arrangements with ________. Notwithstanding these
agreements, ____________ _______ will remain primarily liable for servicing the
Mortgage Loans. All of the Mortgage Loans will initially be subserviced by
_______________.
[DESCRIPTION OF SUBJECT]
The following table sets forth certain information concerning
delinquency experience including bankruptcies and foreclosures in progress on
one- to four-family residential mortgage, consumer, and commercial loans
included in Wendover's servicing portfolio at the dates indicated. Consumer and
commercial loans represented less than ___% of the overall portfolio volume at
__________ ____, 1997. As at December 31, _____, ______, ________ and _______
and March 31, 1997, the total principal balance of loans being serviced by
__________ was (in millions) $________, $___________, $___________ $___________
and $____________ respectively. The indicated periods of delinquency are based
on the number of days past due on a contractual basis. No mortgage, consumer, or
commercial loan is considered delinquent for these purposes until it is one
month past due on a contractual basis.
S-51
<PAGE>
<TABLE>
<CAPTION>
At December 31, At March 31, 1997
----------------------------------------------------------------------------------------- ------------------
1993 1994 1995 1996 1997
----------------------- ---------------------- --------------------- ------------------- --------------------
Percent of Percent of Percent of Percent of Percent of
Number Servicing Number Servicing Number Servicing Number Servicing Number of Servicing
of Loans Portfolio Of Loans Portfolio Of Loans Portfolio of Loans Portfolio Loans Portfolio
-------- --------- -------- --------- -------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Portfolio(1)
Period of
Delinquency:
30-59 days...........
60-89 days...........
90 days or more......
Total Delinquencies
(excluding
Foreclosures)
Foreclosures Pending
</TABLE>
1 Includes purchased mortgage servicing rights owned by Wendover
totatlling _____ loans for $____ million unpaid principal balance and
______ loans for $_____ million unpaid principal balance as of December
31, ____ and _____, respectively, and _____ loans for $____ million
unpaid principal balance as of _________ ______.
S-52
<PAGE>
GENERAL. There can be no assurance that the delinquency and foreclosure
experience of the Mortgage Loans will correspond to the delinquency and
foreclosure experience of the servicing portfolio of ___________ set forth in
the foregoing tables. The statistics shown above represent the respective
delinquency and foreclosure experiences only at the dates presented, whereas the
aggregate delinquency and foreclosure experience on the Mortgage Loans will
depend on the results obtained over the life of the Trust Fund. Each servicing
portfolio includes mortgage loans with a variety of payment and other
characteristics (including geographic location) which are not necessarily
representative of the payment and other characteristics of the Mortgage Loans.
In addition, _________ servicing portfolio includes consumer and commercial
loans. Each servicing portfolio includes mortgage loans underwritten pursuant to
guidelines not necessarily representative of those applicable to the Mortgage
Loans. It should be noted that if the residential real estate market should
experience an overall decline in property values, the actual rates of
delinquencies and foreclosures could be higher than those previously experienced
by _____. In addition, adverse economic conditions may affect the timely payment
by mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the actual rates of delinquencies and foreclosures with
respect to the Mortgage Loans.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee for each Mortgage Loan is payable out of the interest
payments on such Mortgage Loan. The Servicing Fee Rate in respect of each
Mortgage Loan will be equal to 0.50% per annum of the outstanding principal
balance of such Mortgage Loan. The Servicing Fee consists of (a) servicing
compensation payable to the Master Servicer in respect of its master servicing
responsibilities and (b) subservicing and other related compensation payable to
the Subservicer (including such compensation paid to the Master Servicer as the
direct servicer of a Mortgage Loan for which there is no Subservicer). The
Subservicer will be entitled to retain in the form of additional servicing
compensation half of any late payment charges. The Master Servicer will not be
entitled to any such additional servicing compensation and any such amounts,
including prepayment penalties, to the extent received by the Master Servicer,
will be included in Available Funds.
THE INDENTURE
The following summary describes certain terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Trust Agreement and Indenture.
Whenever particular defined terms of the Indenture are referred to, such defined
terms are thereby incorporated herein by reference. See "The Agreements" in the
Prospectus.
CONTROL BY BOND INSURER
Pursuant to the Indenture, unless a Bond Insurer Default exists (i) the
Bond Insurer shall be deemed to be the holder of the Bonds for certain purposes
(other than with respect to payment on the Bonds), and will be entitled to
exercise all rights of the Bondholders thereunder, including the rights of
Bondholders referred to under "--Events of Default" and "--Rights Upon Event of
Default," without the consent of such Bondholders, and the Bondholders may
exercise such rights only with the prior written consent of the Bond Insurer and
(ii) the Indenture Trustee may take actions which would otherwise be at its
option or within its discretion, including the actions referred to under
"--Events of Default" and "--Rights Upon Event of Default," only at the
direction of the Bond Insurer. A "Bond Insurer Default" means the existence and
continuation of (i) a failure of the Bond Insurer to make a payment under the
Bond Insurance Policy in accordance with its terms or (ii) certain bankruptcy or
insolvency actions by or against the Bond Insurer.
S-53
<PAGE>
EVENTS OF DEFAULT
An "Event of Default" with respect to the Bonds is defined in the
Indenture as follows: (a) the failure to pay (i) the Interest Payment Amount or
the Principal Payment Amount with respect to a Payment Date on such Payment
Date, or (ii) any Subordination Increase Amount or Available Funds Carry-Forward
Amount with respect to a Payment Date, but only to the extent funds are
available to make such payment as described under "Description of the
Bonds--Priority of Payment"; (b) a default in the observance of certain negative
covenants in the Indenture; (c) a default in the observance of any other
covenant of the Indenture, and the continuation of any such default for a period
of thirty days after notice to the Issuer by the Indenture Trustee or the Bond
Insurer, or if a Bond Insurer Default exists, by the Holders of at least 25% of
the Bond Principal Balance of the Bonds; (d) any representation or warranty made
by the Issuer in the Indenture or in any certificate or other writing delivered
pursuant thereto having been incorrect in a material respect as of the time
made, and the circumstance in respect of which such representation or warranty
is incorrect not having been cured within thirty days after notice thereof is
given to the Issuer by the Indenture Trustee or the Bond Insurer, or, if a Bond
Insurer Default exists, by Bondholders representing at least 25% of the Bond
Principal Balance of the Bonds; (e) certain events of bankruptcy, insolvency,
receivership or reorganization of the Issuer; or (f) the failure by the Issuer
on the Final Scheduled Payment Date to reduce the Bond Principal Balance of the
Bonds to zero.
RIGHTS UPON EVENT OF DEFAULT
In case an Event of Default should occur and be continuing with respect
to the Bonds, the Indenture Trustee may, and on request of the Bond Insurer or
Bondholders representing more than 50% of the Bond Principal Balance of the
Bonds of such Series then outstanding shall, declare the principal of such
Series of Bonds to be due and payable. Such declaration may under certain
circumstances be rescinded by Bondholders representing more than 50% of the Bond
Principal Balance of the Bonds.
If, following an Event of Default, the Bonds have been declared to be
due and payable, the Indenture Trustee may, in its discretion (provided that the
Bond Insurer or Bondholders representing more than 50% of the Bond Principal
Balance of the Bonds have not directed the Indenture Trustee to sell the assets
included in the Trust Estate), refrain from selling such assets and continue to
apply all amounts received on such assets to payments due on the Bonds in
accordance with their terms, notwithstanding the acceleration of the maturity of
such Bonds. The Indenture Trustee, however, unless otherwise directed by the
Bond Insurer, must sell the assets included in the Trust Estate if collections
in respect of such assets are determined to be insufficient to pay certain
expenses payable under the Indenture and to make all scheduled payments on the
Bonds, in which case payments will be made on the Bonds in the same manner as
described in the next sentence with regard to instances in which such assets are
sold. In addition, upon an Event of Default the Indenture Trustee may, with the
consent of the Bond Insurer, sell the assets included in the Trust Estate, in
which event the collections on, or the proceeds from the sale of, such assets
will be applied as provided below; provided, however, that any proceeds of a
claim under the Bond Insurance Policy shall be used only to pay interest and
principal on the Bonds as provided in clauses (iii) and (iv): (i) to the payment
of the fees of the Indenture Trustee and Owner Trustee which have not been
previously paid; (ii) to the Bond Insurer, any premium then due, provided no
Bond Insurer Default exists; (iii) to the Bondholders, the amount of interest
then due and unpaid on the Bonds (but not including any Available Funds Cap
Carry-Forward Amount), without preference or priority of any kind; (iv) to the
Bondholders, the amount of principal then due and unpaid on the Bonds, without
preference or priority of any kind; (v) to the Bond Insurer, any Reimbursement
Amount, to the extent not previously reimbursed; (vi) to the Bondholders, the
amount of any Available Funds Cap Carry-Forward Amount not previously paid; and
(vii) to the Issuer.
S-54
<PAGE>
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, in case an Event of Default shall occur and be
continuing, the Indenture Trustee shall be under no obligation to exercise any
of the rights and powers under the Indenture at the request or direction of any
of the Bondholders, unless such Bondholders shall have offered to the Indenture
Trustee reasonable security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction. Subject to such provisions for indemnification and certain
limitations contained in the Indenture, Bondholders representing more than 50%
of the Bond Principal Balance of the Bonds shall have the right to direct the
time, method, and place of conducting any proceeding or any remedy available to
the Indenture Trustee or exercising any trust or power conferred on the
Indenture Trustee with respect to the Bonds; and Bondholders representing more
than 50% of the Bond Principal Balance of the Bonds may, in certain cases, waive
any default with respect thereto, except a default in the payment of principal
or interest or a default in respect of a covenant or provision of the Indenture
that cannot be modified without the waiver or consent of the holder of each
outstanding Bond affected thereby.
LIMITATION ON SUITS
No Bondholder will have any right to institute any proceedings with
respect to the Indenture unless (1) such Bondholder has previously given written
notice to the Indenture Trustee of a continuing Event of Default; (2)
Bondholders representing not less than 25% of the Bond Principal Balance of the
Bonds have made written request to the Indenture Trustee to institute
proceedings in respect of such Event of Default in its own name as Indenture
Trustee; (3) such Bondholders have offered to the Indenture Trustee reasonable
indemnity satisfactory to it against the costs, expenses and liabilities to be
incurred in compliance with such request; (4) for 60 days after its receipt of
such notice, request and offer of indemnity the Indenture Trustee has failed to
institute any such proceedings; (5) no direction inconsistent with such written
request has been given to the Indenture Trustee during such 60-day period by the
Bondholders representing more than 50% of the Bond Principal Balance of the
Bonds; and (6) such Bondholders have the consent of the Bond Insurer, unless a
Bond Insurer Default exists.
THE INDENTURE TRUSTEE
The Indenture Trustee may resign at any time, in which event the Issuer
will be obligated to appoint, at the direction of the Bond Insurer, a successor
Indenture Trustee. The Indenture Trustee also may be removed at any time by the
Bond Insurer, or if a Bond Insurer Default exists, then by Bondholders
representing more than 50% of the Bond Principal Balance of the Bonds, if the
Indenture Trustee ceases to be eligible to continue as such under the Indenture
or if the Indenture Trustee becomes incapable of acting, bankrupt, insolvent or
if a receiver or public officer takes charge of the Indenture Trustee or its
property. Any resignation or removal of the Indenture Trustee and appointment of
a successor Indenture Trustee will not become effective until acceptance of the
appointment by the successor Indenture Trustee.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Bonds will be characterized as
indebtedness and not as representing an ownership interest in the Trust Fund or
an equity interest in the Issuer or the Company. In addition, for federal income
tax purposes, the Issuer will not be (i) classified as an association taxable as
a corporation for federal income tax purposes (other than as a "qualified REIT
subsidiary" as defined in Section 856(i) of the Code), (ii) a taxable mortgage
pool as defined in Section 7701(i) of the Code, or (iii) a "publicly traded
partnership" as defined in Treasury Regulation Section 1.7704-1. The Bonds will
not be treated as having been issued with "original issue discount" (as defined
in the Prospectus). The prepayment assumption that will be used in determining
the rate of amortization of market discount and premium, if any, for federal
income tax purposes will be based on the assumption that, subsequent
S-55
<PAGE>
to the date of any determination the Mortgage Loans will prepay at a rate equal
to 20% CPR. No representation is made that the Mortgage Loans will prepay at
that rate or at any other rate. See "Federal Income Tax Consequences" in the
Prospectus.
The Bonds will not be treated as assets described in Section
7701(a)(19)(C) of the Code or "real estate assets" under Section 856(c)(5)(A) of
the Code. In addition, interest on the Bonds will not be treated as "interest on
obligations secured by mortgages on real property" under Section 856(c)(3)(B) of
the Code. The Bonds will also not be treated as "qualified mortgages" under
Section 860G(a)(3)(C) of the Code.
Prospective investors in the Bonds should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the Prospectus for a
discussion of the application of certain federal income and state and local tax
laws to the Issuer and purchasers of the Bonds.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated ______ ___, 1997 (the "Underwriting Agreement"), among
______________ ( _____________ ), ______________ ( __________ together with
______________ "Underwriters"), the Company and ___________ the Underwriters
have agreed to purchase and the Company has agreed to sell to the Underwriters
the Bonds. It is expected that delivery of the Bonds will be made only in
book-entry form through the Same Day Funds Settlement System of DTC, on or about
_____ ____, 1997, against payment therefor in immediately available funds.
The Bonds will be purchased from the Company by the Underwriters and
will be offered by the Underwriters from time to time to the public in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The proceeds to the Company from the sale of the Bonds are
expected to be approximately $__________________ before the deduction of
expenses payable by the Company estimated to be approximately $____________. The
Underwriters may effect such transactions by selling the Bonds to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Underwriters. In connection with
the sale of the Bonds, the Underwriters may be deemed to have received
compensation from the Company in the form of underwriting compensation. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Bonds may be deemed to be underwriters and any profit on the
resale of the Bonds positioned by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933.
The Underwriting Agreement provides that the Company and _____ will
jointly and severally indemnify the Underwriters, and that under limited
circumstances the Underwriters will indemnify the Company, against certain civil
liabilities under the Securities Act of 1933, or contribute to payments required
to be made in respect thereof.
There can be no assurance that a secondary market for the Bonds will
develop or, if it does develop, that it will continue or provide the Bondholders
with sufficient liquidity of investment. The primary source of information
available to investors concerning the Bonds will be the monthly statements
discussed in the Prospectus under "Description of the Bonds--Reports to
Bondholders," which will include information as to the outstanding principal
balance of the Bonds. There can be no assurance that any additional information
regarding the Bonds will be available through any other source. In addition, the
Company is not aware of any source through which price information about the
Bonds will be generally available on an ongoing basis. The limited nature of
such information regarding the Bonds may adversely affect the liquidity of the
Bonds, even if a secondary market for the Bonds becomes available.
S-56
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to the Bonds will be passed upon for the
Company by Thacher Proffitt & Wood, New York, New York and for the Underwriters
by ______________, New York, New York.
RATINGS
It is a condition of the issuance of the Bonds that they be rated "AAA"
by Standard & Poor's Ratings Services ("S&P") and "Aaa" by Moody's Investors
Service, Inc. ("Moody's").
S&P's ratings on mortgage pass-through certificates address the
likelihood of the receipt by Bondholders of payments required under the
Indenture. S&P's ratings take into consideration the credit quality of the
mortgage pool, structural and legal aspects associated with the Bonds, and the
extent to which the payment stream in the mortgage pool is adequate to make
payments required under the Bonds. S&P's rating on the Bonds does not, however,
constitute a statement regarding frequency of prepayments on the mortgages. See
"Certain Yield and Prepayment Considerations" herein. The ratings issued by S&P
on payment of principal and interest do not cover the payment of the Available
Funds Cap Carry-Forward Amount.
The rating process of Moody's addresses the structural and legal
aspects associated with the Bonds, including the nature of the underlying
mortgage loans. The ratings assigned to the Bonds do not represent any
assessment of the likelihood or rate of principal prepayments. The ratings do
not address the possibility that Bondholders might suffer a lower than
anticipated yield. The ratings do not address the likelihood that Bondholders
will be paid any Prepayment Interest Shortfalls, Relief Act Shortfalls or the
Available Funds Cap Carry-Forward Amount. The ratings do not address the
likelihood that Bondholders will be paid any Deferred Interest except to the
extent Deferred Interest is added to the Bond Principal Balance.
The Company has not requested a rating on the Bonds by any rating
agency other than S&P and Moody's. However, there can be no assurance as to
whether any other rating agency will rate the Bonds, or, if it does, what rating
would be assigned by any such other rating agency. A rating on the Bonds by
another rating agency, if assigned at all, may be lower than the ratings
assigned to the Bonds by S&P and Moody's.
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. In the event that the ratings
initially assigned to the Bonds are subsequently lowered for any reason, no
person or entity is obligated to provide any additional support or credit
enhancement with respect to the Bonds.
The ratings do not address the likelihood that the Master Servicer will
repurchase any Converting Mortgage Loan following the conversion of the related
Mortgage Rate to a fixed rate, and do not address the effect on the yield to
Bondholders resulting from any such conversion and the failure of the Master
Servicer to repurchase such Converting Mortgage Loan.
S-57
<PAGE>
LEGAL INVESTMENT
The Bonds will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") for so long as
they are rated in at least the second highest rating category by one or more
nationally recognized statistical rating agencies, and, as such, are legal
investments for certain entities to the extent provided in SMMEA. SMMEA
provides, however, that states could override its provision on legal investment
and restrict or condition investment in mortgage related securities by taking
statutory action on or prior to October 3, 1991.
The Company makes no representations as to the proper characterization
of the Bonds for legal investment or other purposes, or as to the ability of
particular investors to purchase the Bonds under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
Bonds. Accordingly, all institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their legal advisors in
determining whether and to what extent the Bonds constitute a legal investment
or are subject to investment, capital or other restrictions.
See "Legal Investment Matters" in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the Code impose certain requirements on employee benefit
plans and certain other retirement plans and arrangements (including, but not
limited to, individual retirement accounts and annuities), as well as on
collective investment funds and certain separate and general accounts in which
such plans or arrangements are invested (all of which are hereinafter referred
to as a "Plan") and on persons who are fiduciaries with respect to such Plans.
Any Plan fiduciary which proposes to cause a Plan to acquire any of the Bonds
would be required to determine whether such an investment is permitted under the
governing Plan instruments and is prudent and appropriate for the Plan in view
of its overall investment policy and the composition and diversification of its
portfolio. In addition, ERISA and the Code prohibit certain transactions
involving the assets of a Plan and "disqualified persons" (within the meaning of
the Code) and "parties in interest" (within the meaning of ERISA) who have
certain specified relationships to the Plan. Therefore, a Plan fiduciary
considering an investment in the Bonds should also consider whether such an
investment might constitute or give rise to a prohibited transaction under ERISA
or the Code. Any Plan fiduciary which proposes to cause a Plan to acquire any of
the Bonds should consult with its counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership of
such Bonds.
EXPERTS
The consolidated financial statements of the Bond Insurer,
______________________________, as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended December 31, 1996 are incorporated by
reference herein and in the registration statement in reliance upon the report
of __________________________, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
S-58
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or by the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the bonds
offered hereby to anyone in any jurisdiction in which the person making such
offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make any such offer or solicitation. Neither the delivery of this
Prospectus Supplement and the Prospectus nor any sale made hereunder shall,
under any circumstances, create an implication that information herein or
therein is correct as of any time since the date of this Prospectus Supplement
or the Prospectus.
----------------------
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary..........................................
Risk Factors.....................................
Description of the Mortgage Pool.................
The Issuer.......................................
The Owner Trustee................................
The Indenture Trustee............................
- ----------------------
Description of the Bonds.........................
Certain Yield and Prepayment Considerations
Description of the Servicing Agreement...........
The Indenture....................................
Federal Income Tax Consequences..................
Method of Distribution........................... S-58
Legal Opinions................................... S-59
Ratings..........................................
Legal Investment.................................
ERISA Considerations.............................
Experts..........................................
Appendix A--Underwriting Guidelines Applicable
to the Mortgage Loans.......................
Prospectus
PAINEWEBBER
MORTGAGE ACCEPTANCE
CORPORATION IV
SERIES 1997-1
$
COLLATERALIZED
ASSET-BACKED BONDS
SERIES 1997-1
----------------------
PROSPECTUS SUPPLEMENT
----------------------
-------------------------
---------------- 1997
----------------------
-------------------------------
================================================================================
S-59
<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
------------
*Previously paid.
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
<PAGE>
II-2
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, 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
<PAGE>
II-3
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 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.
4.9 Form of Trust Agreement (Version 6, relating to Notes) 4.10 Form of
Indenture (Version 6, relating to Notes) 4.11 Form of Servicing
Agreement (Version 6, relating to Notes)
5.1 Opinion of Thacher Proffitt & Wood.
8.1 Opinion of Thacher Proffitt & Wood with respect to certain tax matters
(Included as part of Exhibit 5.1).
<PAGE>
II-4
23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibit 5.1).
*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**).
*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.
<PAGE>
II-5
(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.
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 25th day of June,
1997.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John A. Taylor President June 25, 1997
- ------------------------------------- (Principal Executive Officer)
John A. Taylor
/s/ Michael T. Sullivan Director and Treasurer June 25, 1997
- ------------------------------------- (Principal Financial Officer)
Michael T. Sullivan
/S/ DANIEL LEYDEN Vice President June 25, 1997
- ------------------------------------- (Principal Accounting
Daniel Leyden Officer)
/s/ Ramesh Singh Director June 25, 1997
- -------------------------------------
Ramesh Singh
/s/ Joseph A. Piscina Director June 25, 1997
- -------------------------------------
Joseph A. Piscina
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
Location of Exhibit
in Sequential
Number Description of Document Numbering System
- ------ ----------------------- ----------------
*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.
4.9 Form of Trust Agreement (Version 5, relating to Notes).
4.10 Form of Indenture (Version 5, relating to Notes).
4.11 Form of Servicing Agreement (Version 5, relating to Notes).
5.1 Opinion of Thacher Proffitt & Wood.
8.1 Opinion of Thacher Proffitt & Wood with respect to certain tax
matters (included as part of Exhibit 5.1).
23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibit 5.1).
*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**).
*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 4.9
-----------
================================================================================
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
as Depositor
and
----------------------,
as Owner Trustee
-----------------------------------------
TRUST AGREEMENT
Dated as of ________________
------------------------------------------
$_________ Mortgage-Backed Certificates,
Series 199_-__
================================================================================
<PAGE>
<TABLE>
Table of Contents
<CAPTION>
Section Page
ARTICLE I
DEFINITIONS
<S> <C> <C>
................................................................................................................ 1
1.01. DEFINITIONS.............................................................................. 1
1.02. OTHER DEFINITIONAL PROVISIONS............................................................ 1
ARTICLE II
ORGANIZATION
................................................................................................................ 3
2.01. NAME..................................................................................... 3
2.02. OFFICE................................................................................... 3
2.03. PURPOSES AND POWERS...................................................................... 3
2.04. APPOINTMENT OF OWNER TRUSTEE............................................................. 3
2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE....................................... 4
2.06. DECLARATION OF TRUST..................................................................... 4
2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES.............................................. 4
2.08. TITLE TO TRUST PROPERTY.................................................................. 4
2.09. SITUS OF TRUST........................................................................... 5
2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR.......................................... 5
2.11. PAYMENT OF TRUST FEES.................................................................... 6
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
................................................................................................................ 7
3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL.................................................... 7
3.02. INITIAL OWNERSHIP........................................................................ 7
3.03. THE CERTIFICATES......................................................................... 7
3.04. AUTHENTICATION OF CERTIFICATES........................................................... 7
3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF
CERTIFICATES............................................................................. 8
3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES........................................ 9
3.07. PERSONS DEEMED CERTIFICATEHOLDERS........................................................ 10
3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES................................ 10
3.09. MAINTENANCE OF OFFICE OR AGENCY.......................................................... 10
3.10. CERTIFICATE PAYING AGENT................................................................. 10
3.11. OWNERSHIP................................................................................ 12
</TABLE>
ARTICLE IV
i
<PAGE>
<TABLE>
Section Page
<CAPTION>
AUTHORITY AND DUTIES OF OWNER TRUSTEE
<S> <C> <C>
................................................................................................................ 13
4.01. GENERAL AUTHORITY........................................................................ 13
4.02. GENERAL DUTIES........................................................................... 13
4.03. ACTION UPON INSTRUCTION.................................................................. 13
4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS OR IN
INSTRUCTIONS............................................................................. 14
4.05. RESTRICTIONS............................................................................. 14
4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS....................... 14
4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS............................. 15
4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.................................. 15
4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER................................................ 15
4.10. MAJORITY CONTROL......................................................................... 16
ARTICLE V
APPLICATION OF TRUST FUNDS
................................................................................................................ 17
5.01. DISTRIBUTIONS............................................................................ 17
5.02. METHOD OF PAYMENT........................................................................ 17
5.03. SIGNATURE ON RETURNS..................................................................... 17
5.04. STATEMENTS TO CERTIFICATEHOLDERS......................................................... 18
5.05. TAX REPORTING; TAX ELECTIONS............................................................. 18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
................................................................................................................ 19
6.01. ACCEPTANCE OF TRUSTS AND DUTIES.......................................................... 19
6.02. FURNISHING OF DOCUMENTS.................................................................. 20
6.03. REPRESENTATIONS AND WARRANTIES........................................................... 20
6.04. RELIANCE; ADVICE OF COUNSEL.............................................................. 21
6.05. NOT ACTING IN INDIVIDUAL CAPACITY........................................................ 21
6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED DOCUMENTS........................... 21
6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES............................................. 22
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
................................................................................................................ 23
7.01. OWNER TRUSTEE'S FEES AND EXPENSES........................................................ 23
7.02. INDEMNIFICATION.......................................................................... 23
ARTICLE VIII
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
TERMINATION OF TRUST AGREEMENT
<S> <C> <C>
................................................................................................................ 25
8.01. TERMINATION OF TRUST AGREEMENT........................................................... 25
8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE DESIGNATED
CERTIFICATE.............................................................................. 26
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
................................................................................................................ 27
9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE............................................... 27
9.02. REPLACEMENT OF OWNER TRUSTEE............................................................. 27
9.03. SUCCESSOR OWNER TRUSTEE.................................................................. 28
9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE................................................. 28
9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE............................................ 28
</TABLE>
<TABLE>
<CAPTION>
ARTICLE X
MISCELLANEOUS
................................................................................................................ 30
<S> <C> <C>
10.01. AMENDMENTS............................................................................... 30
10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE..................................................... 31
10.03. LIMITATIONS ON RIGHTS OF OTHERS.......................................................... 31
10.04. NOTICES.................................................................................. 31
10.05. SEVERABILITY............................................................................. 32
10.06. SEPARATE COUNTERPARTS.................................................................... 32
10.07. SUCCESSORS AND ASSIGNS................................................................... 32
10.08. NO PETITION.............................................................................. 32
10.9. NO RECOURSE.............................................................................. 32
10.10. HEADINGS................................................................................. 33
10.11. GOVERNING LAW............................................................................ 33
10.12. INTEGRATION.............................................................................. 33
</TABLE>
<TABLE>
<CAPTION>
Signatures ......................................................................................................40
EXHIBIT
<S> <C>
Exhibit A - Form of Certificate.................................................................................A-1
Exhibit B - Certificate of Trust of PaineWebber
Mortgage Acceptance Corporation IV Trust .......................................B-1
Exhibit C - Form of Certificate of Non-Foreign Status...........................................................C-1
Exhibit D - Form of Investment Letter...........................................................................D-1
iii
<PAGE>
<S> <C>
Exhibit E - Form of Investment Letter
for Certificates...................................................................E-1
</TABLE>
iv
<PAGE>
This Trust Agreement, dated as of ________________ (as amended from
time to time, this "Trust Agreement"), between PaineWebber Mortgage Acceptance
Corporation IV, a Delaware corporation, as Depositor (the "Depositor") and
______________________, a Delaware ___________________, as Owner Trustee (the
"Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the
Depositor and the Owner Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For all purposes of this Trust Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Indenture. All other capitalized terms used herein
shall have the meanings specified herein.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Trust Agreement shall refer to this Trust Agreement as
a whole and not to any particular provision of this Trust Agreement; Section and
Exhibit references contained in this Trust Agreement are references to Sections
and Exhibits in or to this Trust Agreement unless otherwise specified; and the
term "including" shall mean "including without limitation".
(d) The definitions contained in this Trust Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms.
<PAGE>
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
2
<PAGE>
ARTICLE II
ORGANIZATION
Section 2.01. NAME. The trust created hereby (the "Trust") shall be
known as "PaineWebber Mortgage Acceptance Corporation IV Trust Series 199_-_,"
in which name the Owner Trustee may conduct the business of the Trust, make and
execute contracts and other instruments on behalf of the Trust and sue and be
sued.
Section 2.02. OFFICE. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address in Delaware
as the Owner Trustee may designate by written notice to the Certificateholders
and the Depositor.
Section 2.03. PURPOSES AND POWERS. The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Trust Agreement and to sell the Notes
and the Certificates;
(ii) to pay the organizational, start-up and transactional
expenses of the Trust;
(iii) to assign, grant, transfer, pledge and convey the
Mortgage Collateral pursuant to the Indenture and to hold, manage and
distribute to the Certificateholders pursuant to Section 5.01 any
portion of the Mortgage Collateral released from the Lien of, and
remitted to the Trust pursuant to the Indenture;
(iv) to enter into and perform its obligations under the
Basic Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith,
including, without limitation, to accept additional contributions of
equity that are not subject to the Lien of the Indenture; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Trust Agreement or the
Basic Documents [while any Note is outstanding and without regard to the Notes
and] [without the consent of __% of the Certificateholders].
Section 2.04. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
3
<PAGE>
Section 2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial corpus of the Trust and shall
be deposited in the Certificate Distribution Account. The Owner Trustee also
acknowledges on behalf of the trust receipt of the Mortgage Collateral and a
Surety Note assigned to the Trust pursuant to Section 3.01, which shall
constitute the Owner Trust Estate.
Section 2.06. DECLARATION OF TRUST. The Owner Trustee hereby declares
that it shall hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the obligations of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Trust Agreement constitute the
governing instrument of such business trust. It is the intention of the parties
hereto that, for income and franchise tax purposes, the Trust shall be treated
as a corporation, with the assets of the corporation being the Owner Trust
Estate, the [equity interest in the corporation] being the Certificates and the
Notes being debt of the corporation and the provisions of this Agreement shall
be interpreted to further this intention. Except as otherwise provided in this
Trust Agreement, the rights of the Certificateholders will be those of [equity
owners of the Trust] formed under the Delaware [corporation law]. The parties
agree that, unless otherwise required by appropriate tax authorities, the Trust
will file or cause to be filed annual or other necessary returns, reports and
other forms consistent with the characterization of the Trust as a corporation
for such tax purposes. Effective as of the date hereof, the Owner Trustee shall
have all rights, powers and duties set forth herein and in the Business Trust
Statute with respect to accomplishing the purposes of the Trust.
Section 2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES. (a) The
Holders of the Certificates shall be liable directly to and shall indemnify any
injured party for all losses, claims, damages, liabilities and expenses of the
Trust (including Expenses, to the extent not paid out of the Owner Trust Estate)
to the extent that the Holders of the Certificates would be liable if the Trust
were a corporation under [Delaware corporate law]; provided, however, that the
Holders of the Certificates shall not be liable for payments required to be made
on the Notes or the Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Certificates or a
Noteholder in the capacity of an investor in the Notes. The Holders of the
Certificates shall be liable for any entity level taxes imposed on the Trust. In
addition, any third party creditors of the Trust, including the Credit Enhancer
(other than in connection with the obligations described in the preceding
sentence for which the Holders of the Certificates shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of the
Holders of the Certificates under this paragraph shall be evidenced by the
Certificates.
(b) Subject to subsection (a) above, the Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 2.08. TITLE TO TRUST PROPERTY. Legal title to the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or
4
<PAGE>
trustees, in which case title shall be deemed to be vested in the Owner Trustee,
a co-trustee and/or a separate trustee, as the case may be.
Section 2.09. SITUS OF TRUST. The Trust will be located and
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of ________. The Trust shall not have any employees in any state other
than Delaware; provided, however, that nothing herein shall restrict or prohibit
the Owner Trustee from having employees within or without the State of Delaware
or taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Trust only in Delaware, New York or
________, and payments will be made by the Trust only from Delaware, New York or
________. The only office of the Trust will be at the Corporate Trust Office in
Delaware.
Section 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Owner Trustee that:
(i) The Depositor is duly organized and validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority to own its properties and to conduct
its business as such properties are currently owned and such business
is presently conducted.
(ii) The Depositor is duly qualified to do business as a
foreign corporation in good standing and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership or
lease of its property or the conduct of its business shall require such
qualifications and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets or
condition (financial or other) of the Depositor.
(iii) The Depositor has the power and authority to execute
and deliver this Trust Agreement and to carry out its terms; the
Depositor has full power and authority to sell and assign the property
to be sold and assigned to and deposited with the Trust as part of the
Trust and the Depositor has duly authorized such sale and assignment
and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Trust Agreement have been
duly authorized by the Depositor by all necessary corporate action.
(iv) The consummation of the transactions contemplated by
this Trust Agreement and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or bylaws of the Depositor, or any
indenture, agreement or other instrument to which the Depositor is a
party or by which it is bound; nor result in the creation or imposition
of any Lien upon any of its properties pursuant to the terms of any
such indenture, agreement or other instrument (other than pursuant to
the Basic Documents); nor violate any law or, to the best of the
Depositor's knowledge, any order, rule or regulation applicable to the
Depositor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Depositor or its properties.
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Section 2.11. PAYMENT OF TRUST FEES. The Owner Trustee shall cause the
Administrator (i) to pay the Trust's fees and expenses incurred with respect to
the performance of the Trust's duties under the Indenture from amounts received
pursuant to Section 3.05(x) under the Indenture and (ii) to notify the
Certificate Paying Agent of such fees and expenses incurred thereunder.
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ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
Section 3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL. The Depositor,
concurrently with the execution and delivery hereof, does hereby transfer,
convey, sell and assign to the Trust, on behalf of the Holders of the Notes and
the Certificates and the Credit Enhancer, without recourse, all its right, title
and interest in and to the Mortgage Collateral. The Depositor will also provide
the Trust with a Surety Note.
The parties hereto intend that the transaction set forth herein be a
sale by the Depositor to the Trust of all of its right, title and interest in
and to the Mortgage Collateral. In the event that the transaction set forth
herein is not deemed to be a sale, the Depositor hereby grants to the Trust a
security interest in all of its right, title and interest in, to and under the
Owner Trust Estate, all distributions thereon and all proceeds thereof; and this
Trust Agreement shall constitute a security agreement under applicable law.
Section 3.02. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the conveyance
of the Mortgage Collateral pursuant to Section 3.01 and the issuance of the
Certificates, the Depositor shall be the sole Certificateholder.
Section 3.03. THE CERTIFICATES. The Certificates shall be issued in
minimum denominations of $[250,000] and in integral multiples of $10,000 in
excess thereof; except for one Certificate that may not be in an integral
multiple of $10,000; provided, however, that the Designated Certificate issued
pursuant to Section 3.11 may be issued in the amount of $_________. The
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of an authorized officer of the Owner Trustee and authenticated in the
manner provided in Section 3.04. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures shall have
been affixed, authorized to sign on behalf of the Trust, shall be validly issued
and entitled to the benefit of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of authentication and delivery of such Certificates. A Person shall
become a Certificateholder and shall be entitled to the rights and subject to
the obligations of a Certificateholder hereunder upon such Person's acceptance
of a Certificate duly registered in such Person's name, pursuant to Section
3.05.
A transferee of a Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Certificate
duly registered in such transferee's name pursuant to and upon satisfaction of
the conditions set forth in Section 3.05.
Section 3.04. AUTHENTICATION OF CERTIFICATES. Concurrently with the
acquisition of the Mortgage Collateral by the Trust, the Owner Trustee shall
cause the Certificates in an aggregate principal amount equal to the Initial
Principal Balance of the Certificates to be executed on
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behalf of the Trust, authenticated and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its president or any vice
president, without further corporate action by the Depositor, in authorized
denominations. No Certificate shall entitle its holder to any benefit under this
Trust Agreement or be valid for any purpose unless there shall appear on such
Certificate a certificate of authentication substantially in the form set forth
in Exhibit A, executed by the Owner Trustee or ____________________, by manual
signature; such authentication shall constitute conclusive evidence that such
Certificate shall have been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
Section 3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at
the office or agency maintained pursuant to Section 3.09, a Certificate Register
in which, subject to such reasonable regulations as it may prescribe, the [Owner
Trustee] shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. _____________________________
shall be the initial Certificate Registrar. If the Certificate Registrar resigns
or is removed, the Owner Trustee shall appoint a successor Certificate
Registrar.
Subject to satisfaction of the conditions set forth below and to the
provisions of Section 3.11 with respect to the Designated Certificate, upon
surrender for registration of transfer of any Certificate at the office or
agency maintained pursuant to Section 3.09, the Owner Trustee shall execute,
authenticate and deliver (or shall cause __________________________________ as
its authenticating agent to authenticate and deliver) in the name of the
designated transferee or transferees, one or more new Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender of the Certificates to be exchanged at
the office or agency maintained pursuant to Section 3.09.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of NonForeign Status set forth in Exhibit C hereto.
No transfer of a Certificate shall be made unless such transfer is
exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with said Act and
laws. In the event of any such transfer, the Certificate
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Registrar or the Depositor shall prior to such transfer require the transferee
to execute (i) (a) an investment letter (in substantially the form attached
hereto as Exhibit D) in form and substance reasonably satisfactory to the
Certificate Registrar and the Depositor certifying to the Trust, the Owner
Trustee, the Certificate Registrar and the Depositor that such transferee is a
"qualified institutional buyer" under Rule 144A under the Securities Act, or (b)
solely with respect to the Designated Certificate, an investment letter (in
substantially the form attached hereto as Exhibit E), acceptable to and in form
and substance reasonably satisfactory to the Certificate Registrar and the
Depositor, which investment letters shall not be an expense of the Trust, the
Owner Trustee, the Certificate Registrar, the Servicer or the Depositor and (ii)
the Certificate of NonForeign Status (in substantially the form attached hereto
as Exhibit C) acceptable to and in form and substance reasonably satisfactory to
the Certificate Registrar and the Depositor, which certificate shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor. The Holder of a Certificate desiring to effect such transfer shall,
and does hereby agree to, indemnify the Trust, the Owner Trustee, the
Certificate Registrar, the Servicer and the Depositor against any liability that
may result if the transfer is not so exempt or is not made in accordance with
such federal and state laws.
No transfer of a Certificate shall be made unless the Certificate
Registrar shall have received either (i) a representation letter from the
proposed transferee of such Certificate to the effect that such proposed
transferee is not an employee benefit plan subject to the fiduciary
responsibility provisions of ERISA, or Section 4975 of the Code, or a Person
acting on behalf of any such plan or using the assets of any such plan, which
representation letter shall not be an expense of the Trust, Owner Trustee, the
Certificate Registrar, the Servicer or the Depositor or (ii) in the case of any
such certificate presented for registration in the name of an employee benefit
plan subject to the fiduciary responsibility provisions of ERISA, or Section
4975 of the Code (or comparable provisions of any subsequent enactments), or a
trustee of any such plan, or any other Person who is using the assets of any
such plan to effect such acquisition, an Opinion of Counsel, in form and
substance reasonably satisfactory to, and addressed and delivered to, the Trust,
the Certificate Registrar and the Depositor, to the effect that the purchase or
holding of such Certificate will not result in the assets of the Owner Trust
Estate being deemed to be "plan assets" and subject to the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions of
the Code, will not constitute or result in a prohibited transaction within the
meaning of Section 406 or Section 407 of ERISA or Section 4975 of the Code, and
will not subject the Trust, the Owner Trustee, the Certificate Registrar or the
Depositor to any obligation or liability (including obligations or liabilities
under ERISA or Section 4975 of the Code) in addition to those explicitly
undertaken in this Trust Agreement which Opinion of Counsel shall not be an
expense of the Trust, the Owner Trustee, the Certificate Registrar or Depositor.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity as
may be required by them to save each of them harmless, then in the absence of
notice to the Certificate Registrar or the Owner Trustee that such Certificate
has been acquired by a bona fide purchaser, the Owner Trustee shall execute on
behalf of the Trust and the Owner Trustee or ________________, as the Trust's
authenticating agent, shall authenticate and deliver,
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in exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like tenor and denomination. In connection
with the issuance of any new Certificate under this Section 3.06, the Owner
Trustee or the Certificate Registrar may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this Section 3.06 shall
constitute conclusive evidence of ownership in the Trust, as if originally
issued, whether or not the lost, stolen or destroyed Certificate shall be found
at any time.
Section 3.07. PERSONS DEEMED CERTIFICATEHOLDERS. Prior to due
presentation of a Certificate for registration of transfer, the Owner Trustee,
the Certificate Registrar or any Certificate Paying Agent may treat the Person
in whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND
ADDRESSES. The Certificate Registrar shall furnish or cause to be furnished to
the Depositor or the Owner Trustee, within 15 days after receipt by the
Certificate Registrar of a written request therefor from the Depositor or the
Owner Trustee, a list, in such form as the Depositor or the Owner Trustee, as
the case may be, may reasonably require, of the names and addresses of the
Certificateholders as of the most recent Record Date. Each Holder, by receiving
and holding a Certificate, shall be deemed to have agreed not to hold any of the
Trust, the Depositor, the Holder of the Designated Certificate, the Certificate
Registrar or the Owner Trustee accountable by reason of the disclosure of its
name and address, regardless of the source from which such information was
derived.
Section 3.09. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee on
behalf of the Trust, shall maintain in the Borough of Manhattan, The City of New
York, an office or offices or agency or agencies where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Owner Trustee in respect of the Certificates and the
Basic Documents may be served. The Owner Trustee initially designates the
Corporate Trust Office of the Owner Trustee as its office for such purposes. The
Owner Trustee shall give prompt written notice to the Depositor, the Holder of
the Designated Certificate and the Certificateholders of any change in the
location of the Certificate Register or any such office or agency.
Section 3.10. CERTIFICATE PAYING AGENT. (a) The Certificate Paying
Agent shall make distributions to Certificateholders from the Certificate
Distribution Account on behalf of the Trust in accordance with the provisions of
the Certificates and Section 5.01 hereof from payments remitted to the
Certificate Paying Agent by the Indenture Trustee pursuant to Section 3.05 of
the Indenture. The Trust hereby appoints __________________ as Certificate
Paying Agent and _________________ hereby accepts such appointment and further
agrees that it will be bound by the provisions of this Trust Agreement relating
to the Certificate Paying Agent and shall:
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(i) hold all sums held by it for the payment of amounts
due with respect to the Certificates in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons
or otherwise disposed of as herein provided;
(ii) give the Owner Trustee notice of any default by the
Trust of which it has actual knowledge in the making of any payment
required to be made with respect to the Certificates;
(iii) at any time during the continuance of any such
default, upon the written request of the Owner Trustee forthwith pay to
the Owner Trustee on behalf of the Trust all sums so held in Trust by
such Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and
forthwith pay to the Owner Trustee on behalf of the Trust all sums held
by it in trust for the payment of Certificates if at any time it ceases
to meet the standards required to be met by the Certificate Paying
Agent at the time of its appointment;
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any
Certificates of any applicable withholding taxes imposed thereon and
with respect to any applicable reporting requirements in connection
therewith; and
(vi) deliver to the Owner Trustee a copy of the report
to Certificateholders prepared with respect to each Payment Date by the
Servicer pursuant to Section 4.01 of the Servicing Agreement.
(b) The Trust may revoke such power and remove the Certificate Paying
Agent if the Administrator determines in its sole discretion that the
Certificate Paying Agent shall have failed to perform its obligations under this
Trust Agreement in any material respect. __________________ shall be permitted
to resign as Certificate Paying Agent upon 30 days written notice to the Owner
Trustee; provided ________________ is also resigning as Paying Agent under the
Indenture at such time. In the event that ___________________ shall no longer be
the Certificate Paying Agent under this Trust Agreement and Paying Agent under
the Indenture, the Administrator shall appoint a successor to act as Certificate
Paying Agent (which shall be a bank or trust company) and which shall also be
the successor Paying Agent under the Indenture. The Administrator shall cause
such successor Certificate Paying Agent or any additional Certificate Paying
Agent appointed by the Administrator to execute and deliver to the Owner Trustee
an instrument to the effect set forth in this Section 3.10 as it relates to the
Certificate Paying Agent. The Certificate Paying Agent shall return all
unclaimed funds to the Trust and upon removal of a Certificate Paying Agent such
Certificate Paying Agent shall also return all funds in its possession to the
Trust. The provisions of Sections 6.01, 6.03, 6.04 and 7.01 shall apply to the
Certificate Paying Agent to the extent applicable. Any reference in this
Agreement to the Certificate Paying Agent shall include any co-paying agent
unless the context requires otherwise.
(c) The Certificate Paying Agent shall establish and maintain with
itself a trust account (the "Certificate Distribution Account") in which the
Certificate Paying Agent shall,
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deposit, on the same day as it is received from the Indenture Trustee, each
remittance received by the Certificate Paying Agent with respect to payments
made pursuant to the Indenture. The Certificate Paying Agent shall make all
distributions of principal of and interest on the Certificates, from moneys on
deposit in the Certificate Distribution Account.
[Section 3.11. OWNERSHIP. The Certificates shall, for income and
franchise tax purposes, be treated as the equity interest of the Trust. The
Certificates shall not be transferred unless (a) the transferee shall be an
Affiliate of the Seller, unless the prior written consent of the Credit Enhancer
is obtained, which will not be unreasonably withheld, (b) the applicable
provisions of Section 3.05 are satisfied, (c) the Certificate Registrar receives
an Opinion of Counsel to the effect that the transfer of the Certificates shall
not cause the Trust to be subject to an entity level tax and (d) the Rating
Agencies shall consent to such transfer.]
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ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 4.01. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, in each case, in
such form as the Administrator shall approve, as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Basic Documents. The Owner Trustee is further
authorized from time to time to take such action as the Administrator directs
with respect to the Basic Documents.
Section 4.02. GENERAL DUTIES. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator has agreed in the
Administration Agreement to perform such acts or to discharge such duties of the
Owner Trustee or the Trust hereunder or under any Basic Document, and the Owner
Trustee shall not be held liable for the default or failure of the Administrator
to carry out its obligations under the Administration Agreement.
Section 4.03. ACTION UPON INSTRUCTION. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be
required to take any action hereunder or under any Basic Document if the Owner
Trustee shall have reasonably determined, or shall have been advised by counsel,
that such action is likely to result in liability on the part of the Owner
Trustee or is contrary to the terms hereof or of any Basic Document or is
otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, or in the event that the Owner Trustee is unsure as to
the application of any provision of this Trust Agreement or any Basic Document
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or in the event that this
Trust Agreement permits any determination by the Owner Trustee or is silent or
is incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders (with a copy to the Credit Enhancer) requesting
instruction as to the course of action to be adopted, and to the extent the
Owner Trustee acts in good faith in accordance with any written instruction of
the
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Certificateholders received, the Owner Trustee shall not be liable on account of
such action to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Trust Agreement or the Basic
Documents, as it shall deem to be in the best interests of the
Certificateholders, and the Owner Trustee shall have no liability to any Person
for such action or inaction.
Section 4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS
OR IN INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Trust Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 4.05. RESTRICTIONS. (a) The Owner Trustee shall not take any
action (x) that is inconsistent with the purposes of the Trust set forth in
Section 2.03 or (y) that, to the actual knowledge of the Owner Trustee, would
result in the Trust becoming taxable as a corporation for federal income tax
purposes. The Certificateholders shall not direct the Owner Trustee to take
action that would violate the provisions of this Section 4.06.
(b) The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (a) it shall have received an Opinion of Counsel to the effect
that such transaction will not have any material adverse tax consequence to the
Trust or any Certificateholder and (b) such conveyance or transfer shall not
violate the provisions of Section 3.16(b) of the Indenture.
Section 4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO
CERTAIN MATTERS. With respect to the following matters, the Owner Trustee shall
not take action unless at least 30 days before the taking of such action, the
Owner Trustee shall have notified the Certificateholders in writing of the
proposed action and the Certificateholders shall not have notified the Owner
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Trustee in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of cash distributions due
and owing under the Mortgage Collateral) and the compromise of any action, claim
or lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of cash distributions due and
owing under the Mortgage Collateral);
(b) the election by the Trust to file an amendment to the Certificate
of Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
(e) the amendment, change or modification of the Administration
Agreement, except to cure any ambiguity or to amend or supplement any provision
in a manner or add any provision that would not materially adversely affect the
interests of the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar or Certificate Paying Agent or the consent
to the assignment by the Note Registrar, Paying Agent, Indenture Trustee,
Certificate Registrar or Certificate Paying Agent of its obligations under the
Indenture or this Trust Agreement, as applicable.
Section 4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders, and with the consent of the Credit Enhancer, to (a)
remove the Administrator under the Administration Agreement pursuant to Section
8 thereof, (b) appoint a successor Administrator pursuant to Section 8 of the
Administration Agreement, (c) remove the Servicer under the Servicing Agreement
pursuant to Sections 7.01 and 8.05 thereof or (d) except as expressly provided
in the Basic Documents, sell the Mortgage Collateral after the termination of
the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders and with the consent of the Credit Enhancer.
Section 4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY.
The Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and with the consent of the Credit Enhancer and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
Section 4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction
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would be contrary to any obligation of the Trust or the Owner Trustee under this
Trust Agreement or any of the Basic Documents or would be contrary to Section
2.03, nor shall the Owner Trustee be obligated to follow any such direction, if
given.
Section 4.10. MAJORITY CONTROL. Except as expressly provided herein,
any action that may be taken by the Certificateholders under this Trust
Agreement may be taken by the Holders of Certificates evidencing not less than a
majority of the outstanding Principal Balance of the Certificates. Except as
expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Trust Agreement shall be effective if signed by
Holders of Certificates evidencing not less than a majority of the outstanding
Principal Balance of the Certificates at the time of the delivery of such
notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS
Section 5.01. DISTRIBUTIONS. (a) On each Payment Date, the Certificate
Paying Agent shall distribute to the Certificateholders all funds on deposit in
the Certificate Distribution Account and available therefor (as provided in
Section 3.05 of the Indenture), as principal and the Certificate Distribution
Amount for such Payment Date. All distributions made pursuant to this Section
shall be made on a pro rata basis to the Certificateholders based on the
Certificate Principal Balances thereof; provided however that any amount on
deposit in the Certificate Distribution Account relating to a payment to the
Certificate Paying Agent pursuant to Section 3.05(xi) of the Indenture shall be
distributed solely to the Designated Certificate.
(b) In the event that any withholding tax is imposed on the
distributions (or allocations of income) to a Certificateholder, such tax shall
reduce the amount otherwise distributable to the Certificateholder in accordance
with this Section 5.01. The Certificate Paying Agent is hereby authorized and
directed to retain or cause to be retained from amounts otherwise distributable
to the Certificateholders sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Owner
Trustee from contesting any such tax in appropriate proceedings, and withholding
payment of such tax, if permitted by law, pending the outcome of such
proceedings). The amount of any withholding tax imposed with respect to a
Certificateholder shall be treated as cash distributed to such Certificateholder
at the time it is withheld by the Certificate Paying Agent and remitted to the
appropriate taxing authority. If there is a possibility that withholding tax is
payable with respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) All calculations of the Certificate Distribution Amount on the
Certificates shall be made on the basis of the actual number of days in an
Interest Period and a year assumed to consist of 360 days.
(d) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Noteholders.
Section 5.02. METHOD OF PAYMENT. Subject to Section 8.01(c),
distributions required to be made to Certificateholders on any Payment Date as
provided in Section 5.01 shall be made to each Certificateholder of record on
the preceding Record Date either by, in the case of any Certificateholder owning
Certificates having denominations aggregating at least $1,000,000, wire
transfer, in immediately available funds, to the account of such Holder at a
bank or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Payment Date or,
if not, by check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
Section 5.03. SIGNATURE ON RETURNS. The Owner Trustee shall sign on
behalf of the Trust the tax returns of the Trust.
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Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS. On each Payment Date,
the Certificate Paying Agent shall send to each Certificateholder the statement
or statements provided to the Owner Trustee and the Certificate Paying Agent by
the Servicer pursuant to Section 4.01 of the Servicing Agreement with respect to
such Distribution Date.
Section 5.05. TAX REPORTING; TAX ELECTIONS. The Holder of the
Certificate shall cause the Trust to file federal and state income tax returns
and information statements as a corporation for each of its taxable years.
Within 90 days after the end of each calendar year, the Holder of the Designated
Certificate shall cause the Trust to provide to each Certificateholder an
Internal Revenue Service "K-1" or any successor schedule and supplemental
information, if required by law, to enable each Certificateholder to file its
federal and state income tax returns. The Holder of the Designated Certificate
may from time to time make and revoke such tax elections with respect to the
Trust as it deems necessary or desirable in its sole discretion to carry out the
business of the Trust or the purposes of this Trust Agreement if permitted by
applicable law. Notwithstanding the foregoing, an election under Section 754 of
the Code shall not be made without the written consent of a majority in interest
of the Holders of the Certificates. The Holder of the Designated Certificate
shall serve as tax matters partner for the Trust.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
Section 6.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful misconduct, negligence or bad
faith or negligent failure to act or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 6.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the preceding sentence):
(a) The Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of the
Administrator or the Certificateholders;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Depositor or the Holder of the Designated Certificate or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate, or for or in respect of the validity or sufficiency of the Basic
Documents, the Notes, the Certificates, other than the certificate of
authentication on the Certificates, if executed by the Owner Trustee and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Noteholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The execution, delivery, authentication and performance by it of
this Trust Agreement will not require the authorization, consent or approval of,
the giving of notice to, the filing or registration with, or the taking of any
other action with respect to, any governmental authority or agency;
(f) The Owner Trustee shall not be liable for the default or misconduct
of the Administrator, the Holder of the Designated Certificate, the Depositor,
Indenture Trustee or the Servicer under any of the Basic Documents or otherwise
and the Owner Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Trust Agreement or the
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Basic Documents that are required to be performed by the Administrator under the
Administration Agreement, the Indenture Trustee under the Indenture or the
Seller under the Mortgage Loan Purchase Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it or duties imposed by this Trust Agreement, or
to institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
Section 6.02. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish
to the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of Delaware. It has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Trust Agreement.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Trust Agreement, and this Trust Agreement
will be executed and delivered by one of its officers who is duly authorized to
execute and deliver this Trust Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Trust
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or bylaws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
(d) This Trust Agreement, assuming due authorization, execution and
delivery by the Owner Trustee and the Depositor, constitutes a valid, legal and
binding obligation of the Owner Trustee, enforceable against it in accordance
with the terms hereof subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditors' rights generally and to general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at law;
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(e) The Owner Trustee is not in default with respect to any order or
decree of any court or any order, regulation or demand of any Federal, state,
municipal or governmental agency, which default might have consequences that
would materially and adversely affect the condition (financial or other) or
operations of the Owner Trustee or its properties or might have consequences
that would materially adversely affect its performance hereunder;
(f) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement;
Section 6.04. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys , custodians or nominees (including persons acting under a power of
attorney) if such persons have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.
Section 6.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Article VII, in accepting the trusts hereby created ______________________
acts solely as Owner Trustee hereunder and not in its individual capacity, and
all Persons having any claim against the Owner Trustee by reason of the
transactions contemplated by this Trust Agreement or any Basic Document shall
look only to the Owner Trust Estate for payment or satisfaction thereof.
Section 6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED
DOCUMENTS. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the
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Notes, or of any Related Documents. The Owner Trustee shall at no time have any
responsibility or liability with respect to the sufficiency of the Owner Trust
Estate or its ability to generate the payments to be distributed to
Certificateholders under this Trust Agreement or the Noteholders under the
Indenture, including, the compliance by the Depositor or the Seller with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation, or any action
of the Administrator, the Certificate Paying Agent, the Certificate Registrar or
the Indenture Trustee taken in the name of the Owner Trustee.
Section 6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND NOTES. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Depositor, the Seller, the
Certificate Paying Agent, the Certificate Registrar, the Administrator and the
Indenture Trustee in transactions with the same rights as it would have if it
were not Owner Trustee.
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ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
Section 7.01. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee
shall receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed for its reasonable expenses hereunder and under the Basic Documents,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents pursuant to Section 3.08 of the
Servicing Agreement.
Section 7.02. INDEMNIFICATION. The Holder of the Designated Certificate
shall indemnify, defend and hold harmless the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, provided, that:
(i) the Holder of the Designated Certificate shall not
be liable for or required to indemnify an Indemnified Party from and
against Expenses arising or resulting from the Owner Trustee's willful
misconduct, negligence or bad faith or as a result of any inaccuracy of
a representation or warranty contained in Section 6.03 expressly made
by the Owner Trustee;
(ii) with respect to any such claim, the Indemnified
Party shall have given the Holder of the Designated Certificate written
notice thereof promptly after the Indemnified Party shall have actual
knowledge thereof;
(iii) while maintaining control over its own defense, the
Holder of the Designated Certificate shall consult with the Indemnified
Party in preparing such defense; and
(iv) notwithstanding anything in this Agreement to the
contrary, the Holder of the Designated Certificate shall not be liable
for settlement of any claim by an Indemnified Party entered into
without the prior consent of the Holder of the Designated Certificate
which consent shall not be unreasonably withheld.
The indemnities contained in this Section shall survive the resignation
or termination of the Owner Trustee or the termination of this Trust Agreement.
In the event of any claim, action or proceeding for which indemnity will be
sought pursuant to this Section, the Owner Trustee's choice of legal counsel, if
other than the legal counsel retained by the Owner Trustee in connection with
the execution and delivery of this Trust Agreement, shall be subject to the
approval of the Holder of the Designated Certificate, which approval shall not
be unreasonably withheld.
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In addition, upon written notice to the Owner Trustee and with the consent of
the Owner Trustee which consent shall not be unreasonably withheld, the Holder
of the Designated Certificate has the right to assume the defense of any claim,
action or proceeding against the Owner Trustee.
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ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
Section 8.01. TERMINATION OF TRUST AGREEMENT. (a) This Trust Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in ____________, (iii) at the time provided in Section 8.02 or (iv) purchase by
the Servicer of all Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement. The bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder, other than the Holder of the Designated Certificate as
described in Section 8.02, shall not (x) operate to terminate this Trust
Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.
(b) Except as provided in Section 8.01(a), none of the Depositor, the
Holder of the Designated Certificate or any other Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Credit Enhancer mailed within five Business Days of receipt of notice of
such termination from the Administrator, stating (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Certificate
Paying Agent therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Payment Agent therein specified.
The Certificate Paying Agent shall give such notice to the Owner Trustee and the
Certificate Registrar at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Certificate Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.01.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Certificate Paying Agent shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.03 of the Indenture, all the
Certificates shall not have been surrendered for cancellation, the Certificate
Paying Agent may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certificates, and the cost thereof shall be paid out of the
funds and other assets that shall remain subject to this Trust Agreement. Any
funds remaining in the Certificate Distribution Account
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after exhaustion of such remedies shall be distributed by the Certificate Paying
Agent to the Holder of the Designated Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be cancelled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810(c) of the Business Trust Statute.
Section 8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE
DESIGNATED CERTIFICATE. In the event that an Insolvency Event shall occur with
respect to the Holder of the Designated Certificate, this Trust Agreement and
the Trust shall be terminated in accordance with Section 8.01, 90 days after the
date of such Insolvency Event, unless, before the end of such 90- day period,
the Owner Trustee shall have received written instructions from (a) if no Credit
Enhancer Default shall have occurred and be continuing, Holders of Certificates
(other than the Holder of the Designated Certificate) representing more than 50%
of the Principal Balance of the Certificates (not including the Principal
Balance of the Designated Certificate), to the effect that such Holders
disapprove of the termination of the Trust or (b) if a Credit Enhancer Default
shall have occurred and be continuing, (i) each of the Holders of Certificates
and (ii) each of the Holders of the Notes, to the effect that such Holders
disapprove of the termination of the Trust. Promptly after the occurrence of any
Insolvency Event with respect to the Holder of the Designated Certificate (A)
the Holder of the Designated Certificate shall give the Indenture Trustee, the
Credit Enhancer and the Owner Trustee written notice of such Insolvency Event,
(B) the Owner Trustee shall, upon the receipt of such written notice from the
Holder of the Designated Certificate, give prompt written notice to the
Certificateholders of the occurrence of such event and (C) the Indenture Trustee
shall give prompt written notice of such event to the Noteholders; provided,
however, that any failure to give a notice required by this sentence shall not
prevent or delay, in any manner, a termination of the Trust pursuant to the
first sentence of this Section 8.02. Upon a termination pursuant to this
Section, the Owner Trustee shall direct the Indenture Trustee promptly to sell
the assets of the Trust (other than the Payment Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of any such
sale of the assets of the Trust shall be deposited to the Payment Account for
distribution in accordance with Section 5.04(b) of the Indenture.
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ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner
Trustee shall at all times be a corporation satisfying the provisions of Section
3807(a) of the Business Trust Statute; authorized to exercise 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 authorities; and
having (or having a parent that has) a rating of at least Baa3 by [Moody's]. If
such corporation shall publish reports of condition at least annually pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Owner Trustee shall cease to be eligible in accordance with
the provisions of this Section 9.01, the Owner Trustee shall resign immediately
in the manner and with the effect specified in Section 9.02.
Section 9.02. REPLACEMENT OF OWNER TRUSTEE. The Owner Trustee may at
any time resign and be discharged from the trusts hereby created by giving 30
days prior written notice thereof to the Administrator, the Credit Enhancer and
the Depositor. Upon receiving such notice of resignation, the Administrator
shall promptly appoint a successor Owner Trustee with the consent of the Credit
Enhancer which will not be unreasonably withheld, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and to the successor Owner Trustee. If no successor Owner Trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Owner Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 9.01 and shall fail to resign after
written request therefor by the Administrator, or if at any time the Owner
Trustee shall be legally unable to act, or shall be adjudged bankrupt or
insolvent, or a receiver of the Owner Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Owner
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation, then the Administrator may remove the Owner
Trustee. If the Administrator shall remove the Owner Trustee under the authority
of the immediately preceding sentence, the Administrator shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
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Section 9.03. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Administrator and to its predecessor Owner Trustee an instrument accepting such
appointment under this Trust Agreement, and thereupon the resignation or removal
of the predecessor Owner Trustee shall become effective, and such successor
Owner Trustee, without any further act, deed or conveyance, shall become fully
vested with all the rights, powers, duties and obligations of its predecessor
under this Trust Agreement, with like effect as if originally named as Owner
Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Trust Agreement; and the Administrator and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Owner Trustee all such rights, powers, duties and
obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Noteholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Administrator and
the Owner Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the
Administrator and Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or as separate trustee or trustees, of all or any part of the Owner
Trust Estate, and to vest in such Person, in such capacity, such title to the
Trust or any part thereof and, subject to the other provisions of this Section,
such powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee
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under this Trust Agreement shall be required to meet the terms of eligibility as
a successor Owner Trustee pursuant to Section 9.01 and no notice of the
appointment of any co-trustee or separate trustee shall be required pursuant to
Section 9.03.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Administrator and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Trust
Agreement and the conditions of this Article. Each separate trustee and
co-trustee, upon its acceptance of the trusts conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Owner Trustee or separately, as may be provided therein,
subject to all the provisions of this Trust Agreement, specifically including
every provision of this Trust Agreement relating to the conduct of, affecting
the liability of, or affording protection to, the Owner Trustee. Each such
instrument shall be filed with the Owner Trustee and a copy thereof given to the
Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
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ARTICLE X
MISCELLANEOUS
Section 10.01. AMENDMENTS. (a) This Trust Agreement may be amended from
time to time by the parties hereto as specified in this Section [, provided that
any amendment, except as provided in subparagraph (e) below, be accompanied by
an Opinion of Counsel to the Owner Trustee to the effect that such amendment (i)
complies with the provisions of this Section and (ii) will not cause the Trust
to be subject to an entity level tax].
(b) If the purpose of the amendment (as detailed therein) is to correct
any mistake, eliminate any inconsistency, cure any ambiguity or deal with any
matter not covered (i.e. to give effect to the intent of the parties and, if
applicable, to the expectations of the Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(A) a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to any Security and (B) an
Opinion of Counsel to the effect that such action will not adversely affect in
any material respect the interests of any Holders, and the consent of the Credit
Enhancer shall be obtained.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding (i.e.
technical in nature), it shall not be necessary to obtain the consent of any
Holder, but the Owner Trustee shall be furnished with an Opinion of Counsel that
such amendment is necessary or helpful to prevent the imposition of such taxes
and is not materially adverse to any Holder and the consent of the Credit
Enhancer shall be obtained.
(d) If the purpose of the amendment is to add or eliminate or change
any provision of the Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (A) an Opinion of Counsel to the effect that
such action will not adversely affect in any material respect the interests of
any Holders and (B) either (a) a letter from the Rating Agency that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any security or (b) the consent of Holders of Certificates
evidencing a majority of the Principal Balance of the Certificates and the
Indenture Trustee; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder and the Credit Enhancer, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all such Certificates then
outstanding.
(e) If the purpose of the amendment is to provide for the holding of
any of the Certificates in book-entry form, it shall require the consent of
Holders of all such Certificates then outstanding; provided, that the Opinion of
Counsel specified in subparagraph (a) above shall not be required.
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of any Holder, but the Owner Trustee shall be
furnished with (A) an Opinion of Counsel to the
30
<PAGE>
effect that such action will not adversely affect in any material respect the
interests of any Holders and (B) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security and the consent of the Credit Enhancer shall be
obtained.
(g) Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee, the
Credit Enhancer and each of the Rating Agencies. It shall not be necessary for
the consent of Certificateholders or the Indenture Trustee pursuant to this
Section 10.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Trust Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement
to which the Trust is a party, other than this Trust Agreement, the Owner
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel to the effect that such amendment is authorized or permitted by the
documents subject to such amendment and that all conditions precedent in the
Basic Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
Promptly after the execution of any amendment to the Certificate of
Trust, the Owner Trustee shall cause the filing of such amendment with the
Secretary of State of the State of Delaware.
Section 10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE. The
Certificateholders shall not have legal title to any part of the Owner Trust
Estate. The Certificateholders shall be entitled to receive distributions with
respect to their undivided beneficial interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title or interest of the Certificateholders to and in their ownership interest
in the Owner Trust Estate shall operate to terminate this Trust Agreement or the
trusts hereunder or entitle any transferee to an accounting or to the transfer
to it of legal title to any part of the Owner Trust Estate
Section 10.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section
2.07, the provisions of this Trust Agreement are solely for the benefit of the
Owner Trustee, the Depositor, the Holder of the Designated Certificate, the
Certificateholders, the Administrator, the Credit Enhancer and, to the extent
expressly provided herein, the Indenture Trustee and the Noteholders, and
nothing in this Trust Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Trust Agreement or any covenants, conditions or provisions contained herein.
Section 10.04. NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt , if
31
<PAGE>
to the Owner Trustee, addressed to the Corporate Trust Office; if to the
Depositor, addressed to PaineWebber Mortgage Acceptance Corporation IV, 20371
Irvine Avenue, Suite 200, Santa Ana Heights, California 92707; Attention:
_________________; if to the Credit Enhancer, addressed to ___________,
Attention: _________________, if to the Rating Agencies, addressed to
________________________ Attention: __________or, as to each party, at such
other address as shall be designated by such party in a written notice to each
other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust
shall also be delivered to the Depositor and the Administrator.
Section 10.05. SEVERABILITY. Any provision of this Trust Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 10.06. SEPARATE COUNTERPARTS. This Trust Agreement may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
Section 10.07. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Depositor, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns, all as herein
provided and the Credit Enhancer. Any request, notice, direction, consent,
waiver or other instrument or action by a Certificateholder shall bind the
successors and assigns of such Certificateholder.
[Section 10.08. NO PETITION. The Owner Trustee, by entering into this
Trust Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Notes, this Trust Agreement or any of the Basic Documents.]
Section 10.9. NO RECOURSE. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Holder of the Designated Certificate, the
Seller, the Administrator, the Owner Trustee, the Indenture Trustee or any
Affiliate thereof and no recourse may be had against such parties or their
assets, except
32
<PAGE>
as may be expressly set forth or contemplated in this Trust Agreement, the
Certificates or the Basic Documents.
Section 10.10. HEADINGS. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.12. INTEGRATION. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
33
<PAGE>
IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV
By:___________________________________________________
Name:
Title:
______________________, not in its individual capacity
but solely as Owner Trustee,
By:___________________________________________________
Name:
Title:
Acknowledged and Agreed:
___________________________________
__________, as Certificate
Registrar and Certificate
Paying Agent
By:___________________________________
Name:
Title:
34
<PAGE>
EXHIBIT A
[Form of Certificate]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING
ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR
COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH
PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR
LIABILITY.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFICATE REGISTRAR
SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN STATUS CERTIFYING AS TO THE
TRANSFEREE'S STATUS AS A U.S. PERSON OR CORPORATION UNDER U.S. LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE DEPOSITOR, THE SERVICER, THE INDENTURE TRUSTEE,
<PAGE>
OR THE OWNER TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY
PROVIDED IN THE TRUST AGREEMENT OR THE BASIC DOCUMENTS.
A-2
<PAGE>
Certificate No.
Original principal amount ("Denomination")
of this Certificate:
$_________
Aggregate Denominations of all
Certificates: $
Pass-Through Rate: Floating
Cut-Off Date:
First Payment Date
___________, ____
CUSIP NO. __________
PaineWebber Mortgage Acceptance
Corporation IV Trust Series 199_-_
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Collateral in
_________________________, a corporation sold by
PaineWebber Mortgage Acceptance
Corporation IV, AS DEPOSITOR
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby in the PaineWebber Mortgage Acceptance
Corporation IV Trust Series 199_- _ (the "Trust").
The Trust was created pursuant to an Trust Agreement dated as of
________________ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and ______________________, as owner trustee
(as amended and supplemented from time to time, the "Owner Trustee", which term
includes any successor entity under the Trust Agreement), a summary of certain
of the pertinent provisions of which is set forth hereinafter. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder is bound.
This Certificate is one of a duly authorized issue of Mortgage-Backed
Certificates, Series 199_-__ (herein called the "Certificates") issued under the
Trust Agreement to which reference is hereby made for a statement of the
respective rights thereunder of the Depositor, the Owner Trustee and the Holders
of the Certificates and the terms upon which the Certificates are executed and
delivered. All terms used in this Certificate which are defined in the Trust
Agreement shall have the meanings assigned to them in the Trust Agreement. The
Owner Trust
A-3
<PAGE>
Estate consists of the Mortgage Collateral in the PaineWebber Mortgage
Acceptance Corporation IV Trust Series 199_-____ and a Surety Note. The rights
of the Holders of the Certificates are subordinated to the rights of the Holders
of the Notes, as set forth in the [Indenture].
There will be distributed on the [twentieth] day of each month or, if
such [twentieth] day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in _____________, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest (obtained by dividing the Denomination
of this Certificate by the aggregate Denominations of all Certificates) in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Depositor is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Noteholders as described in the Indenture, dated as of _________,
____, between the Trust and __________________________________, as Indenture
Trustee (the "Indenture").
It is the intent of the Depositor and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Trust will be treated as a corporation. The
Depositor and each Certificateholder, by acceptance of a Certificate, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates for such tax purposes as an equity interest in a corporation.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust in the
Borough of Manhattan, The City of New York.
A-4
<PAGE>
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-5
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV
TRUST SERIES 19__-_
by _____________________, not in its
individual capacity but solely as Owner
Trustee
Dated:
___________________________
Authorized Signatory
Certificate of Authentication
This is one of the Certificates referred to in the within mentioned Trust
Agreement.
______________________________,
not in its individual capacity
but solely as Owner Trustee
By:______________________________
Authorized Signatory
or __________________________________,
as Authenticating Agent of the Trust
By:______________________________
Authorized Signatory
A-6
<PAGE>
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against such
parties or their assets, except as expressly set forth or contemplated herein or
in the Trust Agreement or the Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Collateral, all as more specifically set forth herein. A copy of the
Trust Agreement may be examined by any Certificateholder upon written request
during normal business hours at the principal office of the Depositor and at
such other places, if any, designated by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Credit Enhancer
and an Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and will not cause the Trust
to be subject to an entity level tax. If the purpose of the amendment is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered, it shall not be necessary to obtain the consent of
any Holder, but the Owner Trustee shall be furnished with a letter from the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Security. If the purpose of the
amendment is to prevent the imposition of any federal or state taxes at any time
that any Security is outstanding, it shall not be necessary to obtain the
consent of the any Holder, but the Owner Trustee shall be furnished with an
Opinion of Counsel that such amendment is necessary or helpful to prevent the
imposition of such taxes and is not materially adverse to any Holder. If the
purpose of the amendment is to add or eliminate or change any provision of the
Trust Agreement, other than as specified in the preceding two sentences, the
amendment shall require either (a) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security or (b) the consent of Holders of the Certificates
evidencing a majority of the Percentage Interests of the Certificates and the
Indenture Trustee; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in
any manner the amount of, or delay the time of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment without the
consent of the Holders of all such Certificates then outstanding.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the Borough of Manhattan, The City of New York, accompanied by a
written instrument of transfer in form satisfactory to the Certificate Registrar
duly executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is __________________________________.
A-7
<PAGE>
Except as provided in the Trust Agreement, the Certificates are
issuable only in minimum denominations of $10,000 and in integral multiples of
$10,000 in excess thereof, except for one Certificate that may not be in an
integral multiple of $10,000. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and the Trust Agreement, (ii) the Payment Date
in ____________, or (iii) upon the bankruptcy or insolvency of the Holder of the
Designated Certificate and the satisfaction of other conditions specified in
Section 8.02 of the Trust Agreement.
A-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
- --------------------------------------------------------------------------------
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
___________________________________________*/
Signature Guaranteed:
____________________________*/
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-9
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds to ______________________________________________
________________________________________________________________
for the account of ________________________________________, account number
______________, or, if mailed by check, to ______________.
Applicable statements should be mailed to__________________.
___________________________________
Signature of assignee or agent
(for authorization of wire
transfer only)
A-10
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
PaineWebber Mortgage Acceptance
Corporation IV Trust Series 199_-_
----------------------------------
THIS Certificate of Trust of PaineWebber Mortgage Acceptance
Corporation IV Trust Series 199_-_ (the "Trust"), dated ___________, ____, is
being duly executed and filed by ______________________, a Delaware banking
corporation, as trustee, to form a business trust under the Delaware Business
Trust Act (12 DEL. CODE, ss. 3801 ET SEQ.).
1. NAME. The name of the business trust formed hereby is
PaineWebber Mortgage Acceptance Corporation IV Trust Series 199_-_.
2. DELAWARE TRUSTEE. The name and business address of the
trustee of the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
----------------------,
not in its individual capacity but solely as
owner trustee under a Trust Agreement
dated as of _________, ____,
By:
________________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
______________________________________________
______________________________________________
______________________________________________
______________________________________________
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Depositor (as defined in the Trust Agreement (the
"Agreement"), dated as of _________, ____ between PaineWebber Mortgage
Acceptance Corporation IV, as Depositor and ______________________, as Owner
Trustee pursuant to Section 3.05 of the Agreement and
__________________________________ as indenture trustee, as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
C-1
<PAGE>
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Depositor
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly or
indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
Plan, or (2) the Buyer understands that registration of transfer of any Rule
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Depositor, to the effect that
the purchase and holding of the Rule 144A Securities by, on behalf of or with
"plan assets" of any Plan would not constitute or result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Depositor, the Servicer, the Indenture Trustee or the Trust to
any obligation or liability (including liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in the Agreement or any other
liability.]
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
C-2
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
_____________________________ _____________________________
Print Name of Seller Print Name of Buyer
By:__________________________ By:__________________________
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No.__________________________ No._______________________
Date:________________________ Date:_____________________
C-3
<PAGE>
ANNEX 1 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the Rule
144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts
or similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the District of
Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking
commission or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, A COPY OF WHICH IS ATTACHED HERETO.
- --------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.
C-4
<PAGE>
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and
examined by a State or Federal authority having supervision over
any such institutions or is a foreign savings and loan association
or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial
statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to
Section 15 of the _____________ Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary
and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State or territory or the District
of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any agency
or instrumentality of the State or its political subdivisions,
for the benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered
under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or
(d) of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment
Advisers Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or
trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions,
or any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee
benefit plans within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, but is not a trust fund
that includes as participants individual retirement accounts or
H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
C-5
<PAGE>
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
______________________________________________
Print Name of Buyer
By:___________________________________________
Name:
Title:
Date:_________________________________________
C-6
<PAGE>
ANNEX 2 TO EXHIBIT C
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President,
Chief Financial Officer or Senior Vice President of the Buyer or, if the Buyer
is a "qualified institutional buyer" as that term is defined in Rule 144A under
the Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than
the excluded securities referred to below) as of the end of
the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which
owned in the aggregate $______________ in securities (other
than the excluded securities referred to below) as of the end
of the Buyer's most recent fiscal year (such amount being
calculated in accordance with Rule 144A).
3. The term "FAMILY OF INVESTMENT COMPANIES" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "SECURITIES" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements
C-7
<PAGE>
made herein because one or more sales to the Buyer will be in reliance on Rule
144A. In addition, the Buyer will only purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
__________________________
Print Name of Buyer
By:__________________________
Name:_________________________
Title:________________________
IF AN ADVISER:
__________________________
Print Name of Buyer
Date:__________________________
C-8
<PAGE>
EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of _________, ____
(the "Trust Agreement"), between PaineWebber Mortgage Acceptance Corporation IV,
as depositor and ______________________, as Owner Trustee, in connection with
the acquisition of, transfer to or possession by the undersigned, whether as
beneficial owner (the "Beneficial Owner"), or nominee on behalf of the
Beneficial Owner of the Mortgage-Backed Certificates, Series 199_-__ (the
"Certificate"). Capitalized terms used but not defined in this certificate have
the respective meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III. In addition, each holder shall
submit with the Certificate an IRS Form W-9 relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a
non-resident alien for purposes of U.S.
income taxation;
2. My (The Beneficial Owner's) name and home
address are:
__________________________
__________________________
__________________________; and
3. My (The Beneficial Owner's) U.S. taxpayer
identification number (Social Security
Number) is __________________________.
B. Corporate, Partnership or Other Entity as Beneficial
Owner
1. __________________________(Name of the
Beneficial Owner) is not a foreign
corporation, foreign partnership, foreign
trust or foreign estate (as those terms are
defined in the Code and Treasury
Regulations;
2. The Beneficial Owner's office address and
place of incorporation (if applicable) is
C-9
<PAGE>
__________________________; and
3. The Beneficial Owner's U.S. employer
identification number is _________________.
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
___ an IRS Form W-9
___ a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
C-10
<PAGE>
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
__________________________
Name
__________________________
Title (if applicable)
__________________________
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
C-11
<PAGE>
EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: PaineWebber Mortgage Acceptance Corporation IV Trust Series 199_-_
Mortgage-Backed Certificates,
Series 199_-__, (The "Certificates")
------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (e) we are acquiring the
Certificates for investment for our own account and not with a view to any
distribution of such Certificates (but without prejudice to our right at all
times to sell or otherwise dispose of the Certificates in accordance with clause
(g) below), (f) we have not offered or sold any Certificates to, or solicited
offers to buy any Certificates from, any person, or otherwise approached or
negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, and (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (2) the purchaser or
transferee of such Certificate has executed and delivered to you a certificate
to substantially the same effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Trust Agreement.
Very truly yours,
F-1
<PAGE>
[TRANSFEREE]
By:__________________________
Authorized Officer
F-2
EXHIBIT 4.10
------------
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV TRUST SERIES 199_ - __
Issuer
AND
[Name of Indenture Trustee]
INDENTURE TRUSTEE
-----------------------------------------
INDENTURE
Dated as of _____ __, 199_
------------------------------------------
MORTGAGE-BACKED NOTES
-------------
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
Definitions
1.01. DEFINITIONS........................................................ 2
1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.................. 2
1.03. RULES OF CONSTRUCTION.............................................. 2
ARTICLE II
Original Issuance of Notes
2.01. FORM............................................................... 4
2.02. EXECUTION, AUTHENTICATION AND DELIVERY............................. 4
ARTICLE III
Covenants
3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE LOANS.......... 5
3.02. MAINTENANCE OF OFFICE OR AGENCY.................................... 5
3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT............... 5
3.04. EXISTENCE.......................................................... 6
3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.............. 6
3.06. PROTECTION OF TRUST ESTATE......................................... 8
3.07. OPINIONS AS TO TRUST ESTATE........................................ 9
3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT.................... 10
3.09. NEGATIVE COVENANTS................................................. 10
3.10. ANNUAL STATEMENT AS TO COMPLIANCE.................................. 11
3.11. RECORDING OF ASSIGNMENTS........................................... 11
3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE LOANS....... 11
3.13. AMENDMENTS TO SERVICING AGREEMENT.................................. 11
3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS HOLDER... 12
3.15. INVESTMENT COMPANY ACT............................................. 12
3.16. ISSUER MAY CONSOLIDATE, ETC........................................ 12
3.17. SUCCESSOR OR TRANSFEREE............................................ 14
3.18. NO OTHER BUSINESS.................................................. 14
3.19. NO BORROWING....................................................... 14
3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES.................. 14
3.21. CAPITAL EXPENDITURES............................................... 14
3.22. [Reserved]......................................................... 14
3.23. RESTRICTED PAYMENTS................................................ 14
3.24. NOTICE OF EVENTS OF DEFAULT........................................ 15
3.25. FURTHER INSTRUMENTS AND ACTS....................................... 15
i
<PAGE>
3.26. STATEMENTS TO NOTEHOLDERS.......................................... 15
3.27. DETERMINATION OF NOTE INTEREST RATE................................ 15
3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT................... 15
3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT.......................... 16
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. THE NOTES.......................................................... 17
4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF NOTES;
APPOINTMENT OF CERTIFICATE REGISTRAR............................... 17
4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES......................... 18
4.04. PERSONS DEEMED OWNERS.............................................. 19
4.05. CANCELLATION....................................................... 19
4.06. BOOK-ENTRY NOTES................................................... 19
4.07. NOTICES TO DEPOSITORY.............................................. 20
4.08. DEFINITIVE NOTES................................................... 20
4.09. TAX TREATMENT...................................................... 21
4.10. SATISFACTION AND DISCHARGE OF INDENTURE............................ 21
4.11. APPLICATION OF TRUST MONEY......................................... 22
4.12. SUBROGATION AND COOPERATION........................................ 22
4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT........................... 23
4.14. TEMPORARY NOTES.................................................... 23
ARTICLE V
DEFAULT AND REMEDIES
5.01. EVENTS OF DEFAULT.................................................. 24
5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT................. 24
5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY INDENTURE
TRUSTEE............................................................ 25
5.04. REMEDIES; PRIORITIES............................................... 27
5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE.......................... 28
5.06. LIMITATION OF SUITS................................................ 29
5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST........................................................... 29
5.08. RESTORATION OF RIGHTS AND REMEDIES................................. 29
5.09. RIGHTS AND REMEDIES CUMULATIVE..................................... 30
5.10. DELAY OR OMISSION NOT A WAIVER..................................... 30
5.11. CONTROL BY NOTEHOLDERS............................................. 30
5.12. WAIVER OF PAST DEFAULTS............................................ 31
5.13. UNDERTAKING FOR COSTS.............................................. 31
5.14. WAIVER OF STAY OR EXTENSION LAWS................................... 31
5.15. SALE OF TRUST ESTATE............................................... 31
ii
<PAGE>
5.16. ACTION ON NOTES.................................................... 33
ARTICLE VI
THE INDENTURE TRUSTEE
6.01. DUTIES OF INDENTURE TRUSTEE........................................ 35
6.02. RIGHTS OF INDENTURE TRUSTEE........................................ 36
6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE............................. 36
6.04. INDENTURE TRUSTEE'S DISCLAIMER..................................... 36
6.05. NOTICE OF EVENT OF DEFAULT......................................... 37
6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS............................ 37
6.07. COMPENSATION AND INDEMNITY......................................... 37
6.08. REPLACEMENT OF INDENTURE TRUSTEE................................... 37
6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER.............................. 38
6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE TRUSTEE.. 39
6.11. ELIGIBILITY; DISQUALIFICATION...................................... 40
6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER................... 40
6.13. REPRESENTATION AND WARRANTY........................................ 40
6.14. DIRECTIONS TO INDENTURE TRUSTEE.................................... 41
6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR............................ 41
6.16. INDENTURE TRUSTEE MAY OWN SECURITIES............................... 41
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES OF
NOTEHOLDERS........................................................ 42
7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS......... 42
7.03. REPORTS BY ISSUER.................................................. 42
7.04. REPORTS BY INDENTURE TRUSTEE....................................... 43
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
8.01. COLLECTION OF MONEY................................................ 44
8.02. TRUST ACCOUNTS..................................................... 44
8.03. OFFICER'S CERTIFICATE.............................................. 45
8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS....................... 45
8.05. RELEASE OF TRUST ESTATE............................................ 45
8.06. SURRENDER OF NOTES UPON FINAL PAYMENT.............................. 46
ARTICLE IX
SUPPLEMENTAL INDENTURES
iii
<PAGE>
9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS............. 47
9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS................ 48
9.03. EXECUTION OF SUPPLEMENTAL INDENTURES............................... 49
9.04. EFFECT OF SUPPLEMENTAL INDENTURE................................... 50
9.05. CONFORMITY WITH TRUST INDENTURE ACT................................ 50
9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES...................... 50
ARTICLE X
MISCELLANEOUS
10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC.......................... 51
10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE................... 52
10.03. ACTS OF NOTEHOLDERS................................................ 53
10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT ENHANCER AND
RATING AGENCIES.................................................... 54
10.05. NOTICES TO NOTEHOLDERS; WAIVER..................................... 54
10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS............................ 55
10.07. CONFLICT WITH TRUST INDENTURE ACT.................................. 55
10.08. EFFECT OF HEADINGS................................................. 55
10.09. SUCCESSORS AND ASSIGNS............................................. 55
10.10. SEPARABILITY....................................................... 55
10.11. BENEFITS OF INDENTURE.............................................. 56
10.12. LEGAL HOLIDAYS..................................................... 56
10.13. GOVERNING LAW...................................................... 56
10.14. COUNTERPARTS....................................................... 56
10.15. RECORDING OF INDENTURE............................................. 56
10.16. ISSUER OBLIGATION.................................................. 56
10.17. NO PETITION........................................................ 57
10.18. INSPECTION......................................................... 57
10.19. AUTHORITY OF THE ADMINISTRATOR..................................... 57
Signatures and Seals ...................................................... 81
Acknowledgments ........................................................... 82
iv
<PAGE>
EXHIBITS
Exhibit A - Form of Notes
Appendix A Definitions
v
<PAGE>
This Indenture, dated as of _______________, between
PaineWebber Mortgage Acceptance Corporation IV Trust Series 199_ -__, a Delaware
business trust, as Issuer (the "Issuer"), and ____________________________, a
____________________________, as Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
Series 199_-_ Mortgage-Backed Notes (the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created by (a) the Mortgage Loans and the proceeds thereof, (b) all funds on
deposit in the Funding Account, including all income from the investment and
reinvestment of funds therein, (c) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (d) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof; (e) the Policy and (f) all present
and future claims, demands, causes and chooses in action in respect of any or
all of the foregoing and all payments on or under, and all proceeds of every
kind and nature whatsoever in respect of, any or all of the foregoing and all
payments on or under, and all proceeds of every kind and nature whatsoever in
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
<PAGE>
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words
in the plural include the singular; and
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(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or statute as from
time to time amended, modified or supplemented and includes (in the
case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
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ARTICLE II
Original Issuance of Notes
Section 2.01. FORM. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$___________.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $100,000 and in integral multiples of
$1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
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ARTICLE III
Covenants
Section 3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE
LOANS. The Indenture Trustee shall establish and maintain with itself a trust
account (the "Payment Account") in which the Indenture Trustee shall, subject to
the terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with respect
to the Mortgage Loans. The Indenture Trustee shall make all payments of
principal of and interest on the Notes, subject to Section 3.03 as provided in
Section 3.05 herein from monies on deposit in the Payment Account.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
in the [Borough of Manhattan, The City of New York,] an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Indenture Trustee to serve as its agent for
the foregoing purposes. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Indenture Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.
Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the
Payment Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
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(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee may also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instrument or agreement included in the Trust Estate.
Section 3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit
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to the Funding Account pursuant to Section 8.02(b) and (y) any deposits to the
Payment Account pursuant to Section 8.02(c)(ii) and Section 8.02(c)(i)(2), the
Indenture Trustee shall pay to the Noteholders, the Certificate Paying Agent, on
behalf of the Certificateholders, and to other Persons the amounts to which they
are entitled as set forth below:
(i) To the Noteholders the sum of (a) one month's
interest at the Note Interest Rate on the Security Balances of Notes
immediately prior to such Payment Date and (b) any previously accrued
and unpaid interest for prior Payment Dates;
(ii) if such Payment Date is after the Funding Period,
to the Noteholders, as principal on the Notes, the applicable Security
Percentage of the Principal Collection Distribution Amount and if such
Payment Date is the first Payment Date following the end of the Funding
Period (if ending due to an Amortization Event) or the Payment Date on
which the Funding Period ends, to the Noteholders as principal on the
Notes the applicable Security Percentage of the amount deposited from
the Funding Account in respect of Security Principal Collections;
(iii) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Liquidation Loss Amounts for the
related Collection Period;
(iv) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Carryover Loss Amounts;
(v) to the Credit Enhancer, in the amount of the
premium for the Credit Enhancement Instrument and for any Additional
Credit Enhancement Instrument;
(vi) to the Credit Enhancer, to reimburse it for prior
draws made on the Credit Enhancement Instrument and on any Additional
Credit Enhancement Instrument (with interest thereon as provided in the
Insurance Agreement);
(vii) to the Noteholders, as principal on the Notes based
on the Security Balances from Security Interest Collections, up to the
Special Capital Distribution Amount for such Payment Date;
(viii) to the Credit Enhancer, any other amounts owed to
the Credit Enhancer pursuant to the Insurance Agreement;
(ix [Reserved];
(x) to reimburse the Administrator for expenditures
made on behalf of the Issuer with respect to the performance of its
duties under the Indenture; and
(xi) any remaining amount, to the Certificate Paying
Agent, on behalf of the Certificates.
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PROVIDED, HOWEVER, in the event that on a Payment Date a Credit Enhancer Default
shall have occurred and be continuing then the priorities of distributions
described above will be adjusted such that payments of the Certificate
Distribution Amount and all other amounts to be paid to the Certificate Paying
Agent will not be paid until the full amount of interest and principal in
accordance with clauses (i), (x) and (ii) through (iv) above that are due on the
Notes on such Payment Date have been paid and PROVIDED, FURTHER, that on the
Final Scheduled Payment Date or other final Payment Date, the amount to be paid
pursuant to clause (ii) above shall be equal to the Security Balances of the
Securities immediately prior to such Payment Date.
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of the
actual number of days in such Interest Period and a year assumed to consist of
360 days.
[Any installment of interest or principal, if any, payable on any Note
or Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates of an
aggregate initial Principal Balance of at least $1,000,000, be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; PROVIDED, HOWEVER, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.]
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the form of Note set
forth in Exhibit A. All principal payments on each Class of Notes shall be made
to the Noteholders of such Class entitled thereto in accordance with the
Percentage Interests represented by such Notes. Upon notice to the Indenture
Trustee by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date. Such notice shall
be mailed no later than five Business Days prior to such Final Scheduled Payment
Date or other final Payment Date and shall specify that payment of the principal
amount and any interest due with respect to such Note at the Final Scheduled
Payment Date or other final Payment Date will be payable only upon presentation
and surrender of such Note and shall specify the place where such Note may be
presented and surrendered for such final payment.
Section 3.06. PROTECTION OF TRUST ESTATE. (a) The Issuer will from
time to time execute and deliver all such supplements and amendments hereto and
all such financing statements,
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continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer to enforce any of the Mortgage
Loans; or
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 (or from the jurisdiction in which it
was held as described in the Opinion of Counsel delivered at the Closing Date
pursuant to Section 3.07(a), if no Opinion of Counsel has yet been delivered
pursuant to Section 3.07(b) unless the Trustee shall have first received an
Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.06.
Section 3.07. OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Owner Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest in the Mortgage Loans and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before ___________ in each calendar year, beginning in ____,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording, filing, re-recording and
refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
lien and security interest in the Mortgage Loans and reciting the details of
such action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such Opinion of Counsel
shall also describe the recording, filing, re-recording and refiling of this
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Indenture, any indentures supplemental hereto and any other requisite documents
and the execution and filing of any financing statements and continuation
statements that will, in the opinion of such counsel, be required to maintain
the lien and security interest in the Mortgage Loans until December 31 in the
following calendar year.
Section 3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT. (a) The
Issuer will punctually perform and observe all of its obligations and agreements
contained in this Indenture, the Basic Documents and in the instruments and
agreements included in the Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Servicing Agreement. The
Indenture Trustee, as pledgee of the Mortgage Loans, shall be able to exercise
the rights Issuer and the Mortgage Loans holder, to direct the actions of the
Master Servicer.
(d) The Issuer shall at all times retain an Administrator (approved by
the Credit Enhancer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.09. NEGATIVE COVENANTS. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
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permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance (other than the lien of this
Indenture) to be created on or extend to or otherwise arise upon or
burden the Trust Estate or any part thereof or any interest therein or
the proceeds thereof or (C) permit the lien of this Indenture not to
constitute a valid first priority security interest in the Trust
Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Company's or
the Issuer's interest in the Mortgage Loans, the Mortgage Loan Purchase
Agreement or in any Basic Document, if any such action would materially
and adversely affect the interests of the Noteholders.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year ____), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during
such year and of its performance under this Indenture has been made
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. RECORDING OF ASSIGNMENTS. The Company shall cause the to
exercise its right under the Mortgage Loan Purchase Agreement with respect to
the obligation of the Seller to submit or cause to be submitted for recording
all Assignments of Mortgages on or prior to ______________ with respect to the
Initial Loans and within 60 days following the related Deposit Date with respect
to any Additional Loans.
Section 3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in Section [____] and
Section [____] of the Mortgage Loan Purchase Agreement concerning the Mortgage
Loans and the right to enforce the remedies against the Seller provided in such
Section [____] or Section [____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
Section 3.13. AMENDMENTS TO SERVICING AGREEMENT. The Issuer covenants
with the Indenture Trustee that it will not enter into any amendment or
supplement to the Servicing Agreement in accordance with Section 8.01 of the
Servicing Agreement without the prior written consent of the Indenture Trustee.
The Indenture Trustee, as pledgee of the Mortgage Loans, may, in its discretion,
decline to enter into or consent to any such supplement or amendment if its own
rights, duties or immunities shall be adversely affected.
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Section 3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS
HOLDER. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Master Servicer, the Indenture Trustee
hereby acknowledges that the Master Servicer is acting as agent and bailee of
the Mortgage Loans holder in holding amounts on deposit in the Collection
Account pursuant to Section 3.02 of the Servicing Agreement, as well as its
agent and bailee in holding any Related Documents released to the Master
Servicer pursuant to Section 3.06(c) of the Servicing Agreement, and any other
items constituting a part of the Trust Estate which from time to time come into
the possession of the Master Servicer. It is intended that, by the Master
Servicer's acceptance of such agency pursuant to Section 3.02 of the Servicing
Agreement, the Trustee, as a secured party of the Mortgage Loans, will be deemed
to have possession of such Related Documents, such monies and such other items
for purposes of Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Master Servicer.
Section 3.15. INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the principal of and interest on all Notes and to
the Certificate Paying Agent, on behalf of the Certificateholders and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes [or the
Certificates] to be reduced, suspended or withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Credit Enhancement Instrument;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will
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not have any material adverse tax consequence to the Issuer, any
Noteholder or any Certificateholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or transferred
shall be subject and subordinate to the rights of Holders of the Notes,
(D) unless otherwise provided in such supplemental indenture, expressly
agrees to indemnify, defend and hold harmless the Issuer against and
from any loss, liability or expense arising under or related to this
Indenture and the Notes and (E) expressly agrees by means of such
supplemental indenture that such Person (or if a group of Persons, then
one specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
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(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such conveyance or transfer and such supplemental indenture comply
with this Article III and that all conditions precedent herein provided
for relating to such transaction have been complied with (including any
filing required by the Exchange Act).
Section 3.17. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.
Section 3.18. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
Section 3.21. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
Section 3.23. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made,
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(x) distributions to the Owner Trustee and the Certificateholders as
contemplated by, and to the extent funds are available for such purpose under
the Trust Agreement, (y) payments to the Master Servicer pursuant to the terms
of the Servicing Agreement and (z) payments to the Indenture Trustee pursuant to
Section 1(a)(ii) of the Administration Agreement. The Issuer will not, directly
or indirectly, make payments to or distributions from the Collection Account
except in accordance with this Indenture and the Basic Documents.
Section 3.24. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee the Credit Enhancer and the Rating Agencies prompt written
notice of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.26. STATEMENTS TO NOTEHOLDERS. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the Statement delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.27. DETERMINATION OF NOTE INTEREST RATE. On the second LIBOR
Business Day immediately preceding (i) the Closing Date in the case of the first
Interest Period and (ii) the first day of each succeeding Interest Period, the
Indenture Trustee shall determine LIBOR and the Note Interest Rate for such
Interest Period and shall inform the Issuer, the Master Servicer and the
Depositor at their respective facsimile numbers given to the Indenture Trustee
in writing thereof.
Section 3.28. PAYMENTS UNDER THE CREDIT ENHANCEMENT INSTRUMENT. (a) On
any Payment Date, other than a Dissolution Payment Date, the Indenture Trustee
on behalf of the Noteholders, and in its capacity as Certificate Paying Agent on
behalf of the Certificateholders shall make a draw on the Credit Enhancement
Instrument in an amount if any equal to the sum of (x) the amount by which the
interest accrued at the Note Interest Rate on the Security Balance of the Notes
exceeds the amount on deposit in the Payment Account available to be distributed
therefor on such Payment Date and (y) the Guaranteed Principal Payment Amount
(the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01 of the Servicing Agreement, the Notice for Payment (as
defined in the Credit Enhancement Instrument) in the amount of the Credit
Enhancement Draw Amount to the Credit Enhancer no later than 2:00 P.M., New York
City time, on the second Business Day prior to the applicable Payment Date. Upon
receipt of such Credit Enhancement Draw Amount in accordance with the terms of
the Credit Enhancement Instrument, the Indenture Trustee shall deposit such
Credit Enhancement Draw Amount in the Payment Account for distribution to
Holders (and the Certificate Paying Agent on behalf of the Certificates)
pursuant to Section 3.05.
In addition, a draw may be made under the Credit Enhancement Instrument
in respect of any Avoided Payment (as defined in and pursuant to the terms and
conditions of the Credit
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Enhancement Instrument) and the Indenture Trustee shall submit a Notice for
Payment with respect thereto together with the other documents required to be
delivered to the Credit Enhancer pursuant to the Credit Enhancement Instrument
in connection with a draw in respect of any Avoided Payment.
(c) In the event that any Additional Credit Enhancement Instruments are
issued pursuant to Section 4.01 and Section 2.02(B) of the Insurance Agreement,
the Indenture Trustee shall be authorized to make draws thereon subject to the
terms and conditions therein.
Section 3.29. REPLACEMENT CREDIT ENHANCEMENT INSTRUMENT. In the event
of a Credit Enhancer Default or if the claims paying ability rating of the
Credit Enhancer is downgraded and such downgrade results in a downgrading of the
then current rating of the Securities (in each case, a "Replacement Event"), the
Issuer, at its expense, in accordance with and upon satisfaction of the
conditions set forth in the Credit Enhancement Instrument, including, without
limitation, payment in full of all amounts owed to the Credit Enhancer, may, but
shall not be required to, substitute a new surety bond or surety bonds for the
existing Credit Enhancement Instrument or may arrange for any other form of
credit enhancement; PROVIDED, HOWEVER, that in each case the Notes shall be
rated no lower than the rating assigned by each Rating Agency to the Notes
immediately prior to such Replacement Event and the timing and mechanism for
drawing on such new credit enhancement shall be reasonably acceptable to the
Indenture Trustee and provided further that the premiums under the proposed
credit enhancement shall not exceed such premiums under the existing Credit
Enhancement Instrument. It shall be a condition to substitution of any new
credit enhancement that there be delivered to the Indenture Trustee (i) an
Opinion of Counsel, acceptable in form to the Indenture Trustee, from counsel to
the provider of such new credit enhancement with respect to the enforceability
thereof and such other matters as the Indenture Trustee may require and (ii) an
Opinion of Counsel to the effect that such substitution would not (a) adversely
affect in any material respect the tax status of the Notes or (b) cause the
Issuer to be subject to a tax at the entity level. Upon receipt of the items
referred to above and payment of all amounts owing to the Credit Enhancer and
the taking of physical possession of the new credit enhancement, the Indenture
Trustee shall, within five Business Days following receipt of such items and
such taking of physical possession, deliver the replaced Credit Enhancement
Instrument to the Credit Enhancer. In the event of any such replacement the
Issuer shall give written notice thereof to the Rating Agencies.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. THE NOTES. The Notes shall be registered in the name of a
nominee designated by the Depository. Beneficial Owners will hold interests in
the Notes through the book-entry facilities of the Depository in minimum initial
Principal Balances of $1,000 and integral multiples of $1,000 in excess thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicitations
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF CERTIFICATE REGISTRAR. The Issuer shall cause to be
kept at its Corporate Trust Office a Note Register in which, subject to such
reasonable regulations as it may prescribe, the Note Registrar shall provide for
the registration of Notes and of transfers and exchanges of Notes as herein
provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes in authorized initial Security Balances
evidencing the same aggregate Percentage Interests.
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Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Noteholder making the exchange is entitled to
receive. Each Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing with such signature guaranteed by a commercial bank or
trust company located or having a correspondent located in the city of New York.
Notes delivered upon any such transfer or exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall
be cancelled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints __________________________________ as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges
thereof pursuant to Section 3.05 of the Trust Agreement.
__________________________________ hereby accepts such appointment.
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen
Note when so due or payable without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original
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Note, the Issuer and the Indenture Trustee shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All cancelled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided however, that such
Issuer Request is timely and the Notes have not been previously disposed of by
the Indenture Trustee.
Section 4.06. BOOK-ENTRY NOTES. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the
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initial Depository, and no Beneficial Owner will receive a Definitive Note
representing such Beneficial Owner's interest in such Note, except as provided
in Section 4.08. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Beneficial Owners pursuant to Section
4.08:
(i) the provisions of this Section 4.06 shall be in
full force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Depository for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Owners of
Notes;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Owners of Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Notes to such
Depository Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the
Notes, the Depository shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from
Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE NOTES. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities with respect to the Notes and the
Administrator is unable to locate a qualified successor, (ii) the Administrator
at its option advises the Indenture Trustee in writing that it elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, Owners of Notes representing beneficial
interests aggregating at least a majority of the Security Balances of the Notes
advise the Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Beneficial
Owners, then the Depository shall notify all Beneficial Owners and the Indenture
Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Beneficial Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Notes
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representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Indenture Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Depository. None of the Issuer, the Note Registrar or the Indenture Trustee
shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.11) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final
Scheduled Payment Date within one year, or
c. have been called for early redemption
pursuant to Section 5.02.
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and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
and Certificates then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled
Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Credit Enhancer an Officer's Certificate, an Opinion of Counsel and
each meeting the applicable requirements of Section 10.01 each stating
that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with
and, if the Opinion of Counsel relates to a deposit made in connection
with Section 4.10(A)(2)b. above, such opinion shall further be to the
effect that such deposit will not have any material adverse tax
consequences to the Issuer, any Noteholders or any Certificateholders.
Section 4.11. APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. SUBROGATION AND COOPERATION. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Credit Enhancer makes
payments under the Credit Enhancement Instrument on account of principal of or
interest on the Notes, the Credit Enhancer will be fully subrogated to the
rights of such Holders to receive such principal and interest from the Issuer,
and (ii) the Credit Enhancer shall be paid such principal and interest but only
from the sources and in the manner provided herein and in the Insurance
Agreement for the payment of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Credit Enhancer for action to preserve or enforce the
Credit Enhancer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Notes, or under this Indenture in respect
to the Notes and all amounts payable under the Insurance Agreement
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
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(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments that have not
previously been recorded;
(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Credit Enhancer
hereunder.
Section 4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Administrator other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.05 and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
Section 4.14. TEMPORARY NOTES. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Notes, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Notes of authorized denominations and of like tenor and aggregate
principal amount. Until so exchanged, such temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as Definitive Notes.
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ARTICLE V
DEFAULT AND REMEDIES
Section 5.01. EVENTS OF DEFAULT. "Event of Default," wherever used
herein, shall have the meaning provided in Article I; provided, however, that no
Event of Default will occur under clause (i) or clause (ii) of the definition of
"Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Credit Enhancer makes payments sufficient
therefore under the Credit Enhancement Instrument.
The Issuer shall deliver to the Indenture Trustee and the Credit
Enhancer, within five days after learning of the occurrence of an Event of
Default, written notice in the form of an Officer's Certificate of any event
which with the giving of notice and the lapse of time would become an Event of
Default under clause (iii) of the definition of "Event of Default", its status
and what action the Issuer is taking or proposes to take with respect thereto.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing or if the Master Servicer shall
purchase all of the Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement, then and in every such case the Indenture Trustee or the Holders of
Notes representing not less than a majority of the Security Balances of all
Notes may declare the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the unpaid principal amount of such Class of
Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable. Unless the prior written
consent of the Credit Enhancer shall have been obtained by the Indenture
Trustee, the Payment Date upon which such accelerated payment is due and payable
shall not be a Payment Date under the Credit Enhancement Instrument and the
Indenture Trustee shall not be authorized under Section 3.29 to make a draw
therefor.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Holders of Notes representing a
majority of the Security Balances of all Notes, by written notice to the Issuer
and the Indenture Trustee, may waive the related Event of Default and rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
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(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issue shall, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of Notes and of the Credit
Enhancer, the whole amount then due and payable on the Notes for principal and
interest, with interest upon the overdue principal, and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 10.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Credit Enhancer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
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(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Indenture
Trustee and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
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(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee subject to the provisions
of Section 10.17 hereof may do one or more of the following (subject to Section
5.05):
(i) institute Proceedings in its own name and as
trustee of an express trust for the collection of all amounts then
payable on the Notes or under this Indenture with respect thereto,
whether by declaration or otherwise, and all amounts payable under the
Insurance Agreement, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Notes
and the Credit Enhancer; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Principal Balances of the Notes and the Credit Enhancer, which consent will not
be unreasonably withheld, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Notes for principal and interest and to reimburse the
Credit Enhancer for any amounts drawn under the Credit Enhancement Instrument
and any other amounts due the Credit Enhancer under the Insurance Agreement or
(C) the Indenture Trustee determines that the Mortgage Loans will not continue
to provide sufficient funds for the payment of principal of and interest on the
Notes as they would have become due if the Notes had not been declared due and
payable, and the Indenture Trustee obtains the consent of the Credit Enhancer,
which consent will not be unreasonably withheld, and of the Holders of a
majority of the aggregate Principal Balances of the Notes. In determining such
sufficiency or insufficiency with respect to clause (B) and (C), the Indenture
Trustee may, but need not, obtain and rely upon an opinion of an Independent
investment banking or accounting firm of national reputation as to the
feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose. Notwithstanding the foregoing, so long as an Event of
Servicer Termination has not occurred, any Sale of the Trust Estate shall be
made subject to the continued Servicing of the Mortgage Loans by the Master
Servicer as provided in the Servicing Agreement.
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(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section
6.07;
SECOND: to each Class of Noteholders for amounts due and
unpaid on the related Class Notes for interest and to each
Noteholder of such Class in each case, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Class of Notes for interest from
amounts available in the Trust Estate for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and
unpaid on the related Class of Notes for principal, from
amounts available in the Trust Estate for such Noteholders,
and to each Noteholder of such Class in each case ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Class of Notes for principal,
until the Security Balances of each Class of Notes is reduced
to zero;
FOURTH: to the Issuer for amounts required to be distributed
to the Certificateholders in respect of interest and
principal pursuant to the Trust Agreement;
FIFTH: To the payment of all amounts due and owing to the
Credit Enhancer under the Insurance Agreement;
SIXTH: to the Issuer for amounts due under Article VIII of
the Trust Agreement; and
SEVENTH: to the payment of the remainder, if any to the
Issuer or any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the payment date and the amount to be paid.
Section 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to take and maintain
possession of the Trust Estate. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes and other obligations of the Issuer
including payment to the Credit Enhancer, and the Indenture Trustee shall take
such desire into account when determining whether or not to take and maintain
possession of the Trust Estate. In determining whether to take and maintain
possession of the Trust Estate, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
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of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Trust Estate for such purpose.
Section 5.06. LIMITATION OF SUITS. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.17 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security
Balances of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture
Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Security Balances of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined
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adversely to the Indenture Trustee or to such Noteholder, then and in every such
case the Issuer, the Indenture Trustee and the Noteholders shall, subject to any
determination in such Proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Indenture Trustee and the Noteholders shall continue as though no such
Proceeding had been instituted.
Section 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. CONTROL BY NOTEHOLDERS. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by Holders of Notes representing not less than 100% of
the Security Balances of Notes;
(iii) if the conditions set forth in Section 5.05 have
been satisfied and the Indenture Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the Indenture
Trustee by Holders of Notes representing less than 100% of the Security
Balances of Notes to sell or liquidate the Trust Estate shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
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Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes or (b) in respect of a covenant or provision hereof which cannot be
modified or amended without the consent of the Holder of each Note or (c) the
waiver of which would materially and adversely affect the interests of the
Credit Enhancer or modify its obligation under the Credit Enhancement
Instrument. In the case of any such waiver, the Issuer, the Indenture Trustee
and the Holders of the Notes shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.15. SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale
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by public announcement made at the time and place of such Sale. The Indenture
Trustee hereby expressly waives its right to any amount fixed by law as
compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
(1) the Holders of all Notes and the Credit Enhancer
consent to or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes and the
Credit Enhancer in respect of amounts drawn under the Credit Enhancement
Instrument and any other amounts due the Credit Enhancer under the Insurance
Agreement, in full payment thereof in accordance with Section 5.02, on the
Payment Date next succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion,
that the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such determination, the Indenture Trustee may
rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05), and the Credit Enhancer consents to such
Sale, which consent will not be unreasonably withheld and the Holders
representing at least 66-2/3% of the Security Balances of the Notes consent to
such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Credit Enhancer have otherwise consented
or directed the Indenture Trustee, at any public Sale of all or any portion of
the Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust
Estate
(1) any Holder or Holders of Notes may bid for and with the
consent of the Credit Enhancer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the
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purchase price by crediting the gross Sale price against the sum of (A) the
amount which would be distributable to the Holders of the Notes and Holders of
Certificates and amounts owing to the Credit Enhancer as a result of such Sale
in accordance with Section 5.04(b) on the Payment Date next succeeding the date
of such Sale and (B) the expenses of the Sale and of any Proceedings in
connection therewith which are reimbursable to it, without being required to
produce the Notes in order to complete any such Sale or in order for the net
Sale price to be credited against such Notes, and any property so acquired by
the Indenture Trustee shall be held and dealt with by it in accordance with the
provisions of this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale thereof;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
Section 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer in its capacity as holder of the Mortgage
Loans, shall take all such lawful action as the Indenture Trustee may request to
cause the Issuer to compel or secure the performance and observance by the
Seller and the Master Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Mortgage Loan Purchase Agreement and
the Servicing Agreement, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement to the extent and
in the manner directed by the Indenture Trustee, as pledgee of the Mortgage
Loans, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee, as pledgee of the Mortgage Loans, subject to the rights of
the Credit Enhancer under the Servicing Agreement may, and at the direction
(which direction shall be in writing or by telephone
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(confirmed in writing promptly thereafter)) of the Holders of 66-2/3% of the
Security Balances of the Notes shall, exercise all rights, remedies, powers,
privileges and claims of the Issuer against the Seller or the Master Servicer
under or in connection with the Mortgage Loan Purchase Agreement and the
Servicing Agreement, including the right or power to take any action to compel
or secure performance or observance by the Seller or the Master Servicer, as the
case may be, of each of their obligations to the Issuer thereunder and to give
any consent, request, notice, direction, approval, extension or waiver under the
Mortgage Loan Purchase Agreement and the Servicing Agreement, as the case may
be, and any right of the Issuer to take such action shall not be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Section 5.11
or (B) from the Credit Enhancer, which it is entitled to give under any
of the Basic Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds
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to believe that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
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Section 6.05. NOTICE OF EVENT OF DEFAULT. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall give notice thereof to the Credit Enhancer.
The Trustee shall mail to each Noteholder notice of the Event of Default within
90 days after it occurs. Except in the case of an Event of Default in payment of
principal of or interest on any Note, the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
Section 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. COMPENSATION AND INDEMNITY. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder. The Issuer shall or shall cause the Administrator to
defend any such claim, and the Indenture Trustee may have separate counsel and
the Issuer shall or shall cause the Administrator to pay the fees and expenses
of such counsel. Neither the Issuer nor the Administrator need reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Credit Enhancer. The
Holders of a majority of Security Balances of the Notes may remove the
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Indenture Trustee by so notifying the Indenture Trustee and the Credit Enhancer
and may appoint a successor Indenture Trustee. The Issuer shall remove the
Indenture Trustee if:
(i)the Indenture Trustee fails to comply with Section 6.11;
(ii)the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii)a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv)the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
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In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located, the Indenture
Trustee shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust Estate, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Indenture Trustee may consider necessary or desirable. No co-trustee or
separate trustee hereunder shall be required to meet the terms of eligibility as
a successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
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its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least [$50,000,000] as
set forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3] or better by [Moody's]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. REPRESENTATION AND WARRANTY. The Indenture Trustee
hereby represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a corporation in good standing under the laws of the State
of ___________, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default
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under, the articles of incorporation or bylaws of the Indenture Trustee
or any agreement or other instrument to which the Indenture Trustee is
a party or by which it is bound
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee
is hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
[Section 6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [_________] of the Depositor's Restated Certificate of
Incorporation.]
Section 6.16. INDENTURE TRUSTEE MAY OWN SECURITIES. The Indenture
Trustee, in its individual or any other capacity may become the owner or pledgee
of Securities with the same rights it would have if it were not Indenture
Trustee.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Credit Enhancer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. REPORTS BY ISSUER. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days
after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations
prescribe) that the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission
in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to
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clauses (i) and (ii) of this Section 7.03(a) and by rules and
regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with January 1, 199_, the
Indenture Trustee shall mail to each Noteholder as required by TIA ss. 313(c)
and to the Credit Enhancer a brief report dated as of such date that complies
with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA ss.
313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. TRUST ACCOUNTS. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Noteholders and the Certificate
Paying Agent, on behalf of the Certificateholders and the Credit Enhancer, the
Payment Account as provided in Section 3.01 of this Indenture.
(b) All monies deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders and the Certificate Paying
Agent, on behalf of the Certificateholders and all investments made with such
monies including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in Eligible
Investments.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture Trustee to invest any funds in the
Funding Account in Eligible Investments maturing
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no later than the Business Day preceding each Payment Date and shall not be sold
or disposed of prior to the maturity. Unless otherwise instructed by the Master
Servicer, the Indenture Trustee shall invest all funds in the Payment Account in
its Corporate Trust Short Term Investment Fund so long as it is an Eligible
Investment. During the Funding Period, any amounts received by the Indenture
Trustee in respect of Net Principal Collections for deposit in the Funding
Account, together with any Eligible Investments in which such monies are or will
be invested or reinvested during the term of the Notes, shall be held by the
Indenture Trustee in the Funding Account as part of the Trust Estate, subject to
disbursement and withdrawal as herein provided: Amounts on deposit in the
Funding Account in respect of Net Principal Collections may be withdrawn on each
Deposit Date and (1) paid to the Issuer in payment for Additional Loans by the
deposit of such amount to the Collection Account and (2) at the end of the
Funding Period any amounts remaining in the Funding Account after the withdrawal
called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last day of
the Funding Period.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.
Section 8.03. OFFICER'S CERTIFICATE. The Indenture Trustee shall
receive at least [seven] days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Officer's Certificate, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with.
Section 8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate Paying Agent, on behalf of the Certificateholders and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. RELEASE OF TRUST ESTATE. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in Article VIII hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any monies.
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(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this Indenture
have been paid, and (iii) all sums due the Credit Enhancer have been paid,
release any remaining portion of the Trust Estate that secured the Notes from
the lien of this Indenture.
[(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of an request from the
Issuer accompanied by an [Officers' Certificate], [an Opinion of Counsel,] and a
letter from the Credit Enhancer, stating that the Credit Enhancer has no
objection to such request from the Issuer.]
Section 8.06. SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Noteholder's receipt of the final payment
thereon.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with the consent of the
Credit Enhancer and prior notice to the Rating Agencies and the Credit Enhancer,
the Issuer and the Indenture Trustee, when authorized by an Issuer Request, at
any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or
power herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture
(vi) to make any other provisions with respect to matters
or questions arising under this Indenture or in any supplemental
indenture; provided, that such action shall not materially and
adversely affect the interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Credit Enhancer and prior notice to the Rating Agencies
and the Credit Enhancer, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Credit Enhancer and with the consent of the Holders of not less than a
majority of the Security Balances of each Class of Notes affected thereby, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the rights of the
Holders of the Notes under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each Note
affected thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Security Balances of
the Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding" or modify or alter the exception
in the definition of the term "Holder";
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(iv) reduce the percentage of the Security Balances of
the Notes required to direct the Indenture Trustee to direct the Issuer
to sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each Note
affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to or
on a parity with the lien of this Indenture with respect to any part of
the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer to be subject to an entity level tax.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
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Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
MISCELLANEOUS
Section 10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Credit Enhancer (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required
to be Independent, the Statement required by the definition of the
term "Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (i) above, the Issuer
shall also deliver to the Indenture Trustee an Independent Certificate as to the
same matters, if the fair value to the Issuer of the securities to
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be so deposited and of all other such securities made the basis of any such
withdrawal or release since the commencement of the then-current fiscal year of
the Issuer, as set forth in the certificates delivered pursuant to clause (i)
above and this clause (ii), is 10% or more of the Security Balances of the
Notes, but such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set forth in
the related Officer's Certificate is less than $25,000 or less than one percent
of the Security Balances of the Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals 10% or more of the Security Balances of
the Notes, but such certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set forth in the related
Officer's Certificate is less than $25,000 or less than one percent of the then
Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other provisions of
this Section 10.01, (A) collect, sell or otherwise dispose of the Mortgage Loans
as and to the extent permitted or required by the Basic Documents or (B) make
cash payments out of the Payment Account as and to the extent permitted or
required by the Basic Documents [, so long as the Issuer shall deliver to the
Indenture Trustee every six months, commencing _____________, an Officer's
Certificate of the Issuer stating that all the dispositions of Collateral
described in clauses (A) or (B) above that occurred during the preceding six
calendar months were in the ordinary course of the Issuer's business and that
the proceeds thereof were applied in accordance with the Basic Documents].
Section 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate
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or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate of an
Authorized Officer or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Seller, the Issuer or the Administrator, stating that
the information with respect to such factual matters is in the possession of the
Seller, the Issuer or the Administrator, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
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Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, CREDIT
ENHANCER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Noteholders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office. The Indenture Trustee shall promptly transmit
any notice received by it from the Noteholders to the Issuer, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed
to: PaineWebber Mortgage Acceptance Corporation IV Trust Series 199_ -
______, in care of [Name of Owner Trustee] _________________,
__________, ______________, Attention of
_________________________________________ with a copy to the
Administrator at ________________ Attention: __________
__________________________, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer or the
Administrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
(iii) the Credit Enhancer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder to in writing and mailed, first-class postage pre-paid, or
personally delivered or telecopied to: [Name of Credit Enhancer],
________________, ________, _______________, Attention:
_________________, ___________________________, Telephone
______________. Telecopier ______________. The Credit Enhancer shall
promptly transmit any notice received by it from the Issuer, the
Indenture Trustee or the Noteholders to the Issuer or Indenture
Trustee, as the case may be.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007] and (ii) in
the case of [Standard & Poor's], at the following address: [Standard & Poor's
Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
Section 10.05. NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Person's as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the
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sufficiency of such notice with respect to other Noteholders, and any notice
that is mailed in the manner herein provided shall conclusively be presumed to
have been duly given regardless of whether such notice is in fact actually
received.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Administrator to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer shall furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee shall cause payments to be made
and notices to be given in accordance with such agreements.
Section 10.07. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
Section 10.09. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 10.10. SEPARABILITY. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
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Section 10.11. BENEFITS OF INDENTURE. The Credit Enhancer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, and the Noteholders, and any other party secured hereunder, and any
other Person with an ownership interest in any part of the Trust Estate, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 10.12. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.14. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.15. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.16. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
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Section 10.17. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Issuer, or join in any institution against the Depositor or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
Section 10.18. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 10.19. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
PaineWebber Mortgage Acceptance
Corporation IV Trust Series 199_ - _____,
as Issuer
By:__________________________________________
not in its individual capacity
but solely as Owner Trustee
By:__________________________________________
Name:
Title:
_____________________________________________
as Indenture Trustee, as Certificate Paying
Agent and as Note Registrar
By:__________________________________________
Name:____________________________________
Title:___________________________________
___________________________________
hereby accepts the appointment as
Certificate Paying Agent pursuant
to Section 3.03 hereof and as
Certificate Registrar pursuant to
Section 4.02 hereof.
__________________________________________
By:_______________________________________
Title:____________________________________
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at __________- _______, __________________ _____, that he is the
of the Owner Trustee, one of the corporations described in and which executed
the above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
_________________________________________
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared , to me
known, who being by me duly sworn, did depose and say, that he resides at , that
he is the ______________ of ________________, as Indenture Trustee, one of the
corporations described in and which executed the above instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like order.
_________________________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this ____ day of __________, before me personally appeared , to me
known, who being by me duly sworn, did depose and say, that he resides at , that
he is an ________________ of _______________, as Indenture Trustee, one of the
corporations described in and which executed the above instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like order.
_________________________________________
Notary Public
[NOTARIAL SEAL]
EXHIBIT 4.11
------------
================================================================================
[NAME OF SERVICER],
as Servicer,
and
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
as Company
----------------------
SERVICING AGREEMENT
Dated as of _______________
----------------------
Adjustable-Rate Mortgage Loans
PaineWebber Mortgage Acceptance Corporation IV Trust Series 19__-__
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
<S> <C>
Section 1.01. DEFINITIONS................................................................ 1
Section 1.02. OTHER DEFINITIONAL PROVISIONS.............................................. 2
Section 1.03. INTEREST CALCULATIONS...................................................... 2
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER...................... 3
Representations and Warranties of the Company.......................................................... 4
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES.............................. 4
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER............................................................... 6
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS............................... 7
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT.................................... 9
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES...................................................................................... 11
Section 3.05. MODIFICATION AGREEMENTS.................................................... 11
Section 3.06. ........................................................................... 12
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS.................................. 13
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE................................. 14
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER...................................................................................... 15
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE.......................................... 15
Section 3.11. ANNUAL SERVICING REPORT.................................................... 16
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE MORTGAGE LOANS.................................................................. 16
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES........................ 16
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED
PROPERTY...................................................................................... 17
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS............................ 17
</TABLE>
ARTICLE IV
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
Servicing Certificate
<S> <C>
Section 4.01. STATEMENTS TO SECURITYHOLDERS.............................................. 18
ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT....................................................... 20
Section 5.02. PAYMENT ACCOUNT............................................................ 20
ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER.................................................. 22
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER.................................................................. 22
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS......................... 22
Section 6.04. SERVICER NOT TO RESIGN..................................................... 23
Section 6.05. DELEGATION OF DUTIES....................................................... 23
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION............................................................ 24
ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT.......................................................... 26
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR......................... 28
Section 7.03. NOTIFICATION TO SECURITYHOLDERS............................................ 29
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT.................................................................. 30
Section 8.02. GOVERNING LAW.............................................................. 30
Section 8.03. NOTICES.................................................................... 30
Section 8.04. SEVERABILITY OF PROVISIONS................................................. 30
Section 8.05. THIRD-PARTY BENEFICIARIES.................................................. 30
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.06. COUNTERPARTS............................................................... 31
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS................................... 31
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS......................................................................... 31
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE............................ 31
[Section 8.10. AUTHORITY OF THE ADMINISTRATOR............................................. 32
EXHIBIT A - MORTGAGE LOAN SCHEDULE..................................................................... A-1
EXHIBIT B - POWER OF ATTORNEY.......................................................................... B-1
EXHIBIT C - CERTIFICATE PURSUANT TO SECTION 3.08....................................................... C-1
EXHIBIT D - FORM OF REQUEST FOR RELEASE................................................................ D-1
Schedule 1 - Mortgage Insurance Component Schedule..................................................... S-1
</TABLE>
iii
<PAGE>
This Servicing Agreement, dated as of _______________, between
[Name of Servicer], as Servicer (the "Servicer") and PaineWebber Mortgage
Acceptance Corporation IV, as Company (the "Company"),
W I T N E S S E T H T H A T:
------------------------------
WHEREAS, PaineWebber Mortgage Acceptance Corporation IV, will
create PaineWebber Mortgage Acceptance Corporation IV Trust Series 19__-__, an
owner trust (the "Issuer") under Delaware law, and will transfer the Mortgage
Loans and all of its rights under the Mortgage Loan Purchase Agreement to the
Issuer,;
WHEREAS, pursuant to the terms of a Trust Agreement dated as
of _______________ (the "Owner Trust Agreement") between the Company, as
depositor, and ______________________, as owner trustee (the "Owner Trustee"),
the Company will sell the Mortgage Collateral to Issuer in exchange for the cash
proceeds of the Securities;
WHEREAS, pursuant to the terms of the Trust Agreement between
the Depositor and the Owner Trustee, the Issuer will issue and transfer to or at
the direction of the Depositor, the Mortgage-Backed Certificates, Series 199_-__
(the "Certificates");
WHEREAS, pursuant to the terms of an Indenture dated as of
_______________ (the "Indenture") between the Issuer and the Indenture Trustee,
the Issuer will issue and transfer to or at the direction of the Purchaser the
Mortgage-Backed Notes, Series 199_-__ (the "Notes"), consisting of the Notes and
secured by the Mortgage Collateral;
WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Company will acquire the Initial Loans; and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
<PAGE>
Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All terms defined in
this Servicing Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. INTEREST CALCULATIONS. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made on a daily basis using a 365-day year. All calculations of
interest on the Securities shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
2
<PAGE>
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER.
The Servicer represents and warrants to Company, the Issuer and for the benefit
of the Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, [the date of the Servicing Agreement],
the Closing Date [and any Deposit Date], that:
(i) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
[_______] and has the corporate power to own its assets and to transact
the business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Servicing Agreement. When executed and delivered,
this Servicing Agreement will constitute the legal, valid and binding
obligation of the Servicer enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally and by the availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent
of any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement,
except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as
the case may be;
(iv) The execution and delivery of this Servicing
Agreement and the performance of the transactions contemplated hereby
by the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Servicer threatened, against the Servicer or
any of its properties or with respect to this Servicing Agreement or
the Notes or the Certificates which in the opinion of the Servicer has
a reasonable likelihood of resulting in a material adverse effect on
the transactions contemplated by this Servicing Agreement.
3
<PAGE>
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Servicer for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, the Closing Date and any Deposit Date,
that:
(i) The Company is a corporation in good standing under
the laws of the State of California;
(ii) The Company has full power, authority and legal
right to execute and deliver this Servicing Agreement and to perform
its obligations under this Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Servicing Agreement; and
(iii) The execution and delivery by the Company of this
Servicing Agreement and the performance by the Company of its
obligations under this Servicing Agreement will not violate any
provision of any law or regulation governing the Company or any order,
writ, judgment or decree of any court, arbitrator or governmental
authority or agency applicable to the Company or any of its assets.
Such execution, delivery, authentication and performance will not
require the authorization, consent or approval of, the giving of notice
to, the filing or registration with, or the taking of any other action
with respect to, any governmental authority or agency regulating the
activities of limited liability companies. Such execution, delivery,
authentication and performance will not conflict with, or result in a
breach or violation of, any mortgage, deed of trust, lease or other
agreement or instrument to which the Company is bound.
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES. The
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Mortgage Collateral, or the Credit Enhancer, shall enforce the
representations and warranties of the Seller pursuant to the Mortgage Loan
Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Indenture Trustee, the Credit Enhancer, the Company or any Custodian of a breach
of any of the representations and warranties made in the Mortgage Loan Purchase
Agreement, in respect of any Mortgage Loan which materially and adversely
affects the interests of the Securityholders or the Credit Enhancer, the party
discovering such breach shall give prompt written notice to the other parties
(any Custodian being so obligated under a Custodial Agreement). The Servicer
shall promptly notify the Seller of such breach and request that, pursuant to
the terms of the Mortgage Loan Purchase Agreement, the Seller either (i) cure
such breach in all material respects within 45 days (with respect to a breach of
the representations and warranties contained in Section 3.1(a) of the Mortgage
Loan Purchase Agreement) or 90 days (with respect to a breach of the
representations and warranties contained in Section 3.1(b) of the Mortgage Loan
Purchase Agreement) from the date the Seller was notified of such breach or (ii)
purchase such Mortgage Loan from the Company at the price and in the manner set
forth in Section 3.1(b) of the Mortgage Loan Purchase Agreement; PROVIDED that
the Seller shall, subject to the conditions set forth in the Mortgage Loan
Purchase Agreement, have the option to substitute an Eligible Substitute
Mortgage Loan or Loans for such Mortgage Loan. In the event that the Seller
elects
4
<PAGE>
to substitute one or more Eligible Substitute Mortgage Loans pursuant to Section
3.1(b) of the Mortgage Loan Purchase Agreement, the Seller shall deliver to the
Company with respect to such Eligible Substitute Mortgage Loans, the original
Mortgage Note, the Mortgage, and such other documents and agreements as are
required by the Mortgage Loan Purchase Agreement. No substitution will be made
in any calendar month after the Determination Date for such month. Payments due
with respect to Eligible Substitute Mortgage Loans in the month of substitution
shall not be transferred to the Company and will be retained by the Servicer and
remitted by the Servicer to the Seller on the next succeeding Payment Date
provided a payment has been received by the Company for such month in respect of
the Mortgage Loan to be removed. The Servicer shall amend or cause to be amended
the Mortgage Loan Schedule to reflect the removal of such Mortgage Loan and the
substitution of the Eligible Substitute Mortgage Loans and the Servicer shall
promptly deliver the amended Mortgage Loan Schedule to the Owner Trustee and
Indenture Trustee.
It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Company and the Indenture Trustee, as
pledgee of the Mortgage Collateral, against the Seller. In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the
Company shall assign to the Seller all of the right, title and interest in
respect of the Mortgage Loan Purchase Agreement applicable to such Mortgage
Loan. Upon receipt of the Repurchase Price, or upon completion of such
substitution, the applicable Custodian shall deliver the Mortgage Files to the
Servicer, together with all relevant endorsements and assignments.
5
<PAGE>
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER. (a) The Servicer shall service and
administer the Mortgage Loans in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related Mortgaged Properties are located and in a
manner consistent with the terms of this Servicing Agreement and which shall be
normal and usual in its general mortgage servicing activities and shall have
full power and authority, acting alone or through a subservicer, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable, it being understood, however, that the Servicer
shall at all times remain responsible to the Company, the Indenture Trustee, as
pledgee of the Mortgage Collateral, and the Securityholders for the performance
of its duties and obligations hereunder in accordance with the terms hereof and
the servicing standard set forth above. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Company and the Indenture Trustee, as pledgee of the Mortgage Collateral,
to execute and deliver, on behalf of itself, the Company, the Securityholders
and the Indenture Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. The Company, the Indenture Trustee and the
Custodian, as applicable, shall furnish the Servicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder. On the Closing Date, the
Company shall deliver to the Servicer a power of attorney substantially in the
form of Exhibit B hereto.
If the Mortgage relating to a Mortgage Loan did not have a lien senior
on the related Mortgaged Property as of the Cut-Off Date, then the Servicer, in
such capacity, may not consent to the placing of a lien senior to that of the
Mortgage on the related Mortgaged Property. If the Mortgage relating to a
Mortgage Loan had a lien senior to the Mortgage Loan on the related Mortgaged
Property as of the Cut-Off Date, then the Servicer, in such capacity, may
consent to the refinancing of such senior lien; PROVIDED that (i) the resulting
Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the
Combined Loan-to-Value Ratio prior to such refinancing and (ii) the interest
rate for the loan evidencing the refinanced senior lien on the date of such
refinancing is no higher than the interest rate on the loan evidencing the
existing senior lien immediately prior to the date of such refinancing.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Servicing Agreement) to the Company under this Servicing
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(b) The Servicer has entered into Initial Subservicing Agreements with
the Initial Subservicers for the servicing and administration of the Mortgage
Loans and may enter into additional Subservicing Agreements with Subservicers
for the servicing and administration of certain of the Mortgage Loans.
References in this Servicing Agreement to actions taken or to be taken by the
Servicer in servicing the Mortgage Loans include actions taken or to be taken
6
<PAGE>
by a Subservicer on behalf of the Servicer and any amount received by such
Subservicer in respect of a Mortgage Loan shall be deemed to have been received
by the Servicer whether or not actually received by the Servicer. Each
Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Servicing Agreement and as the Servicer and the
Subservicer have agreed. With the approval of the Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but such
Subservicers will remain obligated under the related Subservicing Agreements.
The Servicer and the Subservicer may enter into amendments to the related
Subservicing Agreements; PROVIDED, HOWEVER, that any such amendments shall be
consistent with and not violate the provisions of this Servicing Agreement. The
Servicer shall be entitled to terminate any Subservicing Agreement in accordance
with the terms and conditions thereof and without any limitation by virtue of
this Servicing Agreement; PROVIDED, HOWEVER, that in the event of termination of
any Subservicing Agreement by the Servicer or the Subservicer, the Servicer
shall either act as servicer of the related Mortgage Loan or enter into a
Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the related Subservicing Agreement. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
and nothing contained in this Servicing Agreement shall be deemed to limit or
modify such indemnification.
In the event that the rights, duties and obligations of the Servicer
are terminated hereunder, any successor to the Servicer in its sole discretion
may, to the extent permitted by applicable law, terminate the existing
Subservicing Agreement with any Subservicer in accordance with the terms of the
applicable Subservicing Agreement or assume the terminated Servicer's rights and
obligations under such subservicing arrangements which termination or assumption
will not violate the terms of such arrangements.
As part of its servicing activities hereunder, the Servicer, for the
benefit of the Company, shall use reasonable efforts to enforce the obligations
of each Subservicer under the related Subservicing Agreement, to the extent that
the non-performance of any such obligation would have material and adverse
effect on a Mortgage Loan. Such enforcement, including, without limitation, the
legal prosecution of claims, termination of Subservicing Agreements and the
pursuit of other appropriate remedies, shall be in such form and carried out to
such an extent and at such time as the Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mortgage Loans, and shall, to the extent such
procedures shall be consistent with this Servicing Agreement, follow such
collection procedures as shall be normal and usual in its general mortgage
servicing activities. Consistent with the foregoing, and without limiting the
generality of the foregoing, the Servicer may in its discretion (i) waive any
late payment charge, penalty interest or other fees which may be collected in
the ordinary course of servicing such Mortgage Loan and (ii) arrange with a
Mortgagor a schedule for the payment of principal and interest due and unpaid;
PROVIDED such arrangement is consistent with the Servicer's policies with
respect to
7
<PAGE>
home equity mortgage loans; PROVIDED, FURTHER, that notwithstanding such
arrangement such Mortgage Loans will be included in the information regarding
delinquent Mortgage Loans set forth in the Servicing Certificate. The Servicer
may also extend the Due Date for payment due on a Mortgage Loan, PROVIDED,
HOWEVER, that the Servicer shall first determine that any such waiver or
extension will not adversely affect the lien of the related Mortgage. Consistent
with the terms of this Servicing Agreement, the Servicer may also waive, modify
or vary any term of any Mortgage Loan or consent to the postponement of strict
compliance with any such term or in any manner grant indulgence to any Mortgagor
if in the Servicer's determination such waiver, modification, postponement or
indulgence is not materially adverse to the interests of the Securityholders or
the Credit Enhancer, PROVIDED, HOWEVER, that the Servicer may not modify or
permit any Subservicer to modify any Mortgage Loan (including without limitation
any modification that would change the Mortgage Rate, forgive the payment of any
principal or interest (unless in connection with the liquidation of the related
Mortgage Loan) or extend the final maturity date of such Mortgage Loan) unless
such Mortgage Loan is in default or, in the judgment of the Servicer, such
default is reasonably foreseeable.
(b) The Servicer shall establish an account (the "Collection Account")
in which the Servicer shall deposit or cause to be deposited any amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it subsequent to the Cut-Off Date as to any Initial Loan or the
related Deposit Date as to any Additional Loan (other than in respect of the
payments referred to in the following paragraph) within __ Business Day[s]
following receipt thereof (or otherwise on or prior to the Closing Date),
including the following payments and collections received or made by it (without
duplication):
(i) all payments of principal of or interest on the
Mortgage Loans received by the Servicer from the respective
Subservicer, net of any portion of the interest thereof retained by the
Subservicer as Subservicing Fees;
(ii) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Servicer pursuant to Section 3.15;
(iii) Net Liquidation Proceeds net of any related
Foreclosure Profit;
(iv) all proceeds of any Mortgage Loans repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, and all
Substitution Adjustment Amounts required to be deposited in connection
with the substitution of an Eligible Substitute Mortgage Loan pursuant
to the Mortgage Loan Purchase Agreement;
(v) insurance proceeds, other than Net Liquidation
Proceeds, resulting from any insurance policy maintained on a Mortgaged
Property; and
(vi) amounts required to be paid by the Servicer
pursuant to Section 8.08.
PROVIDED, HOWEVER, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account
8
<PAGE>
are exclusive, it being understood that, without limiting the generality of the
foregoing, the Servicer need not deposit in the Collection Account amounts
representing Foreclosure Profits, fees (including annual fees) or late charge
penalties, payable by Mortgagors, or amounts received by the Servicer for the
accounts of Mortgagors for application towards the payment of taxes, insurance
premiums, assessments and similar items. In the event any amount not required to
be deposited in the Collection Account is so deposited, the Servicer may at any
time withdraw such amount from the Collection Account, any provision herein to
the contrary notwithstanding. The Collection Account may contain funds that
belong to one or more trust funds created for the notes or certificates of other
series and may contain other funds respecting payments on mortgage loans
belonging to the Servicer or serviced or serviced by it on behalf of others.
Notwithstanding such commingling of funds, the Servicer shall keep records that
accurately reflect the funds on deposit in the Collection Account that have been
identified by it as being attributable to the Mortgage Loans and shall hold all
collections in the Collection Account to the extent they represent collections
on the Mortgage Loans for the benefit of the Company, the Indenture Trustee, the
Securityholders and the Credit Enhancer, as their interests may appear. The
Servicer shall remit all Foreclosure Profits to itself as additional servicing
compensation.
The Servicer may cause the institution maintaining the Collection
Account to invest any funds in the Collection Account in Eligible Investments
(including obligations of the Servicer or any of its Affiliates, if such
obligations otherwise qualify as Eligible Investments), which shall mature not
later than the Business Day next preceding the Payment Date and shall not be
sold or disposed of prior to its maturity. Except as provided above, all income
and gain realized from any such investment shall be for the benefit of the
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Servicer out of
its own funds immediately as realized.
(c) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts meeting the requirements of an Eligible
Account, and invested in Eligible Investments, unless, all such collections are
remitted on a daily basis to the Servicer for deposit into the Collection
Account.
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT. The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.02 that
are attributable to the Mortgage Loans for the following purposes:
(i) to deposit in the Distribution Account, on the
Business Day prior to each Payment Date, an amount equal to the
Security Collections required to be distributed on such Payment Date;
(ii) to the extent deposited to the Collection Account,
to reimburse itself or the related Subservicer for previously
unreimbursed expenses incurred in maintaining individual insurance
policies pursuant to Section 3.04, or Liquidation Expenses, paid
pursuant to Section 3.07 or otherwise reimbursable pursuant to the
terms of this Servicing Agreement (to the extent not payable pursuant
to Section 3.09), such
9
<PAGE>
withdrawal right being limited to amounts received on particular
Mortgage Loans (other than any Repurchase Price in respect thereof)
which represent late recoveries of the payments for which such advances
were made, or from related Liquidation Proceeds or the proceeds of the
purchase of such Mortgage Loan;
(iii) to pay to itself out of each payment received on
account of interest on a Mortgage Loan as contemplated by Section 3.09,
an amount equal to the related Servicing Fee (to the extent not
retained pursuant to Section 3.02), and to pay to any Subservicer any
Subservicing Fees not previously withheld by the Subservicer;
(iv) to the extent deposited in the Collection Account
to pay to itself as additional servicing compensation any interest or
investment income earned on funds deposited in the Collection Account
and Payment Account that it is entitled to withdraw pursuant to
Sections 3.02(b) and 5.01;
(v) to the extent deposited in the Collection Account,
to pay to itself as additional servicing compensation any Foreclosure
Profits;
(vi) to pay to itself or the Seller, with respect to any
Mortgage Loan or property acquired in respect thereof that has been
purchased or otherwise transferred to the Seller, the Servicer or other
entity, all amounts received thereon and not required to be distributed
to Securityholders as of the date on which the related Purchase Price
or Repurchase Price is determined;
(vii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.02;
(viii) to pay to the Seller the amount, if any, deposited
in the Collection Account by the Indenture Trustee upon release thereof
from the Funding Account representing payments for Additional Loans;
and
(ix) after the occurrence of an Amortization Event, to
pay to the Seller, the Excluded Amount.
Since, in connection with withdrawals pursuant to clauses (iii), (iv), (vi) and
(vii), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, the Servicer shall keep and maintain
separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose
of justifying any withdrawal from the Collection Account pursuant to such
clauses. Notwithstanding any other provision of this Servicing Agreement, the
Servicer shall be entitled to reimburse itself for any previously unreimbursed
expenses incurred pursuant to Section 3.07 or otherwise reimbursable pursuant to
the terms of this Servicing Agreement that the Servicer determines to be
otherwise nonrecoverable (except with respect to any Mortgage Loan as to which
the Repurchase Price has been paid), by withdrawal from the Collection Account
of amounts on deposit therein attributable to the Mortgage Loans on any Business
Day prior to the Payment Date succeeding the date of such determination.
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Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or related Subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount which is at least equal to the
amount necessary to avoid the application of any co-insurance clause contained
in the related hazard insurance policy. Amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or property thus acquired or amounts released
to the Mortgagor in accordance with the Servicer's normal servicing procedures)
shall be deposited in the Collection Account to the extent called for by Section
3.02. In cases in which any Mortgaged Property is located at any time during the
life of a Mortgage Loan in a federally designated flood area, the hazard
insurance to be maintained for the related Mortgage Loan shall include flood
insurance (to the extent available). All such flood insurance shall be in
amounts equal to the lesser of (i) the amount required to compensate for any
loss or damage to the Mortgaged Property on a replacement cost basis and (ii)
the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program (assuming that the area in
which such Mortgaged Property is located is participating in such program). The
Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired in respect of a
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities insuring against hazard losses on all of
the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.04, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence of
this Section 3.04 and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause. Any such
deposit by the Servicer shall be made on the last Business Day of the Collection
Period in the month in which payments under any such policy would have been
deposited in the Collection Account. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Company, the Issuer, the Indenture Trustee and
the Securityholders, claims under any such blanket policy.
Section 3.05. MODIFICATION AGREEMENTS. The Servicer or the related
Subservicer, as the case may be, shall be entitled to (A) execute assumption
agreements, substitution agreements, and instruments of satisfaction or
cancellation or of partial or full release or discharge, or any other document
contemplated by this Servicing Agreement and other comparable instruments with
respect to the Mortgage Loans and with respect to the Mortgaged Properties
subject to the Mortgages (and the Company shall promptly execute any such
documents on request of the Servicer) and (B) approve the granting of an
easement thereon in favor of another Person, any
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alteration or demolition of the related Mortgaged Property or other similar
matters, if it has determined, exercising its good faith business judgment in
the same manner as it would if it were the owner of the related Mortgage Loan,
that the security for, and the timely and full collectability of, such Mortgage
Loan would not be adversely affected thereby. A partial release pursuant to this
Section 3.05 shall be permitted only if the Combined Loan-to-Value Ratio for
such Mortgage Loan after such partial release does not exceed the Combined
Loan-to-Value Ratio for such Mortgage Loan as of the Cut-Off Date. Any fee
collected by the Servicer or the related Subservicer for processing such request
will be retained by the Servicer or such Subservicer as additional servicing
compensation.
Section 3.06. TRUST ESTATE; RELATED DOCUMENTS. (a) When required by the
provisions of this Servicing Agreement, the Company shall execute instruments to
release property from the terms of this Servicing Agreement, or convey the
Company's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Servicing Agreement. No party
relying upon an instrument executed by the Company as provided in this Article
III shall be bound to ascertain the Company's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) If from time to time the Servicer shall deliver to the Company or
the related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05, the
Company or the related Custodian shall check that each of such documents
purports to be an original executed copy (or a copy of the original executed
document if the original executed copy has been submitted for recording and has
not yet been returned) and, if so, shall file such documents, and upon receipt
of the original executed copy from the applicable recording office or receipt of
a copy thereof certified by the applicable recording office shall file such
originals or certified copies with the Related Documents. If any such documents
submitted by the Servicer do not meet the above qualifications, such documents
shall promptly be returned by the Company or the related Custodian to the
Servicer, with a direction to the Servicer to forward the correct documentation.
(c) Upon Company Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section 3.09 of this Servicing Agreement to the effect that
a Mortgage Loan has been the subject of a final payment or a prepayment in full
and the related Mortgage Loan has been terminated or that substantially all
Liquidation Proceeds which have been determined by the Servicer in its
reasonable judgment to be finally recoverable have been recovered, and upon
deposit to the Collection Account of such final monthly payment, prepayment in
full together with accrued and unpaid interest to the date of such payment with
respect to such Mortgage Loan or, if applicable, Liquidation Proceeds, the
Company shall promptly release the Related Documents to the Servicer, along with
such documents as the Servicer or the Mortgagor may request as contemplated by
the Servicing Agreement to evidence satisfaction and discharge of such Mortgage
Loan. If from time to time and as appropriate for the servicing or foreclosure
of any Mortgage Loan, the Servicer requests the Company or the related Custodian
to release the Related Documents and delivers to the Company or the related
Custodian a trust receipt reasonably satisfactory to the Company or the related
Custodian and signed by a Responsible Officer of the Servicer, the Company or
the related Custodian shall release the Related Documents to the Servicer. If
such Mortgage Loans shall be liquidated and the Company or the
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related Custodian receives a certificate from the Servicer as provided above,
then, upon request of the Company or the related Custodian shall release the
trust receipt to the Servicer.
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS. With respect
to such of the Mortgage Loans as come into and continue in default, the Servicer
will decide whether to foreclose upon the Mortgaged Properties securing such
Mortgage Loans or write off the unpaid principal balance of the Mortgage Loans
as bad debt; PROVIDED that if the Servicer has actual knowledge that any
Mortgaged Property is affected by hazardous or toxic wastes or substances and
that the acquisition of such Mortgaged Property would not be commercially
reasonable, then the Servicer will not cause the Company to acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such foreclosure or other conversion, the Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advancing of funds to correct such default) and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities; PROVIDED that the Servicer shall not be liable in
any respect hereunder if the Servicer is acting in connection with any such
foreclosure or attempted foreclosure which is not completed or other conversion
in a manner that is consistent with the provisions of this Servicing Agreement.
The foregoing is subject to the proviso that the Servicer shall not be required
to expend its own funds in connection with any foreclosure or attempted
foreclosure which is not completed or towards the correction of any default on a
related senior mortgage loan or restoration of any property unless it shall
determine that such expenditure will increase Net Liquidation Proceeds. In the
event of a determination by the Servicer that any such expenditure previously
made pursuant to this Section 3.07 will not be reimbursable from Net Liquidation
Proceeds, the Servicer shall be entitled to reimbursement of its funds so
expended pursuant to Section 3.03.
Notwithstanding any provision of this Servicing Agreement, a Mortgage
Loan may be deemed to be finally liquidated if substantially all amounts
expected by the Servicer to be received in connection with the related defaulted
Mortgage Loan have been received; PROVIDED, HOWEVER, any subsequent collections
with respect to any such Mortgage Loan shall be deposited to the Collection
Account. For purposes of determining the amount of any Liquidation Proceeds or
Insurance Proceeds, or other unscheduled collections, the Servicer may take into
account minimal amounts of additional receipts expected to be received or any
estimated additional liquidation expenses expected to be incurred in connection
with the related defaulted Mortgage Loan.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Company and the Indenture Trustee as their interests may
appear, or to their respective nominee on behalf of Securityholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Company until such time as such property shall be sold. Consistent
with the foregoing for purposes of all calculations hereunder, so long as such
Mortgaged Property shall be considered to be an outstanding Mortgage Loan it
shall be assumed that, notwithstanding that the indebtedness evidenced by the
related Mortgage Note shall have been discharged, such Mortgage Note in effect
at the time of any such acquisition of title before any adjustment thereto by
reason of any
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bankruptcy or similar proceeding or any moratorium or similar waiver or grace
period will remain in effect.
Any proceeds from foreclosure proceedings or the purchase or repurchase
of any Mortgage Loan pursuant to the terms of this Servicing Agreement, as well
as any recovery resulting from a collection of Liquidation Proceeds or Insurance
Proceeds, will be applied in the following order of priority: first, to
reimburse the Servicer or the related Subservicer in accordance with Section
3.07; second, to all Servicing Fees payable therefrom; third, to the extent of
accrued and unpaid interest on the related Mortgage Loan, at the Net Mortgage
Rate to the Due Date prior to the Payment Date on which such amounts are to be
deposited in the Payment Account; fourth, as a recovery of principal on the
Mortgage Loan; and fifth, to Foreclosure Profits.
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE. On or before
each Payment Date, the Servicer will notify the Indenture Trustee or the
relevant Custodian, with a copy to the Company, of the termination of or the
payment in full and the termination of any Mortgage Loan during the preceding
Collection Period, which notification shall be by a certification in
substantially the form attached hereto as Exhibit C (which certification shall
include a statement to the effect that all amounts received in connection with
such payment which are required to be deposited in the Collection Account
pursuant to Section 3.02 have been so deposited or credited) of a Servicing
Officer. Upon receipt of payment in full, the Servicer is authorized to execute,
pursuant to the authorization contained in Section 3.01, if the assignments of
Mortgage have been recorded as required under the Mortgage Loan Purchase
Agreement, an instrument of satisfaction regarding the related Mortgage, which
instrument of satisfaction shall be recorded by the Servicer if required by
applicable law and be delivered to the Person entitled thereto. It is understood
and agreed that any expenses incurred in connection with such instrument of
satisfaction or transfer shall be reimbursed from amounts deposited in the
Collection Account. From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, the Indenture Trustee or the relevant
Custodian shall, upon request of the Servicer and delivery to the Indenture
Trustee or relevant Custodian, with a copy to the Company, of a Request for
Release, in the form annexed hereto as Exhibit D, signed by a Servicing Officer,
release or cause to be released the related Mortgage File to the Servicer and
the Company and Indenture Trustee shall promptly execute such documents, in the
forms provided by the Servicer, as shall be necessary for the prosecution of any
such proceedings or the taking of other servicing actions. Such trust receipt
shall obligate the Servicer to return the Mortgage File to the Indenture Trustee
or the related Custodian (as specified in such receipt) when the need therefor
by the Servicer no longer exists unless the Mortgage Loan shall be liquidated,
in which case, upon receipt of a certificate of a Servicing Officer similar to
that hereinabove specified, the trust receipt shall be released to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions of the Mortgage Loan Purchase
Agreement, the Company shall, if so requested in writing by the Servicer,
promptly execute an appropriate assignment in the form provided by the Servicer
to assign such Mortgage Loan for the purpose of collection to the Servicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, such assignee for
collection will thereupon bring all required
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actions in its own name and otherwise enforce the terms of the Mortgage Loan and
deposit or credit the Net Liquidation Proceeds, exclusive of Foreclosure
Profits, received with respect thereto in the Collection Account. In the event
that all delinquent payments due under any such Mortgage Loan are paid by the
Mortgagor and any other defaults are cured then the assignee for collection
shall promptly reassign such Mortgage Loan to the Company and return all Related
Documents to the place where the related Mortgage File was being maintained.
In connection with the Company's obligation to cooperate as provided in
this Section 3.08 and all other provisions of this Servicing Agreement requiring
the Company to authorize or permit any actions to be taken with respect to the
Mortgage Loans, the Indenture Trustee, as pledgee of the Mortgage Collateral in
the Company, expressly agrees, on behalf of the Company, to take all such
actions on behalf of the Company and to promptly execute and return all
instruments reasonably required by the Servicer in connection therewith;
PROVIDED that if the Servicer shall request a signature of the Indenture
Trustee, on behalf of the Company, the Servicer will deliver to the Indenture
Trustee an Officer's Certificate stating that such signature is necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Servicing Agreement.
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. The Servicer shall be entitled to receive the Servicing Fee in
accordance with Section 3.03 as compensation for its services in connection with
servicing the Mortgage Loans. Moreover, additional servicing compensation in the
form of late payment charges and certain other receipts not required to be
deposited in the Collection Account as specified in Section 3.02 shall be
retained by the Servicer. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment of
all other fees and expenses not expressly stated hereunder to be for the account
of the Securityholders, including, without limitation, the fees and expenses of
the Administrator, Owner Trustee, Indenture Trustee and any Custodian) and shall
not be entitled to reimbursement therefor except as specifically provided
herein.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. (a) The Servicer will
deliver to the Company, the Issuer and the Indenture Trustee, with a copy to the
Credit Enhancer, on or before ________ of each year, beginning ________, ____,
an Officer's Certificate stating that (i) a review of the activities of the
Servicer during the preceding fiscal year and of its performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its material obligations under this Servicing Agreement in all
material respects throughout such fiscal year, or, if there has been a material
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof and (iii) to the best of
such officer's knowledge, based on consultation with counsel, any continuation
Uniform Commercial Code financing statement or other Uniform Commercial Code
financing statement during the preceding fiscal year which the Servicer
determined was necessary to be filed was filed in order to continue protection
of the interest of the Company in the Mortgage Loans. In addition, the Servicer
shall deliver or cause each Subservicer to deliver to the Indenture Trustee, the
Company, the Issuer, the Depositor and the Credit Enhancer a copy of each
certification, accountant's report or other document upon which the foregoing
Officer's Certificate is based with respect to such Subservicer's performance.
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(b) The Servicer shall deliver to the Company, the Issuer and the
Indenture Trustee, with a copy to the Credit Enhancer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Servicer of Default.
Section 3.11. ANNUAL SERVICING REPORT. On or before ________ of each
year, beginning ________, ____, the Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Company, the Issuer,
the Indenture Trustee, the Depositor, the Credit Enhancer and each Rating Agency
to the effect that such firm has examined certain documents and records relating
to the servicing of mortgage loans by the Servicer during the most recent
calendar year then ended under servicing agreements (including this Servicing
Agreement) substantially similar to this Servicing Agreement and that such
examination, which has been conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Servicing Agreement which, in the
opinion of such firm, are material, except for such items of noncompliance as
shall be set forth in such report. In rendering such statement, such firm may
rely, as to matters relating to direct servicing of mortgage loans by
Subservicers, upon comparable statements for examinations conducted
substantially in the manner described above (rendered within one year of such
statement) of independent public accountants with respect to the related
Subservicer. For purposes of such statement, such firm may conclusively assume
that all servicing agreements among the Company and the Servicer relating to
home equity mortgage loans are substantially similar one to another except for
any such servicing agreement which, by its terms, specifically states otherwise.
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. Whenever required by statute or regulation, the Servicer
shall provide to the Credit Enhancer, any Securityholder upon reasonable request
(or a regulator for a Securityholder) or the Indenture Trustee, reasonable
access to the documentation regarding the Mortgage Loans such access being
afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer. Nothing in this Section 3.12
shall derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Mortgagors and the failure
of the Servicer to provide access as provided in this Section 3.12 as a result
of such obligation shall not constitute a breach of this Section 3.12.
Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall be at least equal to the coverage that would be required by FNMA or
FHLMC, whichever is greater, for Persons performing servicing for mortgage loans
purchased by such entity.
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Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any mortgaged property for each year beginning in ____, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) on behalf of the
Company, acquires an interest in any Mortgaged Property through foreclosure or
other comparable conversion in full or partial satisfaction of a Mortgage Loan,
or (ii) knows or has reason to know that any Mortgaged Property has been
abandoned. The reports from the Servicer or Subservicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Section 6050J
and Section 6050H (reports relating to mortgage interest received) of the Code.
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS.
Notwithstanding any provision in Section 3.07 to the contrary, the Servicer may
repurchase any Mortgage Loan delinquent in payment for a period of 60 days or
longer for a price equal to the Repurchase Price.
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ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS. (a) With respect to each
Payment Date, the Servicer shall forward to the Indenture Trustee and the
Indenture Trustee pursuant to Section 3.26 of the Indenture shall forward or
cause to be forwarded by mail to each Certificateholder, Noteholder, the Credit
Enhancer, the Depositor, the Owner Trustee, the Certificate Paying Agent and
each Rating Agency, a statement setting forth the following information as to
the Notes and Certificates, to the extent applicable:
(i) the aggregate amount of (a) Security Interest
Collections with respect to the Notes and the Certificates, (b)
aggregate Security Principal Collections with respect to the Notes and
the Certificates and (c) Security Collections for the related
Collection Period with respect to the Notes and the Certificates;
(ii) the amount of such distribution to the
Securityholders of the Notes and the Certificates applied to reduce the
principal balance thereof and separately stating the portion thereof in
respect of the Accelerated Principal Distribution Amount and the amount
to be deposited in the Funding Account on such Payment Date;
(iii) the amount of such distribution to the
Securityholders of the Notes and the Certificates allocable to interest
and separately stating the portion thereof in respect of overdue
accrued interest;
(iv) the Credit Enhancement Draw Amount, if any, for such
Payment Date and the aggregate amount of prior draws thereunder not yet
reimbursed;
(v) the aggregate Principal Balance of (a) the ________
Loans, (b) the ______ Loans, (c) the _________ Loans, as of the end of
the preceding Collection Period and (d) all of the Mortgage Loans;
(vi) the number and aggregate Principal Balances of
Mortgage Loans (a) as to which the Minimum Monthly Payment is
delinquent for 30-59 days, 60-89 days, 90- 179 days and 180 or more
days, respectively and (b) that have become REO, in each case as of the
end of the preceding Collection Period; PROVIDED, HOWEVER, that such
information will not be provided on the statements relating to the
first Payment Date;
(vii) the Weighted Average Net Mortgage Rate for the
related Collection Period and the Weighted Average Net Mortgage Rate
for (a) the ________ Loans, (b) the _______Loans and (c) the _________
Loans for the related Collection Period;
(viii) the Special Capital Distribution Amount and the
Required Special Capital Distribution Amount, in each case as the end
of the related Collection Period; and
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(ix) the aggregate amount of Additional Loans acquired
during the previous Collection Period with amounts in respect of Net
Principal Collections from the Funding Account;
(x) the aggregate Liquidation Loss Amounts with respect
to the related Collection Period, the amount of any remaining Carryover
Loss Amount with respect to the Notes and Certificates, respectively,
and the aggregate of the Liquidation Loss Amounts from all Collection
Periods to date expressed as a percentage of the sum of (a) the Cut-Off
Date Pool Balance and (b) the amount by which the Pool Balance as of
the latest date that the Additional Loans have been transferred to the
Company exceeds the Cut-Off Date Pool Balance;
(xi) any unpaid interest on the Notes and Certificates,
respectively, after such Distribution Date;
(xii) the aggregate Principal Balance of each Class of
Notes and of the Certificates after giving effect to the distribution
of principal on such Payment Date;
(xiii) the respective Security Percentage applicable to the
Notes and Certificates, after application of payments made on such
Payment Date; and
(xiv) the amount distributed pursuant to Section
3.05(a)(xi) of the Indenture on such Payment Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as an aggregate dollar amount per Note or
Certificate with a $1,000 denomination.
Prior to the close of business on the Business Day next succeeding each
Determination Date, the Servicer shall furnish a written statement to the
Company, the Owner Trustee, the Depositor, the Certificate Paying Agent and the
Indenture Trustee setting forth (i) all the foregoing information, (ii) the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account on the Business Day preceding the Payment
Date pursuant to Section 3.03 and (iii) the amounts (A) withdrawn from the
Payment Account and deposited to the Funding Account pursuant to Section 8.02(b)
of the Indenture and (B) withdrawn from the Funding Account and deposited to the
Collection Account pursuant to Section 8.02(c)(i) of the Indenture. The
determination by the Servicer of such amounts shall, in the absence of obvious
error, be presumptively deemed to be correct for all purposes hereunder and the
Owner Trustee and Indenture Trustee shall be protected in relying upon the same
without any independent check or verification. In addition, upon the Company's
written request, the Servicer shall promptly furnish information reasonably
requested by the Company that is reasonably available to the Servicer to enable
the Company to perform its federal and state income tax reporting obligations.
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ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT. The Servicer shall establish and
maintain a separate trust account (the "Distribution Account") titled
"PaineWebber Mortgage Acceptance Corporation IV Trust Series 199_-_, [for the
benefit of the Noteholders, the Certificateholders and the Credit Enhancer
pursuant to the Indenture, dated as of _______________, between PaineWebber
Mortgage Acceptance Corporation IV Trust Series 199_-_ and [Name of Indenture
Trustee]. The Distribution Account shall be an Eligible Account. On the Business
Day prior to each Payment Date, (i) amounts deposited into the Distribution
Account pursuant to Section 3.03(i) hereof will be distributed by the Servicer
in accordance with Section ____ of the [Trust] Agreement, and (ii) the portion
of such amounts then distributable with respect to the Mortgage Collateral shall
be deposited into the Payment Account. [The Servicer shall invest or cause the
institution maintaining the Distribution Account to invest the funds in the
Distribution Account in Eligible Investments designated in the name of the
[Servicer], which shall mature not later than the Business Day next preceding
the Payment Date next following the date of such investment (except that (i) any
investment in the institution with which the Distribution Account is maintained
may mature on such Payment Date and (ii) any other investment may mature on such
Payment Date if the Servicer shall advance funds on such Payment Date to the
Payment Account in the amount payable on such investment on such Payment Date,
pending receipt thereof to the extent necessary to make distributions on the
Securities) and shall not be sold or disposed of prior to maturity. All income
and gain realized from any such investment shall be for the benefit of the
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of any such investments shall be
deposited in the Distribution Account by the Servicer out of its own funds
immediately as realized.]
Section 5.02. PAYMENT ACCOUNT. The Indenture Trustee shall establish
and maintain a separate trust account (the "Payment Account") titled
"__________________________________, as Indenture Trustee, for the benefit of
the Noteholders, the Certificate Paying Agent and the Credit Enhancer pursuant
to the Indenture, dated as of _______________, between PaineWebber Mortgage
Acceptance Corporation IV Trust Series 199_-__ and
__________________________________". The Payment Account shall be an Eligible
Account. On each Payment Date, amounts on deposit in the Payment Account will be
distributed by the Indenture Trustee in accordance with Section 3.05 of the
Indenture. The Indenture Trustee shall, upon written request from the Servicer,
invest or cause the institution maintaining the Payment Account to invest the
funds in the Payment Account in Eligible Investments designated in the name of
the Indenture Trustee, which shall mature not later than the Business Day next
preceding the Payment Date next following the date of such investment (except
that (i) any investment in the institution with which the Payment Account is
maintained may mature on such Payment Date and (ii) any other investment may
mature on such Payment Date if the Indenture Trustee shall advance funds on such
Payment Date to the Payment Account in the amount payable on such investment on
such Payment Date, pending receipt thereof to the extent necessary to make
distributions on the Securities) and shall not be sold or disposed of prior to
maturity. All income and gain realized from any such investment shall be for the
benefit of the Servicer and shall be subject to its withdrawal or order from
time to time. The amount of any
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losses incurred in respect of any such investments shall be deposited in the
Payment Account by the Servicer out of its own funds immediately as realized.
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ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER. Any corporation into which the Servicer may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer
shall be a party, or any corporation succeeding to the business of the Servicer,
shall be the successor of the Servicer, hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
The Servicer may assign its rights and delegate its duties and
obligations under this Servicing Agreement; PROVIDED that the Person accepting
such assignment or delegation shall be a Person which is qualified to service
mortgage loans on behalf of FNMA or FHLMC, is reasonably satisfactory to the
Indenture Trustee (as pledgee of the Mortgage Collateral), the Company and the
Credit Enhancer, is willing to service the Mortgage Loans and executes and
delivers to the Indenture Trustee and the Company an agreement, in form and
substance reasonably satisfactory to the Credit Enhancer, the Indenture Trustee
and the Company, which contains an assumption by such Person of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; PROVIDED
further that each Rating Agency's rating of the Securities in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) or considered to be below
investment grade without taking into account the Credit Enhancement Instrument.
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Company, the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, PROVIDED, HOWEVER, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder or by reason of its reckless disregard
of its obligations and duties hereunder. The Servicer and any director or
officer or employee or agent of the 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 hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Company
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Servicing Agreement or the Securities,
including any amount paid to the Owner Trustee or the Indenture Trustee pursuant
to Section 6.06(b), other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or
expense shall
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be otherwise reimbursable pursuant to this Servicing Agreement) and any loss,
liability or expense incurred by reason of its willful misfeasance, bad faith or
gross negligence in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder. The Servicer shall
not be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its duties to service the Mortgage Loans in
accordance with this Servicing Agreement, and which in its opinion may involve
it in any expense or liability; PROVIDED, HOWEVER, that the Servicer may in its
sole discretion undertake any such action which it may deem necessary or
desirable in respect of this Servicing Agreement, and the rights and duties of
the parties hereto and the interests of the Securityholders hereunder. In such
event, the reasonable legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Company, and
the Servicer shall be entitled to be reimbursed therefor. The Servicer's right
to indemnity or reimbursement pursuant to this Section 6.03 shall survive any
resignation or termination of the Servicer pursuant to Section 6.04 or 7.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination).
Section 6.04. SERVICER NOT TO RESIGN. Subject to the provisions of
Section 6.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer or its subsidiaries or Affiliates at the date of this
Servicing Agreement or (ii) upon satisfaction of the following conditions: (a)
the Servicer has proposed a successor servicer to the Company, the Administrator
and the Indenture Trustee in writing and such proposed successor servicer is
reasonably acceptable to the Company, the Administrator, the Indenture Trustee
and the Credit Enhancer; (b) each Rating Agency shall have delivered a letter to
the Company, the Credit Enhancer and the Indenture Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Securities; and (c) such
proposed successor servicer is reasonably acceptable to the Credit Enhancer, as
evidenced by a letter to the Company and the Indenture Trustee; PROVIDED,
HOWEVER, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Indenture Trustee, as
pledgee of the Mortgage Collateral, shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Mortgage Collateral, shall have designated a successor servicer in
accordance with Section 7.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 7.01
and 7.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Securityholder or the Credit Enhancer for any
amounts paid by the Servicer pursuant to any provision of this Servicing
Agreement. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Credit Enhancer.
Section 6.05. DELEGATION OF DUTIES. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates,
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who agrees to conduct such duties in accordance with standards comparable to
those with which the Servicer complies pursuant to Section 3.01. Such delegation
shall not relieve the Servicer of its liabilities and responsibilities with
respect to such duties and shall not constitute a resignation within the meaning
of Section 6.04.
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION. (a) The Servicer covenants and agrees to pay
to the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by each of them in the execution of
the trusts created under the Trust Agreement and the Indenture and in the
exercise and performance of any of the powers and duties under the Trust
Agreement or the Indenture, as the case may be, of the Owner Trustee, the
Indenture Trustee and any co-trustee, and the Servicer will pay or reimburse the
Indenture Trustee and any co-trustee upon request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee or any
co-trustee in accordance with any of the provisions of this Servicing Agreement
except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the
Owner Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as
the case may be, harmless against, any loss, liability or expense incurred
without negligence or willful misconduct on its part, arising out of, or in
connection with, the acceptance and administration of the Company and the assets
thereof, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture
Trustee or Owner Trustee, as the case may be, shall have given the
Servicer written notice thereof promptly after the Indenture Trustee or
Owner Trustee, as the case may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the
Company, the Indenture Trustee or Owner Trustee, as the case may be,
shall cooperate and consult fully with the Servicer in preparing such
defense; and
(iii) notwithstanding anything in this Servicing
Agreement to the contrary, the Servicer shall not be liable for
settlement of any claim by the Indenture Trustee or the Owner Trustee,
as the case may be, entered into without the prior consent of the
Servicer, which consent shall not be unreasonably withheld.
No termination of this Servicing Agreement shall affect the obligations created
by this Section 6.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the conditions and to the extent set forth herein.
Notwithstanding the foregoing, the indemnification provided by the
Servicer in this Section 6.06(b) shall not pertain to any loss, liability or
expense of the Indenture Trustee or the
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Owner Trustee, including the costs and expenses of defending itself against any
claim, incurred in connection with any actions taken by the Indenture Trustee or
the Owner Trustee at the direction of the Noteholders or Certificateholders, as
the case may be, pursuant to the terms of this Servicing Agreement.
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ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT. If any one of the following events
("Servicing Default")shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the
Collection Account, the Funding Account or Payment Account any deposit
required to be made under the terms of this Servicing Agreement which
continues unremedied for a period of five Business Days after the date
upon which written notice of such failure shall have been given to the
Servicer by the Company, the Issuer or the Indenture Trustee or to the
Servicer, the Company, the Issuer and the Indenture Trustee by the
Credit Enhancer; or
(ii) Failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in the Securities or in this Servicing
Agreement, which failure, in each case, materially and adversely
affects the interests of Securityholders or the Credit Enhancer and
which continues unremedied for a period of 45 days after the date on
which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Company, the
Issuer or the Indenture Trustee or to the Servicer, the Company, the
Issuer and the Indenture Trustee by the Credit Enhancer; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property,
or a decree or order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Servicer and such decree or order shall have
remained in force undischarged, unbonded or unstayed for a period of 60
days; or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
(v) Any failure by the Seller (so long as the Seller is the
Servicer) or the Servicer, as the case may be, to pay when due any
amount payable by it under the
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terms of the Insurance Agreement which continues unremedied for a
period of three (3) Business Days after the date upon which written
notice of such failure shall have been given to the Seller (so long as
the Seller is the Servicer) or the Servicer, as the case may be; or
(vi) Failure on the part of the Seller or the Servicer
to duly perform in any material respect any covenant or agreement set
forth in the Insurance Agreement, which failure in each case materially
and adversely affects the interests of the Credit Enhancer and
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Depositor, the Indenture Trustee, the
Seller or the Servicer, as the case may be, by the Credit Enhancer.
then, and in every such case, other than that set forth in (vi) hereof, so long
as a Servicing Default shall not have been remedied by the Servicer, either the
Company, subject to the direction of the Indenture Trustee as pledgee of the
Mortgage Collateral, with the consent of the Credit Enhancer, or the Credit
Enhancer, by notice then given in writing to the Servicer (and to the Company
and the Issuer if given by the Credit Enhancer) and in the case of the event set
forth in (vi) hereof, the Credit Enhancer with the consent of Securityholders at
least 51% of the aggregate Principal Balance of the Notes and the Certificates
may terminate all of the rights and obligations of the Servicer as servicer
under this Servicing Agreement other than its right to receive servicing
compensation and expenses for servicing the Mortgage Loans hereunder during any
period prior to the date of such termination and the Company, subject to the
direction of the Indenture Trustee as pledgee of the Mortgage Collateral, with
the consent of the Credit Enhancer, or the Credit Enhancer may exercise any and
all other remedies available at law or equity. Any such notice to the Servicer
shall also be given to each Rating Agency, the Credit Enhancer, the Company and
the Issuer. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Servicing Agreement, whether with
respect to the Securities or the Mortgage Loans or otherwise, shall pass to and
be vested in the Company, subject to the direction of the Indenture Trustee as
pledgee of the Mortgage Collateral, pursuant to and under this Section 7.01;
and, without limitation, the Company is hereby authorized and empowered to
execute and deliver, on behalf of the 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
notice of termination, whether to complete the transfer and endorsement of each
Mortgage Loan and related documents, or otherwise. The Servicer agrees to
cooperate with the Company in effecting the termination of the responsibilities
and rights of the Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts relating to the Mortgage Loans that shall at the time be held by the
Servicer and to be deposited by it in the Collection Account, or that have been
deposited by the Servicer in the Collection Account or thereafter received by
the Servicer with respect to the Mortgage Loans. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 7.01 shall be paid by the predecessor Servicer (or if
the predecessor Servicer is the Indenture Trustee, the initial Servicer) upon
presentation of reasonable documentation of such costs and expenses.
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Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.03 and 3.09 as well as its Servicing Fee in respect thereof, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(i) or under Section 7.01(ii) after the applicable grace
periods specified in such Sections, shall not constitute a Servicer Default if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of God
or the public enemy, acts of declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes,
earthquakes, floods or similar causes. The preceding sentence shall not relieve
the Servicer from using reasonable efforts to perform its respective obligations
in a timely manner in accordance with the terms of this Servicing Agreement and
the Servicer shall provide the Indenture Trustee, the Credit Enhancer and the
Securityholders with notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Indenture Trustee, the Credit Enhancer and the Owner
Trustee in writing of any Servicer Default.
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 7.01 or sends a notice pursuant to Section 6.04, the Indenture Trustee
on behalf of the Noteholders shall be the successor in all respects to the
Servicer in its capacity as servicer under this Servicing Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof. Nothing in this Servicing Agreement or in
the Trust Agreement shall be construed to permit or require the Indenture
Trustee to (i) succeed to the responsibilities, duties and liabilities of the
initial Servicer in its capacity as Seller under the Mortgage Loan Purchase
Agreement, (ii) be responsible or accountable for any act or omission of the
Servicer prior to the issuance of a notice of termination hereunder, (iii)
require or obligate the Indenture Trustee, in its capacity as successor
Servicer, to purchase, repurchase or substitute any Mortgage Loan, (iv) fund any
losses on any Eligible Investment directed by any other Servicer, or (v) be
responsible for the representations and warranties of the Servicer. As
compensation therefor, the Indenture Trustee shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Indenture Trustee is unwilling to act as successor Servicer, or (ii) if the
Indenture Trustee is legally unable so to act, the Indenture Trustee on behalf
of the Mortgage Collateral holders may (in the situation described in clause
(i)) or shall (in the situation described in clause (ii)) appoint or petition a
court of competent jurisdiction to appoint any established housing and home
finance institution, bank or other mortgage loan or home equity loan servicer
having a net worth of not less than $10,000,000 as the successor to the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder; PROVIDED that any such successor
Servicer shall be acceptable to the Credit Enhancer, as evidenced by the Credit
Enhancer's prior written consent which consent shall not be unreasonably
withheld and provided further that the appointment of any such successor
Servicer will not result in the qualification,
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reduction or withdrawal of the ratings assigned to the Securities by the Rating
Agencies. Pending appointment of a successor to the Servicer hereunder, unless
the Indenture Trustee is prohibited by law from so acting, the Indenture Trustee
shall act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the successor shall be entitled to receive
compensation out of payments on Mortgage Loans in an amount equal to the
compensation which the Servicer would otherwise have received pursuant to
Section 3.09 (or such lesser compensation as the Indenture Trustee and such
successor shall agree). The appointment of a successor Servicer shall not affect
any liability of the predecessor Servicer which may have arisen under this
Servicing Agreement prior to its termination as Servicer (including, without
limitation, the obligation to purchase Mortgage Loans pursuant to Section 3.01,
to pay any deductible under an insurance policy pursuant to Section 3.04 or to
indemnify the Indenture Trustee pursuant to Section 6.06), nor shall any
successor Servicer be liable for any acts or omissions of the predecessor
Servicer or for any breach by such Servicer of any of its representations or
warranties contained herein or in any related document or agreement. The
Indenture Trustee and such successor shall take such action, consistent with
this Servicing Agreement, as shall be necessary to effectuate any such
succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Noteholders, to the Servicer as servicer shall during the term of its service as
servicer (i) continue to service and administer the Mortgage Loans for the
benefit of the Securityholders, (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Servicer is so required pursuant to Section
3.13.
(c) Any successor Servicer, including the Indenture Trustee on behalf
of the Mortgage Collateral holders, shall not be deemed in default or to have
breached its duties hereunder if the predecessor Servicer shall fail to deliver
any required deposit to the Collection Account or otherwise cooperate with any
required servicing transfer or succession hereunder.
Section 7.03. NOTIFICATION TO SECURITYHOLDERS. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VII or
Section 6.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders, the Credit Enhancer, the Company, the Issuer and each
Rating Agency.
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ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto, provided that any amendment be accompanied
by a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to the Securities and the
consent of the Credit Enhancer and the Indenture Trustee.
Section 8.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 8.03. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Servicer, [Name and Address of Servicer], (b) in the
case of the Credit Enhancer, ________________, ________, ______________,
Attention: _________________, ___________________________, (c) in the case of
[Moody's, ___________, 4th Floor, 99 Church Street, New York, New York 10007],
(d) in the case of [Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance Group], (e) in the case
of the Owner Trustee, the Corporate Trust Office, and (f) in the case of the
Issuer, to PaineWebber Mortgage Acceptance Corporation IV Trust Series 199_-__,
c/o ______________________, __________________, __________, ______________,
Attention: __________________________, with a copy to the Administrator at
______________ or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party. [Any notice
required or permitted to be mailed to a Securityholder shall be given by first
class mail, postage prepaid, at the address of such Securityholder as shown in
the Register. Any notice so mailed within the time prescribed in this Servicing
Agreement shall be conclusively presumed to have been duly given, whether or not
the Securityholder receives such notice. Any notice or other document required
to be delivered or mailed by the Indenture Trustee to any Rating Agency shall be
given on a reasonable efforts basis and only as a matter of courtesy and
accommodation and the Indenture Trustee shall have no liability for failure to
delivery such notice or document to any Rating Agency.]
Section 8.04. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Servicing Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Securities or the rights of the Securityholders thereof.
Section 8.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders, the Credit Enhancer, the Owner Trustee, the Indenture Trustee
and their respective successors and permitted assigns.
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Except as otherwise provided in this Servicing Agreement, no other Person will
have any right or obligation hereunder.
Section 8.06. COUNTERPARTS. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS. The respective obligations and responsibilities of the
Servicer and the Company created hereby shall terminate upon the last action
required to be taken by the Issuer pursuant to the Trust Agreement and by the
Indenture Trustee pursuant to the Indenture following the earlier of:
(i) the date on or before which the Indenture or Trust Agreement
is terminated, or
(ii) the purchase by the Servicer from the Company of all Mortgage
Loans and all property acquired in respect of any Mortgage Loan at a
price equal to the greater of (a) 100% of the unpaid Principal Balance
of each Mortgage Loan, plus accrued and unpaid interest thereon at the
Weighted Average Net Mortgage Rate up to the day preceding the Payment
Date on which such amounts are to be distributed to Securityholders,
plus any amounts due and owing to the Credit Enhancer under the
Insurance Agreement and (b) the fair market value of the Mortgage Loans
as determined by two bids from competitive participants in the
adjustable home equity loan market.
The right of the Servicer to purchase the assets of the Company pursuant to
clause (ii) above is conditioned upon the Pool Balance as of the Final Scheduled
Payment Date being less than ten percent of the aggregate of the Cut-Off Date
Principal Balances of the Mortgage Loans. If such right is exercised by the
Servicer, the Servicer shall deposit the amount calculated pursuant to clause
(ii) above with the Indenture Trustee pursuant to Section 4.10 of the Indenture
and, upon the receipt of such deposit, the Indenture Trustee or relevant
Custodian shall release to the Servicer, the files pertaining to the Mortgage
Loans being purchased.
The Servicer, at its expense, shall prepare and deliver to the
Indenture Trustee and the Owner Trustee for execution, at the time the Mortgage
Loans are to be released to the Servicer, appropriate documents assigning each
such Mortgage Loan from the Company to the Servicer or the appropriate party.
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE. For all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers hereunder, the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.
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[Section 8.10. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Agreement acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.]
32
<PAGE>
IN WITNESS WHEREOF, the Servicer and the Company have caused this
Servicing Agreement to be duly executed by their respective officers or
representatives all as of the day and year first above written.
[NAME OF SERVICER],
as Servicer
By_________________________________
Title:
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV
as Company
By_________________________________
Title:
<PAGE>
EXHIBIT D
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Collateral, we request
the release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/INDENTURE TRUSTEE: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: / / Promissory Note
/ / Primary Insurance Policy
/ / Mortgage or Deed of Trust
/ / Assignment(s) of Mortgage or
Deed of Trust
/ / Title Insurance Policy
/ / Other: ___________________________
_________________________________
Name
_________________________________
Title
_________________________________
Date
Exhibits 5.1, 8.1 and 23.1
--------------------------
June 25, 1997
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
Re: PaineWebber Mortgage Acceptance Corporation IV
Asset-Backed Certificates and Asset-Backed Notes
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 ("Certificates") and Asset-Backed Notes ("Notes"; and together with
Certificates, "Securities"), 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 (each such agreement, a "Pooling and Servicing Agreement"), among the
Registrant, a master servicer to be identified in the prospectus supplement for
such series of Certificates and a trustee to be identified in the prospectus
supplement for such series of Certificates. Each Pooling and Servicing Agreement
will be substantially in the forms filed as an Exhibit to the Registration
Statement. The Notes are issuable in series pursuant to separate indentures
(each such indenture, an "Indenture"), between an issuer and an indenture
trustee, each to be identified in the prospectus supplement for such series of
Notes. Each Indenture will be substantially in the form filed as an Exhibit to
the Registration Statement.
In connection with rendering this opinion letter, we
have examined the forms of the Pooling and Servicing Agreements and Indenture
contained as Exhibits in the Registration Statement, the Registration Statement
and such records and other documents as we have deemed necessary. 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
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
enforceability of such documents.
<PAGE>
PaineWebber Mortgage Acceptance Corporation IV
June 25, 1997 Page 2.
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, 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 "doing business" or the
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 laws
affecting the enforcement of the rights of creditors generally and (ii) general
principles of equity, whether enforcement is sought in a proceeding in equity or
at law.
Based on the foregoing, we are of the opinion that:
1. When a Pooling and Servicing Agreement for a
series of Certificates has been duly authorized by all necessary action and duly
executed and delivered by the parties thereto, such Pooling and Servicing
Agreement will be a legal and valid obligation of the Registrant.
2. When an Indenture for a series of Notes has
been duly authorized by all necessary action and duly executed and delivered by
the parties thereto, such Indenture will be a legal and valid obligation of the
applicable issuer.
3. When a Pooling and Servicing Agreement for a
series of Certificates has been duly authorized by all necessary 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 Pooling and Servicing 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 Pooling
and Servicing Agreement.
4. When an Indenture for a series of Notes has
been duly authorized by all necessary action and duly executed and delivered by
the parties thereto, and when the Notes of such series have been duly executed
and authenticated in accordance with the provisions of that Indenture, and
issued and sold as contemplated in the Registration Statement and the prospectus
and prospectus supplement delivered in connection therewith, such Notes will be
legally and validly issued and outstanding, fully paid and non-assessable, and
will be binding obligations of the applicable issuer, and the holders of such
Notes will be entitled to the benefits of that Indenture.
5. The description of federal income tax
consequences appearing under the heading "Certain Federal Income Tax
Consequences" in the prospectus contained in the Registration Statement, while
not purporting to discuss all possible federal income tax consequences of an
investment in Securities, is accurate with respect to those tax consequences
which are discussed.
<PAGE>
PaineWebber Mortgage Acceptance Corporation IV
June 25, 1997 Page 3.
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", and in the prospectus included in
the Registration Statement under the heading "Certain Federal Income Tax
Consequences", 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/ Thacher Proffitt & Wood
