As filed with the Securities and Exchange Commission on May 26, 1999
Registration No. 333-_______
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
06-1204982
(I.R.S. Employer Identification Number)
1285 Avenue of the Americas
New York, New York 10019
212-713-2000
(Address and telephone number of Registrant's principal executive offices)
John L. Fearey, Esq.
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
212-713-2000
(Name, address and telephone number of agent for service)
----------------
Copies to:
Michael S. Gambro, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
212-504-6000
==============================================================================
Approximate date of commencement of proposed sale to the public: From time
to time on or after the effective date of this Registration Statement, as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed maximum
class of maximum aggregate Amount of
securities to be Amount to be offering price offering registration
registered registered (2) per unit (1) price (1) fee (2)
Asset-Backed $1,500,000,000 100% $1,500,000,000 $417,000
Certificates and
Asset-Backed
Notes, issued in
series
(1) Estimated solely for the purpose of calculating the registration fee.
(2) In accordance with Rule 429(b) of the Securities and Exchange Commission's
Rules and Regulations under the Securities Act of 1933, as amended, see
the second succeeding paragraph.
-------------------------------
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 AND EXCHANGE COMMISSION'S RULES AND
REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS AND
PROSPECTUS SUPPLEMENTS CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATE TO
THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION NO. 333-61785)
AND THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION NO.
333-15685). $1,241,621,047.00 AGGREGATE PRINCIPAL AMOUNT OF SECURITIES
PREVIOUSLY REGISTERED, WITH RESPECT TO ASSET-BACKED CERTIFICATES AND
ASSET-BACKED NOTES, PURSUANT TO REGISTRATION STATEMENT ON FORM S-3 (REGISTRATION
NO. 333-61785) ARE BEING CARRIED FORWARD AND THE RELATED FILING FEE OF
$366,278.21 WAS PREVIOUSLY PAID WITH SUCH EARLIER REGISTRATION STATEMENT.
$389,852,350.52 AGGREGATE PRINCIPAL AMOUNT OF SECURITIES PREVIOUSLY REGISTERED,
WITH RESPECT TO ASSET-BACKED CERTIFICATES, PURSUANT TO REGISTRATION STATEMENT ON
FORM S-3 (REGISTRATION NO. 333-15685) ARE BEING CARRIED FORWARD AND THE RELATED
FILING FEE OF $118,137.08 WAS PREVIOUSLY PAID WITH SUCH EARLIER REGISTRATION
STATEMENT.
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes a base prospectus, two forms of prospectus
supplement. Version 1 of the form of prospectus supplement may be used in
offering a series of Asset-Backed Certificates and Version 2 of the form of
prospectus supplement may be used in offering a series of Asset-Backed Notes.
Each such form is meant to be illustrative of the type of disclosure that might
be presented for a series of Certificates or Notes, but is not meant to be, and
necessarily cannot be, exhaustive of all possible features that might exist in a
particular series. These forms assume the possibility of credit enhancement in
the form of overcollateralization and a security insurance policy, but as
described in the base prospectus, the types of credit support may vary from
series to series. Each base prospectus used (in either preliminary or final
form) will be accompanied by the applicable prospectus supplement.
<PAGE>
PROSPECTUS SUPPLEMENT DATED ______, 199_
(To Prospectus dated _______, 199_)
$_____________________________
(APPROXIMATE)
____________ HOME EQUITY TRUST 199_-_
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(DEPOSITOR)
__________________________________
(TRANSFEROR AND SERVICER)
HOME EQUITY ASSET BACKED CERTIFICATES, SERIES 199_-_
The __________ Home Equity Trust 199_-_ is issuing certificates in ___ classes,
but is offering only the following classes through this Prospectus Supplement:
Class A-1 Certificates $ (1) % % %
Class A-2 Certificates $ % % % %
Class A-3 Certificates $ %(2) % % %
Class A-4 Certificates $ %(2) % % %
Class A-5 Certificates $ %(2) % % %
Class A-6 Certificates $ %(2) % % %
Class A-6IO Certificates $ %(3) % % %
Total............... $_____________ $__________ $__________ $________
(1) The Class A-1 Certificate will bear interest at a variable rate equal to the
lesser of (i) the sum of (A) LIBOR plus (B) __% per annum subject to a
maximum rate of [__]% and (ii) the weighted average of the net loan interest
rates The initial Pass-Through Rate for the Class A-1 Certificates will be
determined ___ business days before the Closing Date.
(3) The Pass-Through Rate of the Class A-6IO Certificates will equal 0%
commencing on the distribution date in ____ 200_.
o Interest and principal will be distributable monthly on the __th day of each
month, beginning in ___ 199_, to the extent described in this Prospectus
Supplement.
o The trust's main source of funds for making distributions on the
certificates will be collections on a pool of closed-end, fixed-rate loans
secured primarily by first or second mortgages or deeds of trust on
residential one- to four-family properties and security interests in
manufactured homes.
o Credit enhancement will be provided by (i) the availability, if any, of
excess interest, (ii) overcollateralization in certain circumstances, as
described in this Prospectus Supplement, [and (iii) a certificate guaranty
insurance policy issued by ________________, which will protect holders of
the Class A Certificates against certain shortfalls in amounts due to be
distributed at the times and to the extent described in this Prospectus
Supplement].
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ OF
THIS PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
The certificates will not represent obligations of PaineWebber Mortgage
Acceptance Corporation IV, the Transferor or any other person or entity. No
governmental agency will insure the certificates or the collateral securing the
certificates.
You should consult with your own advisors to determine if the offered
certificates are appropriate investments for you and to determine the
applicable legal, tax, regulatory and accounting treatment of the offered
certificates.
- --------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE OFFERED
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The offered certificates will not be listed on any national securities
exchange or on any automated quotation system of any registered securities
association such as NASDAQ. The Underwriter[s], PaineWebber Incorporated [and
_______________], will purchase the offered certificates from PaineWebber
Mortgage Acceptance Corporation IV and expect to deliver the offered
certificates in book-entry form through the facilities of The Depository Trust
Company to purchasers on or about ________, 199_.
PAINEWEBBER INCORPORATED
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the offered certificates for the Series 199_-_ is provided
in two separate documents that progressively include more detail: (a) the
accompanying Prospectus dated ___________, 199_, which provides general
information, some of which may not apply to the offered certificates for the
Series 199_-_; and (b) this Prospectus Supplement, which describes the specific
terms of the certificates for the Series 199_-_. Sales of the offered
certificates may not be completed unless you have received both this Prospectus
Supplement and the Prospectus. You are urged to read both this Prospectus
Supplement and the Prospectus in full.
IF THE TERMS OF THE OFFERED CERTIFICATES VARY BETWEEN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THEN YOU SHOULD RELY ON THE
INFORMATION IN THIS PROSPECTUS SUPPLEMENT.
Cross-references in this Prospectus Supplement and the accompanying
Prospectus to captions in these materials are included to assist in locating
further related discussions. The following table of contents and the table of
contents in the accompanying Prospectus provide the pages on which these
captions are located.
Certain capitalized terms are defined and used in this Prospectus Supplement
and the Prospectus to assist you in understanding the terms of the offered
certificates and this offering. A listing of the pages where capitalized terms
used in this Prospectus Supplement and the accompanying Prospectus are defined
is included under the caption "Index of Defined Terms" beginning on page S-[__]
in this Prospectus Supplement and under the caption "Index of Defined Terms"
beginning on page ___ in the accompanying Prospectus.
In this Prospectus Supplement, the terms "Depositor," "we," "us," and "our"
refer to PaineWebber Mortgage Securities Corporation IV.
FORWARD-LOOKING STATEMENTS
In this Prospectus Supplement and the accompanying Prospectus, we use certain
forward-looking statements. Such forward-looking statements are found in the
material, including each of the tables, set forth under "Risk Factors" and
"Prepayment and Yield Considerations" in this Prospectus Supplement.
Forward-looking statements are also found elsewhere in this Prospectus
Supplement and Prospectus and include words like "expects," "intends,"
"anticipates," "estimates" and other similar words. Such statements are intended
to convey our projections or expectations as of the date of this Prospectus
Supplement. Such statements are inherently subject to a variety of risks and
uncertainties. Actual results could differ materially from those we anticipate
due to changes in, among other things:
o economic conditions and industry competition,
o political and/or social conditions, and
o the law and government regulatory initiatives.
We will not update or revise any forward-looking statement to reflect changes
in our expectations or changes in the conditions or circumstances on which such
statements were originally based.
<PAGE>
TABLE OF CONTENTS
SUMMARY
RISK FACTORS
Yield, Prepayment And Maturity Considerations
Limited Liquidity
Adequacy of Credit Enhancement
Underwriting Guidelines
Realization Upon Defaulted Loans
Geographic Concentration
Seasoning of Loans
Borrower May Be Unable to Make Balloon Payments
Subordinate Loans
Legal Considerations
Limitations on the Transferor and Servicer
DESCRIPTION OF THE LOANS
General
Statistical Information
Assignment of Loans
Representations and Warranties of the Transferor
General
Credit and Underwriting Guidelines
Delinquency and Foreclosure Information
General
Modeling Assumptions
DESCRIPTION OF THE OFFERED CERTIFICATES
General
Definitive Certificates
Certificate Principal Balances and Notional Amount
Pass-Through Rates
Distributions
Related Definitions
Calculation of LIBOR
Termination; Purchase of Loans
Report to Certificateholders
SERVICING OF THE LOANS
The Servicer
Collection and Other Servicing Procedures; Loan Modifications
Payments on the Loans
Realization Upon or Sale of Defaulted Loans
Servicing Fees and Other Compensation and Payment of Expenses
Enforcement of Due-on-Sale Clauses
Maintenance of Insurance Policies and Errors and Omissions and Fidelity
Coverage
Servicer Reports
Removal and Resignation of Servicer
Amendment
THE TRUSTEE
[THE CERTIFICATE INSURANCE POLICY]
[THE CERTIFICATE INSURER]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
Discount and Premium
Characterization of Investments in Offered Certificates
ERISA CONSIDERATIONS
LEGAL INVESTMENT
UNDERWRITING
[EXPERTS]
RATINGS
LEGAL MATTERS
INDEX OF DEFINED TERMS
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN INVESTMENT
DECISION. TO UNDERSTAND ALL OF THE TERMS OF THE OFFERING OF THE OFFERED
CERTIFICATES, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
ACCOMPANYING PROSPECTUS.
RELEVANT PARTIES
Depositor................. PaineWebber Mortgage Acceptance Corporation IV
(the "DEPOSITOR"), a Delaware corporation. The
Depositor's address is 1285 Avenue of the
Americas, New York, New York 10019, telephone
number (212) 713-2000. See "The Depositor" in the
accompanying Prospectus.
Trust..................... _________ Home Equity Trust 199_-_, a New York
common law trust (the "TRUST") created pursuant
to a Pooling and Servicing Agreement among the
Depositor, ________________ and _____________.
Servicer.................. ________________ ("__________", or in its
capacity as servicer, the "SERVICER"). The
Servicer is a _______________________ with its
principal place of business in _________________.
The Servicer is a wholly owned subsidiary of
_________________, a ____________ corporation.
The Servicer's address is
_______________________________________________,
telephone number (___) _____________. ___________
will act as Servicer for the Trust Fund and, in
that capacity, will (i) provide customary
servicing functions with respect to the Loans
pursuant to a Pooling and Servicing Agreement
(the "POOLING AND SERVICING AGREEMENT") among the
Depositor, the Servicer and __________________
(the "TRUSTEE"), (ii) provide certain reports to
the Trustee and (iii) make certain advances.
Transferor................ ___________________________ (in this capacity,
the "TRANSFEROR").
Trustee................... _________________________, a _____________________
corporation (the "TRUSTEE"). The Trustee's address
is ___________________________, telephone number
(____) ___________.
[The Certificate Insurer.. ___________________ (the "CERTIFICATE INSURER").
The Certificate Insurer's address is _____________
_________________________________________________,
telephone number (___) ___-____.]
RELEVANT DATES
Cut-Off Date.............. __________, 199_ (the "CUT-OFF DATE").
Closing Date.............. On or about __________, 199_ (the "CLOSING DATE").
Distribution Date......... Distributions on the certificates will be made on
the ___th day of each month (or, if such ___th day
is not a Business Day, on the next succeeding
Business Day) (each, a "DISTRIBUTION DATE"),
commencing in ______ 199_. "BUSINESS DAY" will be
any other day than (i) a Saturday or Sunday, or
(i) any day on which banking institutions located
in the States of New York or ________ are
authorized or obligated by law or executive order
to close.
Determination Date........ The __th calendar day of each month or, if such
day is not a Business Day, then the preceding
business day (the "DETERMINATION DATE").
Due Period................ The calendar month preceding the relevant
Distribution Date or Determination Date, as the
case may be (the "DUE PERIOD").
Accrual Date.............. For the Offered Certificates (other than the Class
A-1 Certificates), the calendar month immediately
prior to the month in which the relevant
Distribution Date occurs. For the Class A-1
Certificates, the period beginning on the prior
Distribution Date (or on the Closing Date in the
case of the first Distribution Date) and ending on
the day prior to the relevant Distribution Date.
OFFERED CERTIFICATES...... We are offering the following __ classes of
Certificates as part of the Series 199_-_
(collectively, the "OFFERED CERTIFICATES"):
o Class A-1
o Class A-2
o Class A-3
o Class A-4
o Class A-5
o Class A-6
o Class A-6IO
The Series 199_-_ will consist of a total of ___
classes; however, the Class R Certificates is NOT
being offered through this Prospectus Supplement
and the accompanying Prospectus. The Offered
Certificates, together with the Class R, are
collectively referred to as the "CERTIFICATES".
Certificate Principal
Balance and
Pass-Through Rates..... Your certificates will have the approximate
original certificate principal balances or
notional balance set forth below, subject to a
permitted variance of plus or minus 5%:
o Class A-1..............$_______________
o Class A-2..............$_______________
o Class A-3..............$_______________
o Class A-4..............$_______________
o Class A-5..............$_______________
o Class A-6..............$_______________
The Notional Balance of the Class A-6IO
Certificates at all times will equal the Class
Principal Balance of the Class A-6 Certificates.
Each Class of Offered Certificates will accrue
interest for each Accrual Period on its unpaid
Class Principal Balance or Notional Balance at the
rate set forth on the cover of this Prospectus
Supplement.
Distributions............. The total of all payments or other collections (or
advances in lieu thereof) on or in respect of the
Loans (but excluding prepayment premiums) that are
available for distributions of interest on and
principal of the Offered Certificates on any
Distribution Date is referred to as the "AVAILABLE
DISTRIBUTION AMOUNT" for such date. See
"Description of the Certificates - Distributions -
Available Distribution Amount" in this Prospectus
Supplement.
On each Distribution Date, the Trustee will apply
the Available Distribution Amount for such date
for the following purposes and in the following
order of priority:
First, Class A: To interest on the Class A
Certificates, pro rata, in accordance with their
interest entitlements, and interest due in prior
periods and not paid.
Second, Class A: To the extent of amounts then
required to be distributed as principal on the
Class A Certificates (other than the Class A-6IO
Certificates), payment of such principal to be
made in accordance with such principal
entitlements, in each case until such Class is
reduced to zero.
[Third, Certificate Insurer: To reimburse the
Certificate Insurer for all Insured Payments made
by the Certificate Insurer which have not been
repaid, together with interest thereon.]
Distributions of principal to the Class A
Certificates described in priority Second above
will be paid first, to the Class A-6IO
Certificates in the amounts described in this
Prospectus Supplement (which amounts are zero
prior to _____ 20__) and thereafter, sequentially
to Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6 Certificates, in each case
until such class has been paid in full. However,
distributions to the Class A Certificates referred
to in priority Second above will be made pro rata
among the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5 and Class A-6 Certificates [when
the Certificate Insurer has defaulted under the
Certificate Insurance Policy and] [if the
overcollateralization amount has been reduced to
zero] as described under "Description of the
Certificates - Distributions" in this Prospectus
Supplement.
A description of each Class of Certificates'
interest entitlement can be found in "Description
of the Certificates - Distributions" in this
Prospectus Supplement. As described in such
sections, there are circumstances in which your
interest entitlement for a distribution date could
be less than one full month's interest at the
Pass-Through Rate on your Certificate Principal
Balance.
The amount of principal required to be distributed
to the Classes entitled to principal on a
particular Distribution Date also can be found in
"Description of the Certificates - Distributions"
and "--Related Definitions" in this Prospectus
Supplement. None of the Offered Certificates will
be entitled to receive any prepayment premiums
received on the Loans.
ASSETS OF THE POOL
The Loans................. The Loans will consist primarily of fixed rate,
closed-end loans secured by first or second
priority liens and having original terms to
maturity of not greater than 30 years. Loans
("MORTGAGE LOANS") representing approximately __%
of the initial aggregate unpaid principal balance
of the Loans will be secured by mortgages or deeds
of trust on properties (the "MORTGAGED
PROPERTIES"). Loans ("MANUFACTURED HOUSING
CONTRACTS", and together with the Mortgage Loans,
the "LOANS") representing approximately ___% of
the aggregate unpaid principal balance of the
Loans as of the Cut-Off Date (the "CUT-OFF DATE
PRINCIPAL BALANCE") will be secured by security
interests in manufactured homes that are not real
estate ("MANUFACTURED HOMES" and together with the
Mortgaged Properties, the "PROPERTIES").
The statistical information regarding the Loans,
the Mortgaged Properties and the Manufactured
Homes is based upon the characteristics of the
Loans as of the close of business on the Cut-Off
Date. Unless otherwise indicated, all percentages
set forth herein are based upon the aggregate
unpaid principal balance as of the Cut-Off Date,
which will be $__________.
See "Description of the Loans" in the Prospectus
Supplement.
Loan Interest Rate....... The "LOAN INTEREST RATE" of each Loan is the per
annum interest rate required to be paid by the
borrower under the terms of the related Loan. The
Loan Interest Rate borne by each Loan is fixed as
of the date of origination of such Loan. As of the
Cut-Off Date, the weighted average Loan Interest
Rate for the Loans was approximately ______%.
SERVICING OF THE LOANS....... The Servicer has agreed to service the Loans on a
"scheduled/actual" basis (i.e., the Servicer is
responsible for advancing scheduled payments of
interest) in accordance with the Pooling and
Servicing Agreement and to cause the Loans to be
serviced with the same care as it customarily
employs in servicing and administering loans for
its own account in accordance with accepted
mortgage servicing practices of prudent lending
institutions and giving due consideration to [the
Certificate Insurer's and] the Certificateholders'
reliance on the Servicer.
The Servicer will be required to advance
delinquent payments of interest on the Loans and
advance any property protection expenses relating
to the Loans. The Servicer will not be required to
make any advance that it determines would be
nonrecoverable. The Servicer will also be required
to pay compensating interest to cover prepayment
interest shortfalls to the extent of its servicing
fee.
See "Servicing of the Loans" in this Prospectus
Supplement.
OPTIONAL TERMINATION......... The Servicer may, at its option [(and if such
option is not exercised by the Servicer, the
Certificate Insurer may, at its option)]
repurchase all but not less than all of the Loans
in the Trust on any date (the "OPTIONAL
TERMINATION DATE") on which the aggregate
Principal Balance of the Loans, as of such date of
determination, is less than 10% of the aggregate
unpaid Principal Balances of the Loans as of the
Cut-Off Date, by purchasing from the Trust on the
next succeeding Distribution Date all of the
property of the Trust. See "Description of the
Offered Certificates--Termination; Purchase of
Loans" in this Prospectus Supplement.
CREDIT ENHANCEMENT........... The credit enhancement provided for the benefit of
the Offered Certificate consists of (a) excess
interest, (b) the Overcollateralization Amounts
[and (c) the Certificate Insurance Policy].
Excess Interest........... Because the amount of interest collected on the
Loans for each Due Period is expected to be higher
than the interest distributable on the
Certificates for the related Distribution Date,
excess interest will be generated. A portion of
this excess interest will be applied both to
absorb interest shortfalls and to create and
maintain the required level of
overcollateralization.
Overcollateralization..... On the Closing Date, the Overcollateralization
Amount will equal zero. As a result of the
application of a portion of the excess interest in
reduction of the principal balance of the Class A
Certificates, the applicable Overcollateralization
Amount is expected to increase over time until it
reaches the applicable required level of
Overcollateralization; however, subject to the
satisfaction of certain loss and delinquency
tests, the required percentage level of
overcollateralization may increase or decrease
over time. The Overcollateralization Amount is the
first amount to absorb realized losses on the
Loans and certain unreimbursed expenses of the
Trust Fund.
[Certificate Insurance
Policy.................. The Certificate Insurer will issue a Certificate
Guaranty Insurance Policy (the "CERTIFICATE
INSURANCE POLICY"), pursuant to which it will
irrevocably and unconditionally guaranty payment
on each Distribution Date of timely payment of
interest and ultimate payment of principal due on
the Class A Certificates. A payment by the
Certificate Insurer under the Certificate
Insurance Policy is referred to herein as an
"INSURED Payment". The Certificate Insurer will be
entitled to reimbursement from excess interest and
the Overcollateralization Amount for all Insured
Payment, together with interest. See "The
Certificate Insurance Policy" in this Prospectus
Supplement.]
REGISTRATION AND
DENOMINATIONS OF THE
CERTIFICATES................. The Class A Certificates initially will be issued
in book-entry form, in minimum denominations of
$25,000 and integral multiples of $1,000 in excess
of that amount (except for one Certificate of each
class which may be issued in a greater or lesser
amount). The Class A Certificates are sometimes
referred to as "BOOK-ENTRY CERTIFICATES" No person
acquiring an interest in the Book-Entry
Certificates (a "BENEFICIAL OWNER") will be
entitled to receive a definitive certificate
representing such person's interest in the Trust
Fund, except under limited circumstances as
described herein. Beneficial Owners may elect to
hold their interests through The Depository Trust
Company ("DTC"), in the United States, or
Cedelbank ("CEDELBANK") or the Euroclear System
("Euroclear"), in Europe. Transfers within DTC,
Cedelbank or Euroclear, as the case may be, will
be in accordance with the usual rules and
operating procedures of the relevant system. See
"Description of the Offered Certificates -
General" in this Prospectus Supplement.
TAX STATUS................... The Trustee will make elections to treat
designated portions of the Trust Fund as separate
REMICs for federal income tax purposes. In the
opinion of counsel, such portions of the Trust
Fund will qualify for this treatment. A portion of
the Trust Fund, which includes certain interest
distributable to holders of the Offered
Certificates, other than the Class A-6IO
Certificates, at their respective LIBOR-based or
fixed rates in excess of the weighted average of
the net Loan interest rates less ___%, will be
treated as a grantor trust.
Pertinent federal income tax consequences of an
investment in the Offered Certificates include:
o Each class of Offered Certificates will
represent "regular interests" in a REMIC
and interests in a grantor trust.
o The regular interests will be treated as
newly originated debt instruments and
the interests in the grantor trust will
represent notional principal contracts
for federal income tax purposes.
o You will be required to report income on
the Offered Certificates in accordance
with the accrual method of accounting.
o One or more classes of Offered
Certificates may be issued with original
issue discount for federal income tax
purposes, which generally requires you
to report income in advance of the
related cash distributions.
o If a portion of your purchase price is
allocable to the right to receive excess
interest through the grantor trust, you
will be able to amortize such amount
under the rules for notional principal
contracts, subject to limitations if you
are an individual.
See "Certain Federal Income Tax Consequences" in
this Prospectus Supplement and in the accompanying
Prospectus.
ERISA CONSIDERATIONS......... A fiduciary of any employee benefit plan or other
retirement arrangement subject to ERISA, or the
Internal Revenue Code of 1986, as amended (the
"Code") should carefully review with its legal
advisors whether the purchase or holding of Class
A Certificates could give rise to a transaction
prohibited or not otherwise permissible under
ERISA or the Code. The U.S. Department of Labor
has issued to PaineWebber Incorporated [and
________________] individual Prohibited
Transaction Exemption 90-36 [and Prohibited
Transaction Exemption ____], which generally
exempts from the application of certain of the
prohibited transaction provisions of ERISA, and
the excise taxes imposed on such prohibited
transactions by Section 4975(a) and (b) of the
Code and Section 502(i) of ERISA, transactions
relating to the purchase, sale and holding of
pass-through certificates such as the Class A
Certificates and the servicing and operation of
asset pools such as the Trust, provided that
certain conditions are satisfied. See "ERISA
Considerations" in this Prospectus Supplement.
LEGAL INVESTMENT............. The Offered Certificates will not constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984,
as amended. See "Legal Investment" in this
Prospectus Supplement.
CERTIFICATE RATINGS.......... On the Closing Date, it is required that the
Offered Certificates have the following ratings by
each of ___________________ ("____") and
____________________ ("_______"), and together
with ____, the "RATING AGENCIES")
CLASS
====== ======= =======
---- ----- -----
---- ----- -----
---- ----- -----
---- ----- -----
---- ----- -----
---- ----- -----
---- ----- -----
---- ----- -----
[The ratings on the Class A Certificates are based
on the presence of the Certificate Insurance
Policy.] 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. The ratings do not
address the possibility that holders of the
Offered Certificates may suffer a lower than
anticipated yield.
See "Ratings" in this Prospectus Supplement for
discussion of the primary factors upon which the
ratings are based.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN INVESTMENT
DECISION. IN PARTICULAR, PAYMENTS ON YOUR CERTIFICATES WILL DEPEND ON PAYMENTS
RECEIVED ON AND OTHER RECOVERIES WITH RESPECT TO THE LOANS. THEREFORE, YOU
SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATING TO THE LOANS.
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES RELATING TO
YOUR CERTIFICATES. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN OR
THAT WE CURRENTLY CONSIDER IMMATERIAL MAY ALSO IMPAIR YOUR INVESTMENT.
IF ANY OF THE FOLLOWING RISKS ARE REALIZED, YOUR INVESTMENT COULD BE
MATERIALLY AND ADVERSELY AFFECTED.
THIS PROSPECTUS SUPPLEMENT ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS
SUPPLEMENT.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Variations in Yield to Maturity. The degree to which the actual yield of your
Certificates may vary from the anticipated yield will depend upon:
o the price of your Certificates, including the amount of any premium or
discount;
o the degree to which the timing of payments on your Certificates is
sensitive to the prepayment experience of Loans and the application of
a portion of the excess interest on the Loans as principal on the
Certificates;
o the timing of delinquencies, defaults and losses on the Loans to the
extent not covered by the credit enhancement[, including the
Certificate Insurance Policy]; and
o a change in the required level of overcollateralization or a change in
the delinquency or loss levels with respect to the Loans or excess
interest requirements used to determine an increase or decrease in
such required level of overcollateralization.
The allocation of a portion of the excess interest on the Loans as an
additional payment of principal on the Certificates as described in this
Prospectus Supplement will accelerate the principal amortization of the
Certificates relative to the speed at which principal is paid on the Loans.
However, any reduction in the required level of overcollateralization will slow
the principal amortization of the Certificates. See "Prepayment and Yield
Considerations" in this Prospectus Supplement.
Unpredictability of Prepayments and its Effect on Yields. Approximately ___%
of the Loans by Cut-Off Date Principal Balance provide that the borrowers may,
without penalty, prepay their Loans in whole or in part at any time. We cannot
predict the rate at which borrowers will repay their Loans. A prepayment of a
Loan would result in a prepayment on the related Certificates.
o If you purchase your Certificates at a discount and principal is repaid
slower than you anticipate, then your yield may be lower than you
anticipate.
o If you purchase your Certificates at a premium and principal is repaid
faster than you anticipate, then your yield may be lower than you
anticipate.
o The rate of prepayments on the Loans will be sensitive to prevailing
interest rates. Generally, if prevailing interest rates decline
significantly below the interest rates on the Loans, those Loans are
more likely to prepay than if prevailing rates remain above the
interest rates on such Loans. Conversely, if prevailing interest rates
rise significantly, the prepayments on the Loans are likely to
decrease.
o So long as credit enhancement is available, liquidations of defaulted
loans generally will have the same effect on the related Certificates
as a prepayment of a Loan.
o If the rate of default and the amount of losses on the Loans related to
your Certificate is higher than you expect, then your yield may be
lower than you expect.
See "Prepayment and Yield Considerations" in this Prospectus Supplement.
LIMITED LIQUIDITY
A secondary market for the Offered Certificates may not develop or, if it
does develop, it may not provide you with liquidity of investment or continue
while your Certificates are outstanding. See "Risk Factors--Limited Liquidity"
in the accompanying Prospectus.
ADEQUACY OF CREDIT ENHANCEMENT
[Ratings of Certificate Insurer. Any reduction in a rating assigned to the
claims-paying ability of the Certificate Insurer may result in a reduction in
the rating of the Class A Certificates. Future events may reduce the rating of
the Certificate Insurer or impair the ability of the Certificate Insurer to pay
claims for Insured Payments under the Certificate Insurance Policy. In that
event, the Certificate Insurer might not have the ability to cover delays or
shortfalls in payments of interest or ultimate principal due on the
Certificates. See "The Certificate Insurance Policy" and "The Certificate
Insurer" in this Prospectus Supplement.]
Loan Delinquencies, Defaults and Losses. Delinquencies, if not advanced by
the Servicer, defaults and losses on the Loans will reduce the credit
enhancement available from the overcollateralization feature. If amounts
available from this credit enhancement are not adequate to protect against the
delinquencies, defaults and losses experienced on the Loans, then delays or
shortfalls in payments of interest or principal due on the Certificates will
occur[, unless such delays or shortfalls are covered under the Certificate
Insurance Policy].
Availability of Excess Interest for Overcollateralization. Each Loan is
expected to generate more interest than is needed to pay interest on the related
Certificates since the net weighted average interest rate on the related Loans
is expected to be higher than the weighted average interest rate on the related
Certificates. If the Loans generate more interest than is needed to pay interest
on the Offered Certificates and certain fees and expenses of the Trust, the
remaining interest will be used to compensate for losses and delinquencies
experienced by the Loans. After these financial obligations of the Trust have
been satisfied, a certain portion of the available excess interest will be used
to create and maintain overcollateralization. We cannot assure you, however,
that enough excess interest will be generated to compensate for interest losses
or shortfalls in payments on the Loans or to maintain the required level of
overcollateralization.
The excess interest available on any Distribution Date will be affected by
the actual amount of interest received, collected or recovered in respect of the
Loans during the preceding month and by the weighted average of the pass-through
rates on the Offered Certificates for the related Distribution Date. Such amount
will be influenced by changes in the weighted average of the loan interest rates
and of the pass-through rates on such Classes of Certificates resulting from
prepayments and liquidations of the related Loans and payments made in reduction
of the principal balances of the Classes of Certificates.
[The Pooling and Servicing Agreement requires the Trustee to make a claim for
an Insured Payment under the Certificate Insurance Policy as to which the
Trustee has determined that an Insured Payment will be necessary. Investors in
the Class A Certificates should realize that, under extreme loss or delinquency
scenarios, they may temporarily receive no distributions of principal.
If the protection afforded by overcollateralization is insufficient [and if
the Certificate Insurer is unable to meet its obligations under the Certificate
Insurance Policy, then you could experience a loss on your investment.]
UNDERWRITING GUIDELINES
The Transferor's underwriting standards are intended to assess the
creditworthiness of the borrower and the value of the property and to evaluate
the adequacy of such property as collateral for the loan. In comparison to first
lien mortgage loans that conform to the underwriting guidelines of FNMA or
FHLMC, the Loans have generally been underwritten or reunderwritten with more
lenient underwriting criteria. For example, the Loans may have been made to
borrowers having imperfect credit histories, ranging from minor delinquencies to
bankruptcies, or borrowers with higher ratios of monthly mortgage payments to
income or higher ratios of total monthly credit payments to income. Accordingly,
the Loans will likely experience higher, and possibly substantially higher,
rates of delinquencies, defaults and losses than the rates experienced by loans
underwritten according to FNMA or FHLMC guidelines. Furthermore, changes in the
values of the Properties may have a greater effect on the delinquency,
foreclosure, bankruptcy and loss experience of the Loans than on mortgage loans
originated according to FNMA or FHLMC guidelines. No assurance can be given that
the values of the Properties have remained or will remain at the levels in
effect on the dates of origination of the related Loans. See "--Adequacy of
Credit Enhancement" above, and "Description of the Loans--Credit and
Underwriting Guidelines" in this Prospectus Supplement.
REALIZATION UPON DEFAULTED LOANS
Adequacy of Security and Severity of Losses. Assuming that the Properties
provide adequate security for the Loans, substantial delays in recoveries may
occur from the foreclosure or liquidation of defaulted Loans. No assurance can
be given that the values of the Properties have remained or will remain at the
levels in effect on the dates of origination of the related Loans. Further,
liquidation expenses (such as legal fees, real estate taxes, and maintenance and
preservation expenses) will reduce the proceeds payable on the Loans and thereby
reduce the security for the Loans. [In the event any of the Properties fail to
provide adequate security for the related Loan, you may experience a loss if the
Certificate Insurer were unable to perform its obligations under the Certificate
Insurance Policy.] See "Servicing of the Mortgage Loans--Realization Upon
Defaulted Loans" in this Prospectus Supplement, and "Certain Legal Aspects of
Residential Mortgage Loans--Foreclosure on Mortgages" in the Prospectus.
Application of Bankruptcy Laws. The application of federal and state laws,
including bankruptcy and debtor relief laws, may interfere with or adversely
affect the ability to realize upon the Properties, enforce deficiency judgments
or pursue collection litigation with respect to defaulted Loans. As a
consequence, borrowers who have defaulted on their Loans and sought, or are
considering seeking, relief under bankruptcy or debtor relief laws will have
substantially less incentive to repay their Loans, and such Loans will likely
experience more severe losses, which may be total losses. See "--Adequacy of
Credit Enhancement" above and "--Legal Considerations--Legal Compliance and
Regulation" below.
GEOGRAPHIC CONCENTRATION
When measured by aggregate principal balance as of the Cut-Off Date,
Mortgaged Properties and Manufactured Homes located in ________, __________ and
___________ secure approximately ____%, ____% and ____%, respectively, of the
Loans by Cut-Off Date Principal Balance. This geographic concentration might
magnify the effect on the pool of Loans of adverse economic conditions or of
special hazards in these areas and therefore might increase the rate of
delinquencies, defaults and losses on the Loans more than would be the case if
the Mortgaged Properties and Manufactured Homes were more geographically
diversified. See "Description of the Loans" in this Prospectus Supplement.
SEASONING OF LOANS
Defaults on loans tend to occur at higher rates during the early years of the
loans. Substantially all of the Loans were originated within twelve months prior
to sale to the Trust. As a result, the Trust may experience higher rates of
default than if the Loans had been outstanding for a longer period of time.
BORROWER MAY BE UNABLE TO MAKE BALLOON PAYMENTS
Approximately ___% of the Loans by Cut-Off Date Principal Balance have
monthly payments based on an amortization which would require the payment of a
substantial portion of the principal balance of such Loans at maturity. The
ability of a borrower to make such a payment may depend on the borrower's
ability to obtain refinancing of the balance due on the Loan at maturity. An
increase in interest rates over the interest rate on the Loan may have an
adverse effect on the borrower's ability to obtain refinancing and to pay the
required payment due at maturity.
SUBORDINATE LOANS
Approximately ___% of the Loans by Cut-Off Date Principal Balance evidence a
lien that is subordinate to the rights of the mortgagee under a senior mortgage.
The proceeds from any liquidation, insurance or condemnation proceedings will be
available to satisfy the outstanding principal balance of such junior loans only
to the extent that the claims of such senior mortgages have been satisfied in
full, including any foreclosure costs. In circumstances where the Servicer
determines that it would be uneconomical to foreclose on the related Mortgaged
Property, the Servicer may write off the entire outstanding principal balance of
the related Loan as bad debt. The foregoing considerations will be particularly
applicable to junior loans that have high combined loan-to-value ratios because
in such cases, the Servicer is more likely to determine that foreclosure would
be uneconomical. You should consider the risk that to the extent losses on Loans
are not covered by available credit enhancement, such losses will be borne by
the holders of the Certificates.
LEGAL CONSIDERATIONS
Insolvency of Transferor. If the Federal Deposit Insurance Corporation
("FDIC") is appointed receiver or conservator of the Transferor, the FDIC's
administrative expenses may have priority over the interest of the Trust and/or
the Trustee in the Loans. In addition, the Federal Deposit Insurance Act, as
amended by the Financial Institutions Reform, Recovery and Enforcement Act of
1989, gives the FDIC certain powers in its capacity as a receiver or conservator
of the Transferor that if exercised could result in delays or reductions in
distributions of principal and interest on the Certificates[, unless such
distributions are covered under the Certificate Insurance Policy].
Salient among the FDIC's powers as receiver or conservator is the power to
disaffirm or repudiate any of the Transferor's contracts or leases the
performance of which would be burdensome and the disaffirmance or repudiation of
which would promote the orderly administration of the Transferor's affairs. It
is unclear whether the FDIC can utilize this power to repudiate the transfer of
the Loans to the Depositor and administer the Loans as part of any receivership
or conservatorship of the Transferor. Any attempt by the FDIC to repudiate the
transfer of the Loans to the Depositor in a receivership or conservatorship of
the Transferor, even if unsuccessful, could result in delays or reductions in
distributions of principal and interest on the Certificates[, unless such
distributions are covered under the Certificate Insurance Policy].
The FDIC recently proposed a statement of policy outlining the circumstances
under which the FDIC will not seek to repudiate transfers made as part of a
securitization, such as the transfer of the Loans to the Depositor. Although
that statement of policy is not yet final, much of it merely reiterates
pre-existing law, and substantive changes are not expected. The transfer of the
Loans to the Depositor has been structured with the specific intent to satisfy
the requirements of the proposed statement of policy.
See "Description of the Loans--Assignment of the Loans" in this Prospectus
Supplement.
Bankruptcy of Other Parties. The Depositor intends to treat the transfer of
the Loans to the Trust as an absolute transfer and not as a secured lending
arrangement. In such event, the Loans would not be part of the Depositor's
bankruptcy estate in the event of its bankruptcy and would not be available to
the Depositor's creditors. In the event of the insolvency of the Depositor, it
is possible that the bankruptcy trustee or a creditor of the Depositor may
attempt to recharacterize the sale of the Loans as a borrowing by the Depositor,
secured by a pledge of the Loans. This position, if accepted by a court, could
prevent timely distributions of amounts due on the Certificates and result in a
reduction of distributions on the Certificates.
In the event a bankruptcy or insolvency of the Servicer, the bankruptcy
trustee or receiver may have the power to prevent [the Certificate Insurer,] the
Trustee or the Depositor from appointing a successor Servicer.
In addition, federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured lender to realize upon its security. See
"Certain Legal Aspects of Residential Loans" in the Prospectus.
Legal Compliance and Regulation. Federal and state laws regulate the
underwriting, origination, servicing and collection of the Loans. These laws
will likely change over time and may become more restrictive or stringent with
respect to certain of these activities of the Servicer and Transferor.
Violations of these Federal and state laws may limit the ability of the Servicer
to collect principal or interest on the Loans, may entitle the borrowers to a
refund of amounts previously paid, and may subject the Servicer or the
Transferor to damages and administrative sanctions. The inability to collect
principal or interest on the Loans because of violations of Federal or state
laws will likely cause the Loans to experience higher rates of delinquencies,
defaults and losses. An assessment of damages or sanctions against the Servicer
or the Transferor may adversely affect the ability of the Servicer to service
the Loans or the Transferor to repurchase or replace defective Loans. See "Risk
Factors--Certain Other Legal Considerations Regarding Residential Loans" in the
accompanying Prospectus. The Transferor will be required to repurchase or
replace any Loan that did not comply with applicable Federal and state laws. See
"--Limitations on the Transferor" below.
Potential Lawsuits Against the Transferor. Because the nature of the
Transferor's business involves the collection of numerous accounts, the validity
of liens and compliance with state and Federal lending laws, the Transferor is
subject to numerous claims and legal actions in the ordinary course of its
business. Several class-action lawsuits have been filed against a number of
consumer finance companies alleging that the compensation of mortgage brokers
through the payment of yield spread premiums violates various Federal and state
consumer protection laws. While the Transferor is not a party to any suit of
this nature, lawsuits could be filed against the Transferor in the future, and
the results of any such lawsuits are uncertain.
Risks Associated with Year 2000 Compliance. We are aware of the issues
associated with the programming code in existing computer systems as the year
2000 approaches. The "year 2000 problem" is pervasive and complex; virtually
every computer operation will be affected in some way by the rollover of the
two-digit year value to 00. The issue is whether the computer systems will
properly recognize date-sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail.
The Servicer will certify that it is committed either to (i) implement
modifications to its existing systems to the extent required to cause them to be
year 2000 ready or (ii) acquire computer systems that are year 2000 ready in
each case prior to January 1, 2000. However, we have not made any independent
investigation of the computer systems of the Servicer. If computer problems
result from the failure to complete such efforts on time, or if the computer
systems of Servicer are not fully year 2000 ready, then the resulting
disruptions in the collection or distribution of receipts on the Loans could
materially and adversely affect your investment.
With respect to the year 2000 problem, DTC has informed members of the
financial community that it has developed and is implementing a program so that
its systems, as they relate to the timely payment of distributions, including
principal and interest payments, to security holders, book-entry deliveries, and
settlement of trades within DTC, continue to function appropriately on and after
January 1, 2000. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, its participating
organizations, through which you will hold your Certificates, as well as the
computer systems of third party service providers. DTC has informed the
financial community that it is contacting and will continue to contact third
party vendors from whom DTC acquires services to:
o impress upon them the importance of such services being year 2000
compliant; and
o determine the extent of their efforts for year 2000 remediation, and,
as appropriate, testing, of their services.
In addition, DTC has stated that it is in the process of developing such
contingency plans as it deems appropriate.
If problems associated with the year 2000 problem were to occur with respect
to DTC and the services described above, you could experience delays or
shortfalls in the payments due on your Certificates.
LIMITATIONS ON THE TRANSFEROR AND SERVICER
Dependence on Servicer. The amount and timing of distributions on the
Certificates generally will be dependent upon the Servicer to perform its
servicing obligations in an adequate and timely manner. See "Servicing of the
Loans" in this Prospectus Supplement. If the Servicer fails to perform its
servicing obligations, such failure may result in the termination of the
Servicer. Such termination with its transfer of daily collection activities will
likely increase the rates of delinquencies, defaults and losses on the Loans.
Ability to Repurchase or Replace Defective Loans. If the Transferor fails to
cure a material breach of its Loan representations and warranties with respect
to any Loan in a timely manner, then the Transferor is required to repurchase or
replace such defective Loan. See "Description of Loans--Representations and
Warranties" in this Prospectus Supplement. The Transferor may not be capable of
repurchasing or replacing any defective Loans, for financial or other reasons.
The Transferor's inability to repurchase or replace defective Loans would likely
cause the Loans to experience higher rates of delinquencies, defaults and
losses.
See "--Adequacy of Credit Enhancement" above.
DESCRIPTION OF THE LOANS
GENERAL
On or about ________, 199_ (the "CLOSING DATE"), PaineWebber Mortgage
Acceptance Corporation IV (the "DEPOSITOR) will acquire from ______________ (the
"TRANSFEROR") a pool of loans (the "LOANS"), having an aggregate unpaid
principal balance as of ________, 199_ (the "CUT-OFF DATE") of approximately
$______________. The Depositor will then transfer the Loans to the Trust
pursuant to the Pooling and Servicing Agreement. The Trust will be entitled to
all payments of principal and interest in respect of the Loans due after the
Cut-Off Date.
The Mortgage Loans are evidenced by Mortgage Notes (each, a "MORTGAGE NOTE"),
secured by mortgages or deeds of trust (the "MORTGAGES") on the Mortgaged
Properties of which approximately ____% are second lien Mortgages. The
Manufactured Housing Contracts are secured by Manufactured Homes that are not
real estate.
The Loans have original terms to stated maturity of up to 30 years. The Loans
were selected by the Transferor from the loans in the Transferor's portfolio
that met the above criteria using a selection process believed by the Transferor
not to be adverse to the Certificateholders [or to the Certificate Insurer]. As
of the Cut-Off Date, the average unpaid principal balance of the Loans was
approximately $__________. As of the Cut-Off Date, the weighted average Loan
Interest Rate of the Loans was approximately _____%. The weighted average
"COMBINED LOAN-TO-VALUE RATIO" (or "CLTV") (calculated by dividing the sum of
(x) any outstanding first lien balance as of the date of origination of the
related Loan plus (y) the unpaid principal balance of such Loan as of the
Cut-Off Date, by the appraised value of such Property at origination) of the
Loans was approximately _____%. The weighted average remaining term to maturity
was approximately __ months and the latest scheduled maturity of any Loan is
_______, 20__; however the actual date on which any Loan is paid in full may be
earlier than the stated maturity date due to unscheduled payments of principal.
As of the Cut-Off Date, all of the Loans were secured by Mortgaged Properties
or Manufactured Homes. Based on information supplied by the borrowers in
connection with their loan applications at origination, Properties securing
approximately _____% of the Loans by Cut-Off Date Principal Balance will be
owner occupied primary residences and Properties securing approximately ___% of
the Loans by Cut-Off Date Principal Balance will be non-owner occupied or second
homes.
Approximately ___% of the Loans by Cut-Off Date Principal Balance provide for
penalties upon full prepayment during the first two, three, four or five years
after origination thereof. Each of the Loans is subject to a due-on-sale clause.
See "Certain Legal Aspects of Residential Loans" in the Prospectus.
Except for approximately ____% of the Loans by Cut-Off Date Principal
Balance, the scheduled monthly payment on each Loan includes interest plus an
amount that will amortize the outstanding principal balance of the Loan over its
remaining term.
STATISTICAL INFORMATION
Set forth below is a description of certain additional characteristics of the
Loans as of the Cut-Off Date (except as otherwise indicated). Dollar amounts and
percentages may not add up to totals due to rounding.
GEOGRAPHIC DISTRIBUTION OF LOANS
% OF
CUT-OFF
NUMBER AGGREGATE DATE
OF PRINCIPAL PRINCIPAL
JURISDICTION LOANS BALANCE BALANCE
- ------------------- ------- --------- ---------
--------- ---------- --------
Total....................................... $ 100.00%
======== ========== ========
No more than approximately ____% of the Loans will be secured by Properties
located in any one zip code.
PRINCIPAL BALANCES
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF PRINCIPAL BALANCES OF LOANS BALANCE BALANCE
- --------------------------- ------- --------- ---------
____
$--------- $---------...................... $ %
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
____
$--------- $---------.....................
--------- ---------- --------
Total....................................... $ 100.00%
======== ========== ========
As of the Cut-Off Date, the average unpaid principal balance of the Loans was
approximately $______.
LIEN PRIORITY
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
LIEN PRIORITY OF LOANS BALANCE BALANCE
- --------------------------- ------- --------- ---------
First Lien................................... $ %
Second Lien.................................. ________ __________ ________
Total...................................... $ 100.00%
======== ========== ========
<PAGE>
CURRENT LOAN INTEREST RATES
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF LOAN INTEREST RATES OF LOANS BALANCE BALANCE
- ---------------------------- ------- --------- ---------
%___
- --------- ---------%..................... $ %
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%.................... ________ __________ ________
Total....................................... $ 100.00%
======== ========== ========
As of the Cut-Off Date, the weighted average Loan Interest Rate of the Loans was
approximately _____% per annum.
COMBINED LOAN-TO-VALUE RATIOS
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF COMBINED LOAN-TO-VALUE RATIO OF LOANS BALANCE BALANCE
- ------------------------------------- ------- --------- ---------
%___
- --------- ---------%..................... $ %
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
___
- --------- ---------%....................
--------- ---------- --------
Total....................................... $ 100.00%
======== ========== ========
As of the Cut-Off Date, the weighted average Combined Loan-to-Value Ratio of
the Loans was approximately _____.
OCCUPANCY STATUS
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
OCCUPANCY OF LOANS BALANCE BALANCE
- ---------------------------- ------- --------- ---------
Owner Occupied............................... $ %
Non-Owner Occupied...........................
Second Home..................................
--------- ---------- --------
Total....................................... $ 100.00%
======== ========== ========
PROPERTY TYPES
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
PROPERTY TYPE OF LOANS BALANCE BALANCE
- ---------------------------- ------- --------- ---------
Single Family................................ $ %
Two Family...................................
Three Family.................................
Four Family..................................
Planned Unit Development.....................
Condominium..................................
Manufactured Housing.........................
--------- ---------- --------
Total....................................... $ 100.00%
======== ========== ========
MONTHS SINCE ORIGINATION
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF LOAN AGE (IN MONTHS) OF LOANS BALANCE BALANCE
- ---------------------------- ------- --------- ---------
$ %
--------- ---------- --------
Total....................................... $ 100.00%
======== ========== ========
As of the Cut-Off Date, the weighted average number of months since
origination of the Loans was approximately ___ months.
<PAGE>
REMAINING TERMS TO MATURITY
% OF
CUT-OFF
AGGREGATE DATE
RANGE OF REMAINING TERMS TO MATURITY (IN NUMBER PRINCIPAL PRINCIPAL
MONTHS) OF LOANS BALANCE BALANCE
- ----------------------------------------- ------- --------- ---------
$ %
--------- ---------- --------
Total....................................... $ 100.00%
======== ========== ========
As of the Cut-Off Date, the weighted average remaining term to maturity of
the Loans was approximately ___ months.
The information set forth in the preceding section "Description of the Loans"
has been based upon information provided by the Transferor and tabulated by the
Depositor. None of the Depositor, the Trustee [or the Certificate Insurer] make
any representation as to the accuracy or completeness of such information.
ASSIGNMENT OF LOANS
Pursuant to the Pooling and Servicing Agreement, the Depositor will sell,
transfer, assign, set over and otherwise convey without recourse to the Trust in
trust for the benefit of the Certificateholders [and the Certificate Insurer]
all right, title and interest in and to each Loan. Each such transfer will
convey all right, title and interest in and to (a) principal due to the extent
of the unpaid principal balance and (b) interest accrued after the Cut-Off Date;
provided, however, that the Depositor will not convey, and the Transferor
reserves and retains all its right, title and interest in and to principal
(including principal prepayments in full and curtailments (i.e., partial
prepayments)) due on each such Loan on or prior to the Cut-Off Date.
In connection with such transfer and assignment, the Depositor will cause to
be delivered to the Trustee on the Closing Date the loan documents
(collectively, with respect to each Loan, the "TRUSTEE'S LOAN FILE") with
respect to each Loan.
If the Trustee [or the Certificate Insurer] during the process of reviewing
the Trustee's Loan Files finds any document constituting a part of a Trustee's
Loan File which is not executed, has not been received or is unrelated to the
Loans, or that any Loan does not conform to its requirements or to the
description thereof as set forth in the schedule appearing as an exhibit to the
Pooling and Servicing Agreement (the "LOAN SCHEDULE"), the Trustee [or the
Certificate Insurer], as applicable, is required to promptly so notify the
Trustee, the Servicer, the Transferor [and the Certificate Insurer]. The
Transferor agrees to use reasonable efforts to cause to be remedied a material
defect in a document constituting part of a Trustee's Loan File of which it is
so notified by the Trustee. If, however, within 120 days after the Trustee's
notice to it respecting such defect the Transferor has not caused to be remedied
the defect and the defect materially and adversely affects the value of the Loan
or the interest of the Certificateholders [or the Certificate Insurer] in such
Loan, the Transferor will be required to either (i) substitute in lieu of such
Loan a Qualified Substitute Loan and, if the then unpaid principal balance of
such Qualified Substitute Loan is less than the principal balance of such Loan
as of the date of such substitution plus accrued and unpaid interest thereon,
deliver to the Servicer as part of the related monthly remittance remitted by
the Servicer the amount of any such shortfall (the "SUBSTITUTION ADJUSTMENT") or
(ii) purchase such Loan at a price (the "PURCHASE PRICE") equal to the unpaid
principal balance of such Loan as of the date of purchase, plus the greater of
(x) all accrued and unpaid interest thereon or (y) 30 days' interest thereon,
computed at the related Loan Interest Rate, plus the amount of any unreimbursed
Servicing Advances made by the Servicer, which Purchase Price shall be deposited
in the Collection Account or Trustee Collection Account on the next succeeding
Determination Date after deducting therefrom any amounts received in respect of
such repurchased Loan or Loans and being held in the Collection Account or
Trustee Collection Account for future distribution to the extent such amounts
have not yet been applied to principal or interest on such Loan or Loans.
A "QUALIFIED SUBSTITUTE LOAN" is any Loan or Loans which (i) relates or
relate to a detached one-family residence or to the same type of residential
dwelling as the deleted Loan and in each case has or have the same or a better
lien priority as the deleted Loan with a borrower having the same or better
traditionally ranked credit status and is an owner-occupied Property, (ii)
matures or mature no later than (and not more than one year earlier than) the
deleted Loan, (iii) has or have a Combined Loan-to-Value Ratio or Combined
Loan-to-Value Ratios at the time of such substitution no higher than the
Combined Loan-to-Value Ratio of the deleted Loan, (iv) has or have an unpaid
principal balance or principal balances (after application of all payments
received on or prior to the date of substitution) (which shall be the unpaid
principal balance or principal balances thereof) not substantially less and not
more than the unpaid principal balance of the deleted Loan as of such date and
(v) complies or comply as of the date of substitution with each representation
and warranty set forth in the Pooling and Servicing Agreement.
REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR
The Transferor will represent, among other things, with respect to each Loan,
as of the Closing Date, the following:
(a) The information set forth in the Loan Schedule with respect to each
Loan is complete, true and correct as of the Cut-Off Date;
(b) Immediately prior to the sale of the Loans to the Depositor, the
Transferor had good and marketable title to each Loan subject to no prior
lien or interest of any nature; and
(c) The Transferor has transferred all right, title and interest of the
Transferor in and to the Loans and in the proceeds thereto to the Depositor.
Pursuant to the Pooling and Servicing Agreement, upon the discovery by any of
the Certificateholders, the Servicer, the Transferor[, the Certificate Insurer]
or the Trustee that any of the representations and warranties of the Transferor
have been breached in any material respect as of the Closing Date, with the
result that the value of the Loan or the interests of the Certificateholders in
the related Loan [or the interests of the Certificate Insurer] were materially
and adversely affected (notwithstanding that such representation and warranty
was made to the Transferor's best knowledge), the party discovering such breach
is required to give prompt written notice to the others of such breach.
Within 120 days of the earlier to occur of the Transferor's discovery or its
receipt of written notice of any such breach, the Transferor will be required
to:
(a) promptly cure such breach in all material respects;
(b) remove each Loan which has given rise to the requirement for action by
the Transferor to substitute one or more Qualified Substitute Loans and, if
the unpaid principal balance of such Qualified Substitute Loans as of the
date of such substitution is less than the unpaid principal balance, plus
accrued and unpaid interest thereon of the replaced Loans as of the date of
substitution, deliver to the Trust Fund as part of the amounts remitted by
the Servicer on such Distribution Date the amount of such shortfall; or
(c) purchase such Loan at the Purchase Price and deposit such Purchase
Price into the Trustee Collection Account on the next succeeding
Determination Date after deducting any amounts received in respect of such
repurchased Loan or Loans and being held in the Trustee Collection Account or
the Certificate Account for future distribution to the extent such amounts
have not yet been applied to principal or interest on such Loan;
provided, however, that any substitution of one or more Qualified Substitute
Loans pursuant to the preceding clause (b) must be effected not later than two
years after the Closing Date unless the Trustee [and the Certificate Insurer]
receive an opinion of counsel that such substitution would not constitute a
prohibited transaction for purposes of the REMIC provisions of the Code. The
obligation of the Transferor to cure such breach or to substitute or purchase
any Loan will constitute the sole remedy respecting a material breach of any
such representation or warranty to the Certificateholders, the Trustee [and the
Certificate Insurer].
THE TRANSFEROR AND THE SERVICER
GENERAL
__________________ ("__________") is the Transferor and Servicer under the
Pooling and Servicing Agreement. __________ is a _________________ with its
principal place of business in _________________, and is a wholly owned
subsidiary of _____________________, a _____________ corporation. As of
___________, 199_, ___________ had total assets of approximately $___ million,
net loans of approximately $___ million, deposits of approximately $___ million
and capital of approximately $___ million. At _______, 199_, ___________'s
regulatory capital measures, determined under the regulatory reporting
requirement of the ____________________, were as follows: core capital ___% and
total risk based capital ___%.
The Transferor will sell and assign each Loan to the Depositor in
consideration for the net proceeds from the sale of the Offered Certificates,
and for the Class R Certificates, which will initially be retained by the
Transferor.
The Offered Certificates will not represent an interest in or obligation of,
nor are the Loans guaranteed by, the Transferor or any of its affiliates.
The Servicer may utilize one or more subservicers (each, a "SUBSERVICER") in
the performance of the administrative and servicing obligations of the Servicer
under the Pooling and Servicing Agreement, but no such subservicing arrangement
will discharge the Servicer from its obligations under the Pooling and Servicing
Agreement.
The Trustee may remove the Servicer, and the Servicer may resign, only in
accordance with the terms of the Pooling and Servicing Agreement. No removal or
resignation will become effective until the Trustee or a successor servicer
shall have assumed the Servicer's responsibilities and obligations in accordance
therewith. Any collections received by the Servicer after its removal or
resignation will be endorsed by it to the Trustee and remitted directly to the
Trustee.
CREDIT AND UNDERWRITING GUIDELINES
The following is a brief description of ______________'s underwriting
guidelines (the "GUIDELINES") as they are currently in effect. The Guidelines
are revised continuously based on opportunities and prevailing conditions in the
nonconforming credit residential mortgage market, as well as in the expected
market for securities backed by such loans. _________ has informed the Depositor
that it believes that the Guidelines are consistent with standards generally
used by lenders in the business of making loans based on non-conforming credits.
Loans originated by correspondent originators generally will have been
originated in accordance with ______________'s Guidelines. However, certain of
the Loans may be employee or preferred customer loans with respect to which no
income or asset verifications were required.
The underwriting process is intended to assess both the prospective
borrower's ability to repay and the adequacy of the real property as collateral
for the loan granted. __________'s Guidelines permit the origination and
purchase of loans with multi-tiered credit characteristics tailored to
individual credit profiles. In general, ____________'s Guidelines require an
analysis of the equity in the collateral, the payment history and debt-to-income
ratio of the borrower, the property type, and the characteristics of the
underlying first mortgage, if any. A lower maximum CLTV is required for lower
gradations of credit quality.
___________'s Guidelines permit the origination or purchase of fixed or
adjustable rate loans that either fully amortize over a period generally not to
exceed 30 years or, in the case of a balloon loan, generally amortize based on a
30-year or less amortization schedule with a due date and a "balloon" payment at
the end of a term that can be no greater than 15 years.
The homes pledged to secure loans may be either owner occupied (which
includes second homes) or non-owner occupied investor properties which, in
either case, are single-family residences (which may be detached, part of a
two-or four-family dwelling, manufactured homes, condominium units or units in a
planned unit development). Commercial properties or agricultural land are not
generally accepted as collateral; however, they may be added as additional
security.
____________'s Guidelines require that the CLTV of a Loan generally not
exceed 90%, except that a second loan in an amount of $50,000 or less may have a
CLTV of up to 95%, and a second loan in an amount of $25,000 or less may have a
CLTV of up to 100%. ___________'s Guidelines do not permit the origination or
purchase of loans where the senior mortgagee may share in any appreciation in
the value of the related Mortgaged Property.
In most cases, the value of each property proposed as security for a loan is
determined by a full appraisal. A limited appraisal, conducted on a drive-by
basis, is sometimes utilized for loans with CLTVs under 50%. Appraisals are
performed by professional appraisers who have been approved by __________ or who
are employed by an appraisal service company approved by ________. _____________
evaluates appraisers based on established criteria and appraisal requirements,
and maintains a current approved appraiser list.
______________'s Guidelines provide for the origination of loans under two
programs: (a) a full verification program for salaried or self-employed
borrowers and (b) a non-income verification program for self-employed borrowers
only. Under the full verification program, each mortgage applicant is required
to provide, and ____________ or its designee generally verifies, certain
personal financial information. The applicant's total monthly obligations
(including principal and interest on each mortgage, other loans, charge accounts
and all other scheduled indebtedness) generally (in the absence of
countervailing considerations, such as relatively high income or a relatively
low CLTV) should not exceed 45% of the applicant's gross monthly income (as
certified by the borrower on the application). Applicant's who are salaried
employees must provide current employment information in addition to recent
employment history. ___________ or its designee generally verifies this
information for salaried borrowers based on written confirmation from employers
or a combination of two of the following: the most recent pay stub, the most
recent W-2 tax form or telephone confirmation from the employer. Self-employed
applicants are required to provide personal and business financial statements
and signed copies of complete federal income tax returns (including schedules)
filed for the most recent two years. Unverifiable income may be considered if an
applicant's standard of living indicates substantial financial resources and the
applicant has a good credit record. Under the non-income verification program,
two years' history of self employment plus proof of current self-employed status
is required.
A credit report by an independent, nationally recognized credit reporting
agency reflecting the applicant's complete credit history is required.
Verification is required to be obtained of the senior loan balance, if any, the
payment status of the senior loans and whether local taxes, interest, insurance
and assessments are included in the applicant's monthly payment. All taxes and
assessments not included in the payment are required to be verified as current.
A poor credit history may not disqualify an applicant if, in ___________'s
judgment, there are offsetting factors, such as the applicant's ability to pay
and a relatively low CLTV.
In connection with purchase-money loans, __________'s Guidelines require (a)
an acceptable source of downpayment funds, (b) verification of the source of the
downpayment funds, and (c) adequate cash reserves.
______________'s Guidelines generally require title insurance coverage issued
by an approved American Land Title Association ("ALTA") or California Land Title
Association ("CLTA") title insurance company on each Loan it originates or
purchases. The applicant is required to secure property insurance in an amount
equal to the lesser of (a) an amount sufficient to cover the new loan and any
prior loan and (b) the cost of rebuilding the subject property (which generally
does not include land value).
DELINQUENCY AND FORECLOSURE INFORMATION
The following table sets forth the delinquency experience of the Transferor's
servicing portfolio of loans generally similar in type to the Loans, as of the
dates indicated below whereas the aggregate delinquency experience on the Loans
will depend on the results obtained over the life of the Loans. The Transferor's
portfolio of loans may differ significantly from the Loans included in the Trust
Fund in such characteristics as interest rates, principal balances, geographic
distribution, Combined Loan-to-Value Ratios and other relevant characteristics.
There can be no assurance that the delinquency and foreclosure experience on the
Loans (many of which have been originated or acquired by the Transferor during
the past twelve months) will be consistent with the historical information
provided below. The rates of delinquencies and foreclosures on the Loans may be
higher than the historical information presented below.
The following table sets forth information relating to the delinquency
experience of a portfolio of loans for the quarters beginning ________, 199_ and
ending __________, 199_.
DELINQUENCY AND FORECLOSURE EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
__________, 199_ __________, 199_ __________, 199_ __________, 199_
------------------------------------------------------------------------------------
NUMBER NUMBER NUMBER NUMBER
OF DOLLAR OF DOLLAR OF DOLLAR OF DOLLAR
LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT
------ ------ ------ ------- ------ ------- ------- ---------
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio.............
Delinquencies and
Foreclosures:........
Delinquency
Percentage(1)........
30-59 days...........
60-89 days...........
90 days or more......
Foreclosure
Percentage...........
Total...........
- ------------------------
</TABLE>
(1) The period of delinquency is based on the number of days that a payment is
contractually past due.
The above delinquency and foreclosure experience statistics are
calculated on the basis of the total home equity loan portfolio serviced by
the Transferor as of the dates indicated, all of which loans were originated
or acquired by the Transferor. Such statistics are not cumulative. The above
statistics do not include any of the Loans secured by Manufactured Homes or
the Loans which were recently acquired by the Transferor from _________ and
___________. Because the total amount of loans serviced by the Transferor
has increased over these periods as a result of new originations, the
delinquency and foreclosure percentages shown above are lower than they
would be if such loans had been outstanding for a longer period of time.
Because the Trust Fund consists of a fixed pool of Loans, the actual
delinquency and foreclosure percentages with respect to the Loans may be
higher, and could be significantly higher, than the delinquency and
foreclosure percentages indicated above.
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity of a Class A Certificate will depend on the price paid
by the related Certificateholder for such Class A Certificate, the related
Pass-Through Rate and the rate and timing of principal payments (including
payments in excess of the scheduled monthly payment, prepayments in full or
terminations, liquidations and repurchases) on the Loans. Approximately _____%
of the Loans by Cut-Off Date Principal Balance provide for the payment of a
penalty in connection with prepayment in full during the first two, three, four
or five years after origination thereof.
The rate of principal prepayments on the Loans will be 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 Loans at any time because of specific
factors relating to such Loans, such as the age of the Loans, the geographic
location of the related Properties and the extent of the related borrowers'
equity in such Properties, and changes in the borrowers' housing needs, job
transfers and employment. In general, if prevailing interest rates fall
significantly below the interest rates at the time of origination, Loans may be
subject to higher prepayment rates than if prevailing interest rates remain at
or above those at the time such Loans were originated. Conversely, if prevailing
interest rates rise appreciably above the interest rates at the time of
origination, Loans may experience a lower prepayment rate than if prevailing
interest rates remained at or below those existing at the time such loans were
originated. There can be no assurance as to the prepayment rate of the Loans or
that the Loans will conform to the prepayment experience of other loans or to
any past prepayment experience or any published prepayment forecast.
In general, if a Class A Certificate is purchased at a premium over its face
amount and payments of principal of such Class A Certificate occur at a rate
faster than that assumed at the time of purchase, the purchaser's actual yield
to maturity will be lower than that anticipated at the time of purchase.
Conversely, if a Class A Certificate is purchased at a discount from its face
amount and payments of principal of such Class A Certificate occur at a rate
that is slower than that assumed at the time of purchase, the purchaser's actual
yield to maturity will be lower than originally anticipated.
The rate and timing of defaults on the Loans will also affect the rate and
timing of principal payments on the Loans and thus the yield on the Class A
Certificates. There can be no assurance as to the rate of losses or
delinquencies on any of the Loans. To the extent that any losses are incurred on
any of the Loans that are not covered by excess interest or an Insured Payment,
the Class A Certificateholders will bear the risk of losses resulting from
default by borrowers. See "Risk Factors" herein and in the Prospectus.
"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 distribution to the
investor thereof of each dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Class A
Certificates will be influenced by, among other factors, the rate of principal
payments on the Loans.
The primary source of information available to investors concerning the Class
A Certificates will be the monthly statements discussed herein under "Servicing
of the Loans - Servicer Reports," which will include information as to the
outstanding Certificate Principal Balance of the Certificates. There can be no
assurance that any additional information regarding the Class A Certificates
will be available through any other source. In addition, the Depositor is not
aware of any source through which price information about the Class A
Certificates will be generally available on an ongoing basis. The limited nature
of such information regarding the Class A Certificates may adversely affect the
liquidity of the Class A Certificates, even if a secondary market for the Class
A Certificates becomes available.
Prepayments on loans such as the Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the prepayment assumption (the "PREPAYMENT ASSUMPTION"), which represents an
assumed rate of prepayment each month relative to the then outstanding principal
balance of the pool of loans for the life of such loans. A 100% Prepayment
Assumption assumes a constant prepayment rate ("CPR") of ___% per annum of the
outstanding principal balance of such loans in the first month of the life of
the loans and an additional approximate __% (precisely 25/12 multiplied by
1.00%) per annum in each month thereafter until the ___th month; beginning in
the __th month and in each month thereafter during the life of the loans, a CPR
of _____% per annum each month is assumed. As used in the tables below, a 0%
Prepayment Assumption assumes a prepayment rate equal to 0% of the Prepayment
Assumption (i.e., no prepayments). Correspondingly, a 75% Prepayment Assumption
assumes a prepayment rate equal to 75% of the Prepayment Assumption, and so
forth. The Prepayment Assumption does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of loans, including the Loans. Neither the Transferor,
the Depositor nor the Underwriters make any representations about the
appropriateness of the Prepayment Assumption or the CPR.
MODELING ASSUMPTIONS
For purposes of preparing the tables below, the following assumptions (the
"MODELING ASSUMPTIONS") have been made:
(i) all scheduled principal payments on the Loans are timely received on
the first day of a Due Period, which will begin on the first day of each
month and end on the thirtieth day of the month, with the first Due Period
for the Loans commencing on ________, 199_, and no delinquencies or losses
occur on the Loans;
(ii) the scheduled payments on the Loans have been calculated on the
outstanding principal balance (prior to giving effect to prepayments), the
Loan Interest Rate and the remaining term to stated maturity such that the
Loans will fully amortize by their remaining term to stated maturity;
(iii) all scheduled payments of interest and principal in respect of the
Loans have been made through the Cut-Off Date;
(iv) all Loans prepay monthly at the specified percentages of the
Prepayment Assumption, no optional or other early termination of the Offered
Certificates occurs (except with respect to the calculation of the "Weighted
Average Life-to-Call (Years)" figures in the following tables) and no
substitutions or repurchases of the Loans occur;
(v) all prepayments in respect of the Loans include 30 days' accrued
interest thereon;
(vi) the Closing Date for the Offered Certificates is ________, 199_;
(vii) each year will consist of twelve 30-day months (with respect to the
Class A-1 Certificates, interest will be calculated on the basis of a 360 day
year and the actual number of days elapsed):
(viii) cash distributions are received by the holders of the Offered
Certificates on the ___th day of each month, commencing in ______ 199_;
(ix) the Pass-Through Rate for each Class of Offered Certificates (other
than the Class A-1 Certificates) is as set forth on the cover page hereof;
(x) the Pass-Through Rate on the Class A-1 Certificates will remain
constant at ___% per annum;
(xi) the additional fees deducted from the interest collections in respect
of the Loans include the Servicing Fee, and _______% on the aggregate
Certificate Principal Balances in respect of all other fees;
(xii) no reinvestment income from any account is earned and available for
distribution;
(xiii) the pool consists of Loans having the following characteristics:
ASSUMED LOAN CHARACTERISTICS
REMAINING
CUT-OFF TERM TO ORIGINAL
DATE MATURITY TERM TO
SUB-POOL PRINCIPAL LOAN (MONTHS) MATURITY
BALANCE RATE % (MONTHS)
-------- --------- ------ ---------- ---------
<PAGE>
The following tables indicate at the specified percentages of the Prepayment
Assumption the corresponding weighted average lives of each Class of
Certificates.
PERCENTAGE OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE
AT THE FOLLOWING PERCENTAGES OF PREPAYMENT ASSUMPTION (1)
CLASS A-1 CERTIFICATES
--------------------------------------------------------------
PAYMENT DATE 0% 50% 75% 100% 125% 150%
- --------------- ------- -------- ---------- -------- -------- ---------
Initial Percent
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
Weighted Average
Life-to-Maturity
(Years) (2)......
Weighted Average
Life-to-Call
(Years) (2).......
- --------------------
(1) All percentages are rounded to the nearest 1%.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to two decimal places.
* Indicates that the cash flows are contingent on the optional termination
provision not being exercised.
<PAGE>
PERCENTAGE OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE
AT THE FOLLOWING PERCENTAGES OF PREPAYMENT ASSUMPTION (1)
CLASS A-2 CERTIFICATES
--------------------------------------------------------------
PAYMENT DATE 0% 50% 75% 100% 125% 150%
- --------------- ------- -------- ---------- -------- -------- ---------
Initial Percent
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
Weighted Average
Life-to-Maturity
(Years) (2)......
Weighted Average
Life-to-Call
(Years) (2).......
- ----------------------
(1) All percentages are rounded to the nearest 1%.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to two decimal places.
* Indicates that the cash flows are contingent on the optional termination
provision not being exercised.
<PAGE>
PERCENTAGE OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE
AT THE FOLLOWING PERCENTAGES OF PREPAYMENT ASSUMPTION (1)
CLASS A-3 CERTIFICATES
--------------------------------------------------------------
PAYMENT DATE 0% 50% 75% 100% 125% 150%
- --------------- ------- -------- ---------- -------- -------- ---------
Initial Percent
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
Weighted Average
Life-to-Maturity
(Years) (2)......
Weighted Average
Life-to-Call
(Years) (2).......
- --------------------
(1) All percentages are rounded to the nearest 1%.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to two decimal places.
* Indicates that the cash flows are contingent on the optional termination
provision not being exercised.
<PAGE>
PERCENTAGE OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE
AT THE FOLLOWING PERCENTAGES OF PREPAYMENT ASSUMPTION (1)
CLASS A-4 CERTIFICATES
--------------------------------------------------------------
PAYMENT DATE 0% 50% 75% 100% 125% 150%
- --------------- ------- -------- ---------- -------- -------- ---------
Initial Percent
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
Weighted Average
Life-to-Maturity
(Years) (2)......
Weighted Average
Life-to-Call
(Years) (2).......
- --------------------
- ----------------------
(1) All percentages are rounded to the nearest 1%.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to two decimal places.
* Indicates that the cash flows are contingent on the optional termination
provision not being exercised.
<PAGE>
PERCENTAGE OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE
AT THE FOLLOWING PERCENTAGES OF PREPAYMENT ASSUMPTION (1)
CLASS A-5 CERTIFICATES
--------------------------------------------------------------
PAYMENT DATE 0% 50% 75% 100% 125% 150%
- --------------- ------- -------- ---------- -------- -------- ---------
Initial Percent
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
Weighted Average
Life-to-Maturity
(Years) (2)......
Weighted Average
Life-to-Call
(Years) (2).......
- --------------------
- ----------------------
(1) All percentages are rounded to the nearest 1%.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to two decimal places.
* Indicates that the cash flows are contingent on the optional termination
provision not being exercised.
<PAGE>
PERCENTAGE OF ORIGINAL CERTIFICATE PRINCIPAL BALANCE
AT THE FOLLOWING PERCENTAGES OF PREPAYMENT ASSUMPTION (1)
CLASS A-6 CERTIFICATES
--------------------------------------------------------------
PAYMENT DATE 0% 50% 75% 100% 125% 150%
- --------------- ------- -------- ---------- -------- -------- ---------
Initial Percent
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 200_
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
____ 20__
Weighted Average
Life-to-Maturity
(Years) (2)......
Weighted Average
Life-to-Call
(Years) (2).......
- --------------------
(1) All percentages are rounded to the nearest 1%.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to two decimal places.
* Indicates that the cash flows are contingent on the optional termination
provision not being exercised.
---------------
These tables have been prepared based on the Modeling Assumptions (including
the assumptions regarding the characteristics and performance of the Loans which
may differ from their actual characteristics and performance) and should be read
in conjunction with such assumptions.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Depositor will issue its Home Equity Asset Backed Certificates, Series
199_-_ on or about the Closing Date, pursuant to the Pooling and Servicing
Agreement.
The Offered Certificates, together with the Class R Certificates, will
represent in the aggregate the entire beneficial interest in a Trust, the assets
of which (such assets collectively, the "TRUST FUND") include: (i) the Loans and
all payments thereunder and proceeds thereof received after the Cut-Off Date
(exclusive of payments of principal, interest and other amounts due thereon on
or before the Cut-Off Date); (ii) any REO Properties; and (iii) such funds or
assets as from time to time are deposited in the Certificate Account.
The Certificates will consist of ____ classes (each, a "CLASS") to be
designated as: (i) the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and
Class A-6 Certificates (collectively, the "PRINCIPAL BALANCE CERTIFICATES");
(ii) the Class A-6IO (and, collectively with the Principal Balance Certificates,
the "CLASS A CERTIFICATES"); the "REMIC REGULAR CERTIFICATES"; and (iv) the
Class R Certificates (the "REMIC RESIDUAL CERTIFICATES"). Only the Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, and Class A-6IO
Certificates (collectively, the "OFFERED CERTIFICATES") are offered hereby.
The Class R Certificates (the "PRIVATE CERTIFICATES") have not been
registered under the Securities Act and are not offered hereby. Accordingly, to
the extent this Prospectus Supplement contains information regarding the terms
of the Private Certificates, such information is provided because of its
potential relevance to a prospective purchaser of an Offered Certificate.
The Class A Certificates will be issued only in book-entry form, in
denominations of $25,000 initial principal balance with integral multiples of
$1,000 in excess of that amount, except that one Certificate for each Class may
be issued in a different amount.
Each Class of Class A Certificates will initially be represented by a single
physical certificate in each case registered in the name of Cede, as nominee of
DTC, which will be the "Holder" or "Certificateholder" of the Class A
Certificates as such terms are used in the Pooling and Servicing Agreement. No
Beneficial Owner will be entitled to receive a certificate representing such
person's interest in the Class A Certificates, except as set forth below under
"Definitive Certificates." Before any termination of the book-entry provisions,
distributions on the Class A Certificates will be made to persons with
beneficial ownership interests in the Class A Certificates only through The
Depository Trust Company ("DTC") and participants of DTC in the United States,
or Cedelbank or the Euroclear System, or indirectly through participants in such
systems in Europe. See "Description of the Securities--Book-Entry Registration
of Securities" in the Prospectus.
DEFINITIVE CERTIFICATES
A Class A Certificate, which will be issued initially as a Book-Entry
Certificate, will be converted to a physical certificate (a "DEFINITIVE
CERTIFICATE") and reissued to the Beneficial Owners or their nominees, rather
than to DTC or its nominee, only if (a) the Depository or the Servicer advises
the Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to the Book-Entry
Certificates and the Depository or the Servicer is unable to locate a qualified
successor or (b) the Trustee, at its option, elects to terminate the book-entry
system through DTC.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all its participants of the
availability through DTC of Definitive Certificates. Upon delivery of Definitive
Certificates, the Trustee will reissue the Book-Entry Certificates as Definitive
Certificates to Beneficial Owners. Distributions of principal of, and interest
on, the Book-Entry Certificates will thereafter be made by the Trustee, or a
paying agent on behalf of the Trustee, directly to holders of Definitive
Certificates in accordance with the procedures set forth in the Pooling and
Servicing Agreement.
Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee or the certificate registrar. No service charge will be imposed
for any registration of transfer or exchange, but the Trustee may require
payment by the Beneficial Owner of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
CERTIFICATE PRINCIPAL BALANCES AND NOTIONAL AMOUNT
On the Closing Date, the respective Classes of Principal Balance Certificates
will have the Certificate Principal Balances indicated on the cover of this
Prospectus Supplement (in each case, subject to a variance of plus or minus 5%).
The "CERTIFICATE PRINCIPAL BALANCE" of any Class of Principal Balance
Certificates outstanding at any time will be the then aggregate stated principal
amount thereof. On each Distribution Date, the Certificate Principal Balance of
each Class of Principal Balance Certificates will be reduced by any
distributions of principal actually made on such Class of Certificates on such
Distribution Date. See "--Distributions" below.
The Class A-6IO Certificates will not have a Certificate Principal Balance.
The Class A-6IO Certificates will represent the right to receive distributions
of interest accrued as described in this Prospectus Supplement on a notional
amount ("NOTIONAL AMOUNT") equal to the aggregate Certificate Principal Balance
of the Class A-6 Certificates outstanding from time to time.
The Class R Certificates will not have a Certificate Principal Balance or a
Notional Amount.
A Class of Offered Certificates will be considered to be outstanding until
its Certificate Principal Balance or Notional Amount is reduced to zero.
PASS-THROUGH RATES
The Pass-Through Rates applicable to the Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6 and Class A-6IO Certificates will, for any Distribution
Date, at all times be equal to the respective fixed rates set forth on the cover
of this Prospectus Supplement.
The Pass-Through Rate applicable to the Class A-1 Certificates for any
Distribution Date will be equal to the lesser of (i) the London interbank
offered rate for one-month U.S. dollar deposits ("LIBOR") (calculated as
described under "--Calculation of LIBOR" below) as of the second business day
prior to the preceding Distribution Date, or prior to the Cut-Off Date in the
case of the first Distribution Date (the "LIBOR DETERMINATION DATE") plus a
margin of ____% per annum, subject to a maximum rate equal to ____% (the "CLASS
A-1 LIBOR RATE") and (ii) the Weighted Average Net Loan Rate for such
Distribution Date.
Interest distributable on each Distribution Date will be interest accrued
during the period (each, the related "ACCRUAL PERIOD" for the applicable Class)
from, in the case of the Class A-1 Certificates, the preceding Distribution Date
(or the Closing Date, in the case of first Distribution Date) to and including
the day preceding such current Distribution Date and, in the case of all other
Certificates, the first day of the preceding calendar month to and including the
last day of the preceding calendar month. Interest will accrue throughout an
Accrual Period only on the Certificate Principal Balance or Notional Amount at
the end of the related Accrual Period, notwithstanding that the Certificate
Principal Balance or Notional Amount may be higher during a portion of such
Accrual Period, any principal distributed during such Accrual Period being
deemed to have been distributed at the beginning of such Accrual Period.
Interest with respect to the Class A-2, Class A-3, Class A-4, Class A-5,
Class A-6 and Class A-6IO Certificates on each Distribution Date will accrue on
the basis of a 360-day year consisting of twelve 30-day months. Interest with
respect to the Class A-1 Certificates on each Distribution Date will accrue on
the basis of the actual number of days during an Accrual Period over a 360-day
year. With respect to each Distribution Date and each Class of applicable
Certificates, interest payable on any Distribution Date at the related
Pass-Through Rate on the related Certificate Principal Balance or Notional
Amount outstanding on the immediately preceding Distribution Date (after giving
effect to all payments of principal made on such Distribution Date) or the
related initial Certificate Principal Balance or Notional Amount, in the case of
the initial Distribution Date, is referred to herein as the "INTEREST REMITTANCE
AMOUNT" for each such Class of Certificates. The sum of the Interest Remittance
Amounts for each Class of Certificates is referred to herein as the "CERTIFICATE
INTEREST REMITTANCE AMOUNT."
The "WEIGHTED AVERAGE NET LOAN RATE" for any Distribution Date is the
weighted average of the Net Loan Rates for all the Loans (based on Loan Interest
Rates applied with respect to payments due in the related Due Period and
weighted on the basis of their respective unpaid principal balances immediately
following the preceding Distribution Date (or, in the case of the initial
Distribution Date, as of the Cut-Off Date)).
The "NET LOAN RATE" with respect to any Loan is, in general, a per annum rate
equal to the related Loan Interest Rate in effect from time to time, minus the
sum of (i) the applicable Servicing Fee Rate, (ii) the per annum rate at which
the monthly Trustee Fee is calculated [and (iii) the per annum rate at which the
premium payable to the Certificate Insurer is calculated] (such sum, the
"ADMINISTRATIVE FEE RATE").
The "DUE PERIOD" for each Distribution Date or Determination Date is the
period that begins on the ___ day of the calendar month preceding the month in
which such Distribution Date or Determination Date occurs and ends on and
includes the last day of such month in which such Distribution Date or
Determination Date occurs.
DISTRIBUTIONS
General. Distributions on or with respect to the Certificates will be made by
the Trustee, to the extent of available funds, on the __th day of each month or,
if any such ___th day is not a business day, then on the next succeeding
business day, commencing in _____ 199_ (each, a "DISTRIBUTION DATE"). Except as
otherwise described below, all such distributions will be made to the persons
(the "CERTIFICATEHOLDERS") in whose names the Certificates are registered at the
close of business on the related Record Date and, as to each such person, will
be made by wire transfer in immediately available funds to the account specified
by the Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder will have provided the Trustee with written
wiring instructions no less than five business days prior to the related Record
Date, or otherwise by check mailed to such Certificateholder. Until Definitive
Certificates are issued in respect thereof, Cede & Co. will be the registered
holder of the Offered Certificates. See "--General" above. The final
distribution on any Certificate will be made in like manner, but only upon
presentation and surrender of such Certificate at the location that will be
specified in a notice of the pendency of such final distribution. All
distributions made on or with respect to a Class of Certificates will be
allocated pro rata among such Certificates based on their respective percentage
interests in such Class.
With respect to any Distribution Date and any Class of Certificates, the
"RECORD DATE" will be the last business day of the calendar month immediately
preceding the month in which such Distribution Date occurs.
Available Distribution Amount. With respect to any Distribution Date,
distributions of interest on and principal of the Certificates will be made from
the Available Distribution Amount for such Distribution Date. The "AVAILABLE
DISTRIBUTION AMOUNT" for any Distribution Date will, in general, equal (i) the
Servicer Remittance Amount relating to such Distribution Date, minus (ii) the
sum of the (A) Trustee Fee for such Distribution Date [and (B) the amount owed
to the Certificate Insurer as a premium for the Certificate Insurance Policy for
such Distribution Date].
Application of the Available Distribution Amount. On each Distribution Date,
the Trustee will apply the Available Distribution Amount and any Insured Payment
for such date for the following purposes and in the following order of priority:
(1) to pay interest to the holders of the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6 and Class A-6IO Certificates, up to an amount
equal to, and pro rata as among such Classes in accordance with, all
Distributable Certificate Interest and, to the extent not previously paid,
for all prior Distribution Dates;
(2) to the Class A-6 Certificates, in an amount equal to the lesser of (i)
the Principal Distribution Amount and (ii) the Class A-6 Lockout Distribution
Amount, until the Certificate Principal Balance of the Class A-6 Certificates
has been reduced to zero;
(3) to the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5 and Class
A-6 Certificates, in that order, in an aggregate amount up to the Principal
Distribution Amount until the Certificate Principal Balance of each such
Class has been reduced to zero, such that no amount will be distributed on
any Class of Certificates pursuant to this clause (3) while any Principal
Balance Certificate having a lower numerical designation remains outstanding;
[(4) to the Certificate Insurer, the lesser of (x) the excess of (i) the
Available Distribution Amount remaining after the distributions set forth in
(1) through (4) above have been made over (ii) the amount of any Insured
Payment for such Distribution Date [and (y) the amount of all Insured
Payments and other payments made by the Certificate Insurer pursuant to the
Certificate Insurance Agreement which have not been previously repaid
together with interest thereon at the rate set forth in the Certificate
Insurance Agreement (the "REIMBURSEMENT AMOUNT")] as of such Distribution
Date;] and
(5) to the Class R Certificates, any remaining amounts.
Notwithstanding the priorities set forth above, [if the Certificate Insurer
has defaulted under the Certificate Insurance Policy, then on any Distribution
Date on which the Overcollateralization Amount has been reduced to zero,] any
amounts payable to the Holders of the Class A Certificates in respect of
principal on such Distribution Date will be distributed pro rata in proportion
to the Certificate Principal Balances of such Classes, and not sequentially.
Allocation of Net Prepayment Interest Shortfalls. On each Distribution Date,
Net Prepayment Interest Shortfalls will be allocated to reduce, pro rata based
on the amount then payable, the Distributable Certificate Interest of each Class
of Class A Certificates.
RELATED DEFINITIONS
For purposes of this Prospectus Supplement, the following terms shall have
the following meanings:
"BASE PRINCIPAL DISTRIBUTION AMOUNT." With respect to any Distribution Date,
the sum, without duplication, of (a) the amount allocable to principal actually
due and collected by the Servicer in respect of the Loans during the related Due
Period, including all full and partial principal prepayments, (b) the unpaid
principal balance of each Loan that was repurchased from the Trust Fund during
the related Due Period, (c) the portion of any Substitution Adjustment allocable
to principal paid by the Transferor in connection with a substitution of a Loan
during the related Due Period, and (d) all Net Liquidation Proceeds [and
Insurance Proceeds] actually collected by the Servicer during the related Due
Period (to the extent allocable to principal).
["CERTIFICATE INSURANCE AGREEMENT." The Insurance and Indemnity Agreement
among the Certificate Insurer, the Depositor and the Transferor.]
"CLASS A-6 LOCKOUT DISTRIBUTION AMOUNT." With respect to any Distribution
Date, the product of (a) the applicable Class A-6 Lockout Percentage for such
date and (b) the Class A-6 Lockout Pro Rata Distribution Amount for such date.
"CLASS A-6 LOCKOUT PERCENTAGE." With respect to each Distribution Date as
follows:
DISTRIBUTION DATES LOCKOUT
PERCENTAGE
------------------ ----------
____ 199_ - ____ 20__........ _____%
____ 20__ - ____ 20__........ _____%
____ 20__ - ____ 20__........ _____%
____ 20__ - ____ 20__........ _____%
____ 20__ and thereafter..... _____%
"CLASS A-6 LOCKOUT PRO RATA DISTRIBUTION AMOUNT." With respect to any
Distribution Date, an amount equal to the product of (a) a fraction, the
numerator of which is the Certificate Principal Balance of the Class A-6
Certificates immediately prior to such Distribution Date and the denominator of
which is the aggregate Certificate Principal Balance of all the Principal
Balance Certificates immediately prior to such Distribution Date and (b) the
Principal Distribution Amount for such Distribution Date.
"DISTRIBUTABLE CERTIFICATE INTEREST." With respect to each Class of Class A
Certificates for each Distribution Date is equal to interest at the Pass-Through
Rate applicable to such Class of Certificates for such Distribution Date accrued
on the related Certificate Balance or Notional Amount during the related Accrual
Period, as the case may be, outstanding immediately prior to such Distribution
Date, reduced by such Class of Certificate's allocable share (calculated as
described above under "--Allocation of Net Prepayment Interest Shortfalls") of
any Net Prepayment Interest Shortfalls for such Distribution Date. Distributable
Certificate Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months, except that such interest calculated with
respect to the Class A Certificates will be based on a 360-day year and the
actual number of days elapsed.
"EXTRA PRINCIPAL DISTRIBUTION AMOUNT." With respect to each Distribution Date
and if there exists an Overcollateralization Deficiency Amount, the Turbo
Amount.
"FORECLOSURE PROFITS" With respect to any Distribution Date, the excess, if
any, of (i) Net Liquidation Proceeds in respect of each Loan that became a
Liquidated Loan in the Due Period prior to such Distribution Date over (ii) the
sum of the unpaid principal balance of each such Liquidated Loans plus accrued
and unpaid interest.
["INSURANCE PROCEEDS." The proceeds paid by any insurer pursuant to any
insurance policy covering a Loan to the extent such proceeds are not applied to
the restoration of the related Property or released to the related borrower.
Insurance Proceeds do not include "Insured Payments."]
"LIQUIDATED LOAN." In general, a defaulted Loan as to which the Servicer has
determined that all amounts that it expects to recover on such Loan have been
recovered (exclusive of any possibility of a deficiency judgment).
"LIQUIDATED LOAN LOSS." With respect to any Distribution Date, the aggregate
of the amount of losses with respect to each Loan which became a Liquidated Loan
in the Due Period prior to such Distribution Date, equal to the excess of (i)
the unpaid principal balance of each such Liquidated Loan, plus accrued interest
thereon, over (ii) Net Liquidation Proceeds with respect to such Liquidated
Loan. To the extent of the Available Distribution Amount, a loss on a Liquidated
Loan Loss will be recovered by the holders of the Certificates, on the
Distribution Date which immediately follows the event of loss. Any Liquidated
Loan Loss that results in a Subordination Deficit will require payment of an
Insured Payment if not otherwise available from the Available Distribution
Amount.
"LIQUIDATION PROCEEDS." The amounts received by the Servicer [(including
Insurance Proceeds)] in connection with the liquidation of a defaulted or
written-down Loan or property acquired in respect thereof, other than amounts
required to be paid to the borrower pursuant to the terms of such Loan or to be
applied otherwise pursuant to law.
"NET FORECLOSURE PROFITS." With respect to any Distribution Date, the excess,
if any, of (i) the aggregate Foreclosure Profits for such Distribution Date,
over (ii) the Liquidated Loan Loss for such Distribution Date.
"NET LIQUIDATION PROCEEDS." With respect to any defaulted Loan, the
Liquidation Proceeds with respect to such Loan, net of the sum of (i) expenses
incurred by the Servicer in connection with the liquidation of any defaulted
Loan and (ii) any unreimbursed Periodic Advances made by the Servicer with
respect to such defaulted Loan.
"NET PREPAYMENT INTEREST SHORTFALLS." With respect to any Distribution Date,
the excess of (i) the Prepayment Interest Shortfalls for such Distribution Date
and (ii) the Compensating Interest paid by the Servicer for such Distribution
Date.
"OVERCOLLATERALIZATION AMOUNT." With respect to each Distribution Date, the
excess, if any, of (i) the aggregate Principal Balance of the Loans as of the
close of business on the last day of the related Due Period over (ii) the
aggregate Certificate Principal Balance of the Offered Certificates, as of such
Distribution Date (after taking into account the distribution of the Base
Principal Distribution Amount (but not the Extra Principal Distribution Amount),
on such Distribution Date).
"OVERCOLLATERALIZATION DEFICIENCY AMOUNT." With respect to any Distribution
Date, the excess, if any, of the related Overcollateralization Target Amount for
such Distribution Date over the related Overcollateralization Amount for such
Distribution Date, calculated for this purpose after giving effect to the
reduction on such Distribution Date of the aggregate Certificate Principal
Balance attributable to the distribution of the Base Principal Distribution
Amount (but not the Extra Principal Distribution Amount) on such Distribution
Date.
"OVERCOLLATERALIZATION TARGET AMOUNT." Will be established pursuant to the
Pooling and Servicing Agreement and may increase or decrease over time and may
be modified from time to time by agreement of the [Certificate Insurer and the]
Transferor.
"PRINCIPAL DISTRIBUTION AMOUNT." With respect to each Distribution Date, the
sum of (a) the Base Principal Distribution Amount and (b) the Extra Principal
Distribution Amount, if any.
"REDUCED WEIGHTED AVERAGE NET LOAN RATE." With respect to any Distribution
Date, the Weighted Average Net Loan Rate minus ____% per annum.
"SUBORDINATION DEFICIT." For the Loans and any Distribution Date, the excess,
if any, of (a) the aggregate of the Certificate Principal Balance of all
Classes, on such Distribution Date, after taking into account the payment of the
related Principal Distribution Amount on such Distribution Date [except for
amounts payable under the Certificate Insurance Policy] over (b) the aggregate
unpaid principal balance of the Loans, as of the end of the related Due Period.
"TURBO AMOUNT." With respect to any Distribution Date, (a) the product of (1)
___% per annum and (2) the unpaid principal balance of the Loans as of the end
of the related Due Period, less (b) any losses on the Loans allocable to
interest that were incurred during the related Due Period.
CALCULATION OF LIBOR
On each Distribution Date, LIBOR will be established by the Trustee. As to
the Accrual Period relating to the Class A-1 Certificates, LIBOR will equal, for
any Accrual Period other than the first Accrual Period, the rate for United
States dollar deposits for one month that appears on the Telerate Screen Page
3750 as of 11:00 a.m., London, England time, on the second LIBOR Business Day
prior to the first day of such Accrual Period. With respect to the first
Interest Period, the rate for United States dollar deposits for one month that
appears on the Telerate Screen Page 3750 as of 11:00 a.m., London, England time,
two LIBOR Business Days prior to the Closing Date. If such rate does not appear
on such page (or such other page as may replace such page on such service, or if
such service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be reasonably selected by the Trustee after consultation
with the Servicer), the rate will be the Reference Bank Rate. If no such
quotations can be obtained and no Reference Bank Rate is available, LIBOR will
be LIBOR applicable to the preceding Distribution Date.
"TELERATE PAGE 3750" means the display page so designated on the Bridge
Telerate Service (or such other page as may replace page 3750 on such service
for the purpose of displaying London interbank offered rates of major banks). If
such rate does not appear on such page (or such other page as may replace such
page on such service, or if such service is no longer offered, such other
service for displaying LIBOR or comparable rates as may be selected by the
Issuer after consultation with the Trustee), the rate will be the Reference Bank
Rate.
"REFERENCE BANK RATE" will be, with respect to any Accrual Period, as
follows: the arithmetic mean (rounded upwards, if necessary, to the nearest one
sixteenth of one percent) of the offered rates for United States dollar deposits
for one month which are offered by the Reference Banks (which shall be four
major banks specified in the Pooling and Servicing Agreement) as of 11:00 a.m.,
London, England time, on the second LIBOR Business Day prior to the first day of
such Accrual Period to prime banks in the London interbank market for a period
of one month in amounts approximately equal to the outstanding Certificate
Principal Balance of the Class A-1 Certificates; provided, that at least two
such Reference Banks provide such rate. If fewer than two offered rates appear,
the Reference Bank Rate will be the arithmetic mean of the rates quoted by one
or more major banks in New York City, selected by the Trustee after consultation
with the Servicer, as of 11:00 a.m., New York time, on such date for loans in
U.S. Dollars to leading European banks for a period of one month in amounts
approximately equal to the outstanding Certificate Principal Balance of the
Class A-1 Certificates. If no such quotations can be obtained, the Reference
Bank Rate will be the Reference Bank Rate applicable to the preceding Accrual
Period.
"LIBOR BUSINESS DAY" means any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the city of London, England are
required or authorized by law to be closed.
The establishment of LIBOR as to each Accrual Period by the Trustee and the
Trustee's calculation of the rate of interest applicable to the Class A-1
Certificates for the related Accrual Period will, in the absence of manifest
error, be final and binding.
TERMINATION; PURCHASE OF LOANS
The Trust Fund will terminate upon notice to the Trustee of either: (a) the
later of the distribution to Certificateholders of the final payment or
collection with respect to the last Loan (or Periodic Advances of same by the
Servicer), or the disposition of all funds with respect to the last Loan and the
remittance of all funds due under the Pooling and Servicing Agreement and the
payment of all amounts due and payable to [the Certificate Insurer and] the
Trustee or (b) mutual consent of the Servicer[, the Certificate Insurer] and all
Certificateholders in writing.
The Servicer may, at its option and at its sole cost and expense (and if such
option is not exercised by the Servicer[, the Certificate Insurer] may, in
accordance with the provisions of the Pooling and Servicing Agreement, at its
option and at its sole cost and expense), terminate the Trust on any date on
which the aggregate unpaid principal balance of the Loans, as of such date of
determination, is less than 10% of the Cut-Off Date Principal Balance of the
Loans by purchasing, on the next succeeding Distribution Date, all of the
property of the Trust at a price equal to the sum of (a) the greater of (i) 100%
of the unpaid principal balance of each related outstanding Loan and each
related Property acquired on behalf of the Certificateholders in respect of a
defaulted Loan through foreclosure, deed-in-lieu of foreclosure, repossession or
otherwise (upon acquisition, an "REO PROPERTY") and (ii) the fair market value
(disregarding accrued interest) of the Loans and REO Properties, determined as
the average of three written bids (copies of which are to be delivered to the
Trustee [and the Certificate Insurer] by the Servicer and the reasonable cost of
which may be deducted from the final purchase price) made by nationally
recognized dealers and based on a valuation process which would be used to value
comparable loans and REO property, (b) the aggregate amount of accrued and
unpaid interest on the unpaid principal balances of the Loans through the
related Due Period and 30 days' accrued interest thereon at a rate equal to the
Loan Interest Rate, in each case net of the Servicing Fee[, and (c) any
unreimbursed amounts due to the Certificate Insurer under the Pooling and
Servicing Agreement or the Certificate Insurance Agreement]. [No such
termination is permitted without the prior written consent of the Certificate
Insurer if such termination would result in a draw on the Certificate Insurance
Policy.]
REPORT TO CERTIFICATEHOLDERS
Pursuant to the Pooling and Servicing Agreement, on each Distribution Date
the Trustee will deliver to [the Certificate Insurer,] each Certificateholder
and the Depositor a written report, based solely on information provided by the
Servicer, containing information including, without limitation, the amount of
the distribution on such Distribution Date, the amount of such distribution
allocable to principal and allocable to interest, the aggregate outstanding
Certificate Principal Balance of each Principal Balance Certificate as of such
Distribution Date[, the amount of any Insured Payment included in such
distributions on such Distribution Date] and such other information as required
by the Pooling and Servicing Agreement.
SERVICING OF THE LOANS
THE SERVICER
___________________ will act as the Servicer of the Trust Fund. See "The
Transferor and the Servicer" in this Prospectus Supplement. All references in
this Prospectus Supplement to the "Servicer" shall mean "Master Servicer" for
purposes of the accompanying Prospectus.
COLLECTION AND OTHER SERVICING PROCEDURES; LOAN MODIFICATIONS
The Servicer will be obligated under the Pooling and Servicing Agreement to
service and administer the Loans, on behalf of the Trust, for the benefit of the
Certificateholders [and the Certificate Insurer] in accordance with the terms of
the Pooling and Servicing Agreement, and will have full power and authority to
do any and all things in connection with such servicing and administration which
it may deem necessary or desirable. The Servicer may perform any of its
obligations under the Pooling and Servicing Agreement through one or more
subservicers. Notwithstanding any such subservicing arrangement, the Servicer
will remain liable for its servicing duties and obligations under the Pooling
and Servicing Agreement as if the Servicer alone were servicing the Loans. The
Servicer will be obligated under the Pooling and Servicing Agreement to make
reasonable efforts to collect all payments called for under the terms and
provisions of the Loans and will be obligated, consistent with the other terms
of the Pooling and Servicing Agreement, to follow such collection procedures as
it would normally follow with respect to loans comparable to the Loans and which
are required to generally conform to the mortgage servicing practices of prudent
mortgage lending institutions which service mortgage and manufactured housing
loans of the same type as the Loans for their own account in the jurisdictions
in which the related Properties are located. Consistent with the above, the
Servicer will be permitted, in its discretion, to (i) waive any late payment
charge or other charge in connection with any Loan, and (ii) arrange a schedule,
running for no more than 180 days after the due date of any installment due
under the related Loan, for the liquidation of delinquent items.
PAYMENTS ON THE LOANS
The Pooling and Servicing Agreement provides that the Servicer, for the
benefit of the Certificateholders [and the Certificate Insurer], shall establish
and maintain one or more Collection Accounts (each, a "COLLECTION ACCOUNT") and
may maintain a Collection Account with the Trustee (the "TRUSTEE COLLECTION
ACCOUNT"), and that each Collection Account will generally be a trust account
maintained with a depository institution acceptable to each Rating Agency [and
the Certificate Insurer] (any such account, an "ELIGIBLE ACCOUNT"). The Servicer
shall have the right to choose the location and relocate the Collection Account
at any time, provided each Collection Account shall otherwise comply with the
requirements of the preceding sentence. The Pooling and Servicing Agreement
permits the Servicer to direct any depository institution maintaining a
Collection Account to invest the funds in such Collection Account in certain
government securities and other investment grade obligations specified in the
Pooling and Servicing Agreement ("PERMITTED INVESTMENTS"), that mature, unless
payable on demand, no later than the Business Day preceding the date on which
the Servicer is required to transfer any amounts included in such funds from
such Collection Account to the Trustee Collection Account or to the Certificate
Account, or, in the case of funds held in the Trustee Collection Account
invested in any such Permitted Investments, from the Trustee Collection Account
to the Certificate Account described below.
The Servicer is obligated to deposit or cause to be deposited in the
Collection Account on a daily basis, amounts representing the following payments
received and collections made by it after the Cut-Off Date: (i) all payments on
account of principal, including unscheduled principal prepayments, on the Loans;
(ii) all payments on account of interest on the Loans; (iii) all Liquidation
Proceeds [and all Insurance Proceeds] to the extent such proceeds are not to be
applied to the restoration of the related Mortgaged Property or released to the
related borrower in accordance with the express requirements of law or in
accordance with prudent and customary servicing practices; (iv) all net revenues
with respect to a Property held by the Trust Fund; (v) all other amounts
required to be deposited in the Collection Account pursuant to the Pooling and
Servicing Agreement; and (vi) any amounts required to be deposited in connection
with net losses realized on investments of funds in the Collection Account. The
Pooling and Servicing Agreement further provides that all funds deposited in any
Collection Account that are to be included in the Servicer Remittance Amount
related to a particular Distribution Date be transferred to the Certificate
Account not later than the close of business on the ____ Business Day prior to
such Distribution Date the "SERVICER REMITTANCE DATE").
The Trustee will be obligated to set up an account (the "CERTIFICATE
Account"), which is required to be an Eligible Account, into which the Servicer
will deposit or cause to be deposited the Servicer Remittance Amount on the
Servicer Remittance Date.
Subject to the Servicer's determination that such advance would not be
nonrecoverable, the Servicer is required to deposit into the Trustee Collection
Account no later than the Servicer Remittance Date an amount equal to the sum of
(a) the interest portion of the scheduled monthly payments on each Loan due by
the related due date but not received by the Servicer as of the close of
business on the related Determination Date, net of the Servicing Fee and (b)
with respect to each REO Property which was acquired during or prior to the
related Due Period and as to which an REO Property disposition did not occur
during the related Due Period, an amount equal to the excess, if any, of
interest on the unpaid principal balance of the Loan related to such REO
Property at the related Loan Interest Rate, net of the Servicing Fee, for the
related Due Period for the related Loan over the net income from the REO
Property to be transferred to the Certificate Account for such Distribution Date
pursuant to the Pooling and Servicing Agreement (the "PERIODIC ADVANCE"). Such
Periodic Advances by the Servicer are reimbursable to the Servicer subject to
certain conditions and restrictions and are intended to provide both sufficient
funds for the payment of interest to the Offered Certificates [and to pay the
premium due the Certificate Insurer]. In the event that, notwithstanding the
Servicer's good faith determination at the time such Periodic Advance was made
that it would not be a nonrecoverable Periodic Advance, such Periodic Advance
becomes nonrecoverable, the Servicer will be entitled to reimbursement therefor
from the Trust Fund.
Subject to the Servicer's determination that such advance would not be
nonrecoverable and that a prudent mortgage lender would make a like advance if
it or an affiliate owned the related Loan, the Servicer is required to advance
amounts with respect to the Loans ("SERVICING ADVANCES") constituting
"out-of-pocket" costs and expenses relating to (a) the preservation and
restoration of the Property, (b) enforcement proceedings, including
foreclosures, (c) expenditures relating to the purchase or maintenance of a
first lien not included in the Trust on the Property and (d) certain other
customary amounts described in the Pooling and Servicing Agreement. Such
Servicing Advances by the Servicer are reimbursable to the Servicer subject to
certain conditions and restrictions. In the event that, notwithstanding the
Servicer's good faith determination at the time such Servicing Advance was made,
that it would not be a Nonrecoverable Advance, in the event such Servicing
Advance becomes a Nonrecoverable Advance, the Servicer will be entitled to
reimbursement therefor from the Trust Fund.
Not later than the close of business on the Business Day immediately
following each Servicer Remittance Date, the Servicer is required to remit to
the Certificate Account, an amount equal to the lesser of (a) the aggregate of
the Prepayment Interest Shortfalls for the related Distribution Date resulting
from principal prepayments during the related Due Period and (b) its aggregate
Servicing Fees received in the related Due Period and shall not have the right
to reimbursement therefor (the "COMPENSATING INTEREST"). With respect to any
Distribution Date and any Loan, the "PREPAYMENT INTEREST SHORTFALL" will be an
amount equal to the excess, if any, of (a) 30 days' interest on the outstanding
Principal Balance of such Loan at a per annum rate equal to the related Loan
Interest Rate, less any reduction as a result of a bankruptcy proceeding (a
"DEFICIENT VALUATION") and/or any reduction by a court of the monthly payment
due on such Loan (a "DEBT SERVICE REDUCTION"), and less the rate at which the
Servicing Fee is calculated, over (b) the amount of interest actually remitted
by the borrower in connection with such principal prepayment in full less the
Servicing Fee for such Loan in such month.
The "SERVICER REMITTANCE AMOUNT" for a Servicer Remittance Date is equal to
the sum of (i) all unscheduled collections of principal and interest on the
Loans collected by the Servicer during the related Due Period and all scheduled
monthly payments on the Loans in the case of Loans due on the related due date
and received on or prior to the Business Day preceding such Servicer Remittance
Date, (ii) all Periodic Advances made by the Servicer with respect to interest
payments due to be received on the Loans in the case of the related due date,
(iii) the amount of compensating Interest due with respect to Loans for the
related Due Period, and (iv) any other amounts required to be placed in a
Collection Account by the Servicer in respect of the Loans pursuant to the
Pooling and Servicing Agreement but excluding the following:
(a) amounts received on particular Loans as late payments of interest and
respecting which the Servicer has previously made an unreimbursed Periodic
Advance;
(b) the portion of Liquidation Proceeds used to reimburse any unreimbursed
Periodic Advances made with respect to the Loans by the Servicer;
(c) those portions of each payment of interest on a particular Loan which
represent the Servicing Fee;
(d) that portion of Liquidation Proceeds and proceeds received in respect
of any REO Property which represents any unpaid Servicing Fee;
(e) all income from Permitted Investments that is held in the Collection
Account for the account of the Servicer;
(f) all amounts in respect of late fees, assumption fees, prepayment
penalties and similar fees;
(g) certain other amounts which are reimbursable to the Servicer, as
provided in the Pooling and Servicing Agreement; and
(h) that portion of Net Foreclosure Profits with respect to Loans
otherwise due to the Servicer as provided in the Pooling and Servicing
Agreement.
REALIZATION UPON OR SALE OF DEFAULTED LOANS
Except as described below, the Servicer will be required to foreclose upon or
otherwise comparably convert the ownership of Properties securing such of the
Loans as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with such foreclosure or other conversion, the Servicer will be required to
follow such procedures as it follows with respect to similar loans held in its
own portfolio. However, the Servicer shall not be required to expend its own
funds in connection with any foreclosure or to restore any damaged Property
unless it shall determine that (i) such foreclosure and/or restoration will
increase the proceeds of liquidation of the Loan to Certificateholders after
reimbursement to itself for such expenses and (ii) such expenses shall be
recoverable to it through Liquidation Proceeds (respecting which it shall
reimburse itself for such expense prior to the deposit in the Collection Account
of such proceeds).
The Servicer will be permitted to foreclose against the Property securing a
defaulted Loan either by foreclosure, by sale, by strict foreclosure, and in the
case of Manufactured Homes, repossession, and in the event a deficiency judgment
is available against the borrower or any other person, may proceed for the
deficiency.
In the event that title to any Property is acquired in foreclosure or by deed
in lieu of foreclosure, the deed or certificate of sale will be required to be
issued to the Trustee, or to the Servicer on behalf of the Trustee[, the
Certificate Insurer] and the Certificateholders. Notwithstanding any such
acquisition of title and cancellation of the related Loan, such Loan is required
to be considered to be a Loan held in the Trust Fund until such time as the
related Property is sold and such Loan becomes a Liquidated Loan. Consistent
with the foregoing, for purposes of all calculations under the Pooling and
Servicing Agreement, so long as such Loan is an outstanding Loan:
(i) It will be assumed that, notwithstanding that the indebtedness evidenced
by the related Mortgage Note or Manufactured Housing Contract shall have
been discharged, such Mortgage Note or Manufactured Housing Contract and
the related amortization schedule in effect at the time of any such
acquisition of title (after giving effect to any previous partial
prepayments and before any adjustment thereto by reason of any bankruptcy
or similar proceeding or any moratorium or similar waiver or grace
period) remain in effect, except that such schedule shall be adjusted to
reflect the application of proceeds received in any month pursuant to the
succeeding clause.
(ii) Net proceeds (after payment of Servicer's expenses related to
disposition) from such Property received in any month shall be deemed to
have been received first in payment of the accrued interest that remained
unpaid on the date that title to the related Property was acquired by the
Trust, with the excess thereof, if any, being deemed to have been
received in respect of the delinquent principal installments that
remained unpaid on such date. Thereafter, net proceeds from such Property
received in any month shall be applied to the payment of installments of
principal and accrued interest on such Loan deemed to be due and payable
in accordance with the terms of such Mortgage Note or Manufactured
Housing Contract and such amortization schedule. If such net proceeds
exceed the then unpaid REO Property amortization, the excess shall be
treated as a partial principal prepayment received in respect of such
Loan.
(iii) Only that portion of such net proceeds on such a Loan allocable to
interest that bears the same relationship to the total amount of net
proceeds allocable to interest as the rate at which the Servicing Fee is
determined bears to the Loan Interest Rate borne by such Loan shall be
allocated to the Servicing Fee with respect thereto.
In the event that the Trust Fund acquires any Property as aforesaid or
otherwise in connection with a default or imminent default on a Loan, such
Property will be required to be disposed of by or on behalf of the Trust Fund
prior to the close of the third calendar year after its acquisition by the Trust
Fund unless (a) the Trustee [and the Certificate Insurer] shall have received an
opinion of counsel to the effect that the holding by the Trust Fund of such
Property subsequent to such period (and specifying the period beyond such period
for which the Property may be held) will not cause any of the Trust REMICs to be
subject to the tax on prohibited transactions imposed by Code Section
860F(a)(1), otherwise subject the Trust Fund or any of the Trust REMICs to tax
or cause any of the Trust REMICs to fail to qualify as a REMIC at any time that
any Certificates are outstanding, or (b) the Trustee (at the Servicer's expense)
or the Servicer shall have applied for, prior to the expiration of such period,
an extension of such period in the manner contemplated by Code Section
856(e)(3), in which case the original period shall be extended by the applicable
extension period. The Servicer will also be required to ensure that the Property
is administered so that it constitutes "foreclosure property" within the meaning
of Code Section 860G(a)(8) at all times, that the sale of such property does not
result in the receipt by the Trust Fund of any income from non-permitted assets
as described in Code Section 860F(a)(2)(B), and that the Trust Fund does not
derive any "net income from foreclosure property" within the meaning of Code
Section 860G(c)(2), with respect to such property.
In lieu of foreclosing upon any defaulted Loan, the Servicer may, in its
discretion, permit the assumption of such Loan if, in the Servicer's judgment,
such default is unlikely to be cured and if the assuming borrower satisfies the
Servicer's underwriting guidelines with respect to loans owned by the Servicer.
In connection with any such assumption, the Loan Interest Rate of the related
Mortgage Note or Manufactured Housing Contract and the payment terms will not be
permitted to be changed. Any fee collected by the Servicer for entering into an
assumption agreement will be retained by the Servicer as servicing compensation.
Alternatively, the Servicer may encourage the refinancing of any defaulted Loan
by the borrower.
Notwithstanding the foregoing, prior to instituting foreclosure proceedings
or accepting a deed-in-lieu of foreclosure with respect to any Property, the
Servicer shall make, or cause to be made, inspection of the Property in
accordance with accepted servicing procedures, and, with respect to
environmental hazards, substantially comparable to such procedures as are
required by the provisions of the Federal National Mortgage Association's
Selling and Servicing Guide applicable to single-family homes or manufactured
homes, as applicable, and in effect on the date hereof. The Servicer shall be
entitled to rely upon the results of any such inspection made by others. In
cases where the inspection reveals that such Property is potentially
contaminated with or affected by hazardous wastes or hazardous substances, the
Servicer shall promptly give written notice of such fact to [the Certificate
Insurer,] the Trustee and the Certificateholders. The Servicer shall not
commence foreclosure proceedings or accept a deed-in-lieu of foreclosure for any
Property where such inspection reveals potential contamination by hazardous
waste [without obtaining the consent of the Certificate Insurer].
SERVICING FEES AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
As compensation for its activities as Servicer under the Pooling and
Servicing Agreement, the Servicer shall be entitled with respect to each Loan to
the Servicing Fee, which shall be payable monthly from amounts on deposit in the
Collection Account. The "SERVICING FEE" shall be an amount equal to interest at
one-twelfth of the Servicing Fee Rate for such Loan on the unpaid principal
balance of such Loan at the end of the applicable Due Period. The "SERVICING FEE
RATE" with respect to each Loan will be ___% per annum. In addition, the
Servicer shall be entitled to receive, as additional servicing compensation, to
the extent permitted by applicable law and the related Mortgage Notes or
Manufactured Housing Contract, any late payment charges, prepayment penalties,
assumption fees or similar items. The Servicer shall also be entitled to
withdraw from the Collection Account any interest or other income earned on
deposits therein. The Servicer shall pay all expenses incurred by it in
connection with its servicing activities under the Pooling and Servicing
Agreement and shall not be entitled to reimbursement therefor except as
specifically provided in the Pooling and Servicing Agreement.
The Servicer may recover Periodic Advances and Servicing Advances from the
Collection Account or the Trustee Collection Account to the extent permitted by
the Pooling and Servicing Agreement and by the terms of the Loans or, if not
recovered from the borrower on whose behalf such Periodic Advance or Servicing
Advance was made, from late collections on the related Loan, including
Liquidation Proceeds, released mortgaged property proceeds[, Insurance Proceeds]
and such other amounts as may be collected by the Servicer from the borrower or
otherwise relating to the Loan, or, in the case of Periodic Advances, from late
collections of interest on any Loan. In the event a Periodic Advance or a
Servicing Advance becomes a Nonrecoverable Advance, the Servicer may be
reimbursed for such advance from the Certificate Account.
The Servicer shall not be required to make any Periodic Advance or Servicing
Advance which it determines would be a nonrecoverable Periodic Advance or
nonrecoverable Servicing Advance (each, a "NONRECOVERABLE ADVANCE"). A Periodic
Advance or Servicing Advance is "nonrecoverable" if in the good faith judgment
of the Servicer, such Periodic Advance or Servicing Advance is not ultimately
recoverable.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
When a Property has been or is about to be conveyed by the borrower, the
Servicer shall, to the extent it has knowledge of such conveyance or prospective
conveyance, exercise its rights to accelerate the maturity of the related Loan
under any "due-on-sale" clause contained in the related Mortgage, Mortgage Note
or Manufactured Housing Contract; provided, however, that the Servicer shall not
exercise any such right if the "due-on-sale" clause, in the reasonable belief of
the Servicer, is not enforceable under applicable law. In such event, the
Servicer may enter into an assumption and modification agreement with the person
to whom such Property has been or is about to be conveyed, pursuant to which
such person becomes liable under the Mortgage Note or Manufactured Housing
Contract and, unless prohibited by applicable law or the Mortgage, Mortgage Note
or Manufactured Housing Contract, the borrower remains liable thereon; provided,
however, that the Loan Interest Rate of the related Mortgage Note or
Manufactured Housing Contract and the payment terms shall not be changed. The
Servicer is also authorized, except as provided in the Pooling and Servicing
Agreement, 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 borrower and becomes liable under the Mortgage Note or
Manufactured Housing Contract.
MAINTENANCE OF INSURANCE POLICIES AND ERRORS AND OMISSIONS AND FIDELITY COVERAGE
Generally, the underwriting requirements of the Transferor require borrowers
to obtain fire and casualty insurance as a condition to approving the related
Loan, but the existence and/or maintenance of such fire and casualty insurance
is not in all cases monitored by the Transferor. Title insurance is not required
on all loans. The Servicer will follow such practices with respect to the Loans.
Accordingly, if a Property suffers any hazard or casualty losses, or if the
borrower thereunder is found not to have clear title to such Property,
Certificateholders may bear the risk of loss resulting from a default by the
related borrower to the extent such losses are not covered by foreclosure or
Liquidation proceeds on such defaulted Loan or by the applicable credit
enhancement. To the extent that the related Mortgage documents or Manufactured
Housing Contracts require the borrower under a Loan to maintain a fire and
hazard insurance policy with extended coverage on the related Property in an
amount not less than the lesser of the full insurable value of such Property or
the unpaid principal balance of such Loan and any senior liens, the Servicer
will monitor the status of such insurance in varying degrees based upon certain
characteristics of the related Loans, and will cause such insurance to be
maintained on a case-by-case basis. Further, with respect to each property
acquired by the Trust by foreclosure, by deed in lieu of foreclosure or
repossession, the Servicer will maintain or cause to be maintained fire and
hazard insurance thereon with extended coverage in an amount at least equal to
the lesser of (i) the full insurable value of the improvements that are a part
of such Property and (ii) the unpaid principal balance owing on the related Loan
at the time of such foreclosure, deed in lieu of foreclosure or repossession,
plus accrued interest thereon and related liquidation expenses. Such insurance
on a Property acquired by foreclosure, deed in lieu of foreclosure or
repossession may not, however, be less than the minimum amount required to fully
compensate for any loss or damage on a replacement cost basis.
Any cost incurred by the Servicer in maintaining any insurance will not, for
the purpose of calculating distributions to the Certificateholders, be added to
the unpaid principal balance of the related Loan, notwithstanding that the terms
of such Loan may so permit. No earthquake or other additional insurance other
than flood insurance will be, under the Pooling and Servicing Agreement,
required to be maintained by any borrower or the Servicer, other than pursuant
to the terms of the related Mortgage documents or Manufactured Housing Contracts
and such applicable laws and regulations as shall at any time be in force and as
shall require such additional insurance. The Servicer will also be required
under the Pooling and Servicing Agreement to maintain in force (i) a policy or
policies of insurance covering errors and omissions in the performance of its
obligations as Servicer and (ii) a fidelity bond in respect of its officers,
employees or agents.
No pool insurance policy, title insurance policy, blanket hazard insurance
policy, special hazard insurance policy, bankruptcy bond or repurchase bond will
be required to be maintained with respect to the Mortgage Loans or Manufactured
Housing Contracts, nor will any Loan be insured by any government or government
agency.
SERVICER REPORTS
The Servicer is required to deliver to [the Certificate Insurer and] the
Trustee not later than the last day of the [_____] month following the end of
the Servicer's fiscal year (beginning with ___ __, 200_), an Officers'
Certificate stating that (i) a review of the activities of the Servicer during
the preceding fiscal year and of performance under the Pooling and Servicing
Agreement has been made under such officers' supervision, and (ii) to the best
of such officers' knowledge, based on such review, the Servicer has fulfilled
all its obligations under the Pooling and Servicing Agreement for such year, or,
if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officers and the nature and status
thereof including the steps being taken by the Servicer to remedy such default.
Not later than the last day of the _____ month following the end of the
Servicer's fiscal year (beginning with ___ 31, 200_), the Servicer, at its
expense, is required to cause to be delivered to [the Certificate Insurer and]
the Trustee from a firm of independent certified public accountants (who may
also render other services to the Servicer) a statement to the effect that such
firm has examined certain documents and records relating to the servicing of the
Loans during the preceding calendar year (or such longer period from the Closing
Date to the end of the following calendar year) and that, on the basis of such
examination conducted substantially in compliance with generally accepted
auditing standards and the requirements of the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FHLMC, such servicing has been conducted in compliance with the Pooling and
Servicing Agreement except for such significant exceptions or errors in records
that, in the opinion of such firm, generally accepted auditing standards and the
Uniform Single Audit Program for Mortgage Bankers or the Attestation Program for
Mortgages serviced for FHLMC require it to report, in which case such exceptions
and errors shall be so reported.
REMOVAL AND RESIGNATION OF SERVICER
The Trustee, only at the direction of [the Certificate Insurer or] the
majority Certificateholders[, with the consent of the Certificate Insurer (in
the case of any direction of the majority Certificateholders),] may remove the
Servicer upon the occurrence and continuation beyond the applicable cure period
of an event described below:
(a) any failure by the Servicer to remit to the Trustee any payment
required to be made by the Servicer under the terms of the Pooling and
Servicing Agreement which continues unremedied beyond any grace period
[permitted by the Certificate Insurer];
(b) the failure by the Servicer to make any required Servicing Advance or
Periodic Advance;
(c) any failure on the part of the Servicer duly to observe or perform in
any material respect any other of the covenants or agreements on the part of
the Servicer contained in the Pooling and Servicing Agreement, or the breach
of any representation and warranty set forth in the Pooling and Servicing
Agreement, which continues unremedied for a period of 30 days after the date
on which written notice of such failure or breach, requiring the same to be
remedied, shall have been given to the Servicer by the Depositor or the
Trustee, or to the Servicer and the Trustee by any Certificateholder [or the
Certificate Insurer];
(d) a decree or order of a court or agency or supervisory authority
having jurisdiction in an involuntary case under any present or future
federal or state bankruptcy, insolvency or similar law or for the appointment
of a conservator or receiver or liquidator 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 or unstayed for a period of 60 days;
(e) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator 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 the Servicer's
property;
(f) the Servicer shall admit in writing its inability to pay its debts 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
(g) the delinquency or loss experience of the Loan pool exceeds certain
levels specified in the Pooling and Servicing Agreement.
The Servicer may not assign its obligations under the Pooling and Servicing
Agreement nor resign from the obligations and duties thereby imposed on it
except by mutual consent of [the Certificate Insurer and] the Trustee, or upon
the determination that the Servicer's duties thereunder are no longer
permissible under applicable law and such incapacity cannot be cured by the
Servicer without the incurrence[, in the reasonable judgment of the Certificate
Insurer,] of unreasonable expense. No such resignation shall become effective
until a successor has assumed the Servicer's responsibilities and obligations in
accordance with the Pooling and Servicing Agreement.
Upon removal or resignation of the Servicer, the Trustee has agreed to be the
Successor Servicer (the "SUCCESSOR SERVICER"), provided, however, that the
transfer of servicing will be effected over a period of time not to exceed 90
days. Immediately upon such resignation or removal, the Trustee, as Successor
Servicer, will be obligated to make Periodic Advances and Servicing Advances and
certain other advances unless it determines reasonably and in good faith that
such advances would not be recoverable. If, however, the Trustee is unwilling or
unable to act as Successor Servicer, or if the majority Certificateholders [with
the consent of the Certificate Insurer or the Certificate Insurer so requests],
the Trustee shall appoint, or petition a court of competent jurisdiction to
appoint, in accordance with the provisions of the Pooling and Servicing
Agreement [and subject to the approval of the Certificate Insurer any
established loan servicing institution acceptable to the Certificate Insurer]
having a net worth of not less than $15,000,000 as the Successor Servicer in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Servicer.
The Trustee and any other Successor Servicer in such capacity is entitled to
the same reimbursement for advances and no more than the same servicing
compensation as the Servicer. See "-- Servicing and Other Compensation and
Payment of Expenses" above.
AMENDMENT
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee by written agreement[, upon the prior
written consent of the Certificate Insurer (which consent shall not be withheld
if, in the opinion of counsel addressed to the Trustee and the Certificate
Insurer, failure to amend would adversely affect the interests of the
Certificateholders unless such consent would adversely affect the interests of
the Certificate Insurer)], without notice to, or consent of, the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions therein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under the Pooling and
Servicing Agreement which shall not be inconsistent with the provisions of the
Pooling and Servicing Agreement, provided that such action shall not, as
evidenced by an opinion of counsel delivered to, but not obtained at the expense
of, the Trustee, adversely affect in any material respect the interests of any
Certificateholder of any outstanding Class of Certificates (or 100% of the Class
of Certificateholders so affected shall have consented); and provided, further,
that no such amendment shall reduce in any manner the amount of, or delay the
timing of, payments received on Loans which are required to be distributed on
any Certificate without the consent of the affected Certificateholder, or change
the rights or obligations of any other party to the Pooling and Servicing
Agreement without the consent of such party.
The Pooling and Servicing Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee [with the consent of the Certificate
Insurer (which consent shall not be withheld if, in the opinion of counsel
addressed to the Trustee and the Certificate Insurer, failure to amend would
adversely affect the interests of the Certificateholders unless such consent
would adversely affect the interests of the Certificate Insurer)], and the
Holders of the majority Certificateholders for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment shall be made
unless the Trustee [and the Certificate Insurer] receives an opinion of counsel,
at the expense of the party requesting the change, that such change will not
adversely affect the status of any of the Trust Fund as a REMIC or cause a tax
to be imposed on the Trust Fund or any of the REMICs, and provided further, that
no such amendment shall reduce in any manner the amount of, or delay the timing
of, payments received on Loans which are required to be distributed on any
Certificate without the consent of the holder of such Certificate or reduce the
percentage for each Class the holders of which are required to consent to any
such amendment without the consent of the holders of 100% of each Class of
Certificates affected thereby.
THE TRUSTEE
_________________, a _______________ corporation, has been named Trustee
pursuant to the Pooling and Servicing Agreement. The Trustee will serve
initially as the custodian of the Trustee's Loan Files. The Pooling and
Servicing Agreement provides that the Trustee shall be entitled to a fee, which
fee shall include the expenses of the Trustee (including transition expenses) to
the extent such expenses are not paid by the Servicer (the "TRUSTEE FEE") in
respect of its services as Trustee.
The Trustee shall at all times be a banking association organized and doing
business under the laws of any State or the United States of America subject to
suspension or examination by federal or state authority, authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, whose long-term deposits, if any, are rated at least
"___" by _________and "____" by __________[, or such lower rating as may be
approved in writing by the Certificate Insurer and reasonably acceptable to the
Certificate Insurer as evidenced in writing]. If at any time the Trustee shall
cease to be eligible in accordance with the provisions described in this
paragraph, it shall resign immediately in the manner and with the effect
specified in the Pooling and Servicing Agreement.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall become effective upon the acceptance of appointment by a successor
trustee [acceptable to the Certificate Insurer].
The Trustee, or any trustee or trustees hereafter appointed, may resign at
any time in the manner set forth in the Pooling and Servicing Agreement. Upon
receiving notice of resignation, the Servicer shall promptly appoint a successor
trustee or trustees meeting the eligibility requirements set forth above in the
manner set forth in the Pooling and Servicing Agreement. The Servicer will
deliver a copy of the instrument used to appoint a successor trustee to the
Certificateholders[, the Certificate Insurer] and the Depositor, and upon
acceptance of appointment by a successor trustee in the manner provided in the
Pooling and Servicing Agreement, the Servicer will give notice thereof to the
Certificateholders. If no successor trustee shall have been appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
If the Trustee fails to perform in accordance with the terms of the Pooling
and Servicing Agreement[, the Certificate Insurer] or the majority
Certificateholders [with the consent of the Certificate Insurer,] may remove the
Trustee under the conditions set forth in the Pooling and Servicing Agreement
and appoint a successor trustee in the manner set forth therein.
At any time, for the purpose of meeting any legal requirements of any
jurisdiction in which any part of the Trust Fund or the Trust or property
securing the same may at the time be located, the Servicer and the Trustee
acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more persons approved by the Trustee to act as
co-trustee or co-trustees, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust Fund, including the Trust,
and to vest in such person or persons, in such capacity, such title to the Trust
Fund or the Trust, or any part thereof, and, subject to the provisions of the
Pooling and Servicing Agreement, such powers, duties, obligations, rights and
trusts as the Servicer and the Trustee may consider necessary or desirable.
[THE CERTIFICATE INSURANCE POLICY
The following summary of the terms of the Certificate Insurance Policy does
not purport to be complete and is qualified in its entirety by reference to the
Certificate Insurance Policy. The information in this section regarding the
Certificate Insurance Policy has been supplied by the Certificate Insurer for
inclusion herein. Only the Class A Certificates will be entitled to the benefit
of the Certificate Insurance Policy to be issued by the Certificate Insurer.
On the Closing Date, the Certificate Insurer will issue the Certificate
Insurance Policy in favor of the Trustee. The Certificate Insurance Policy will
unconditionally and irrevocably guarantee Insured Payments on the Class A
Certificates.
The Certificate Insurer's obligation under the Certificate Insurance Policy
will be discharged to the extent that funds are received by the Trustee for
distribution to the Holders, whether or not such funds are properly distributed
by the Trustee.
For purposes of the Certificate Insurance Policy, "HOLDER" as to a particular
Class A Certificate does not and may not include the Servicer, the Transferor or
the Depositor.
"INSURED PAYMENT" means (x) with respect to any Distribution Date the excess,
if any, of (i) the sum of (a) the amount of interest accrued on the Principal
Balances or Notional Balance of the related Class A Certificates, at the
applicable Pass-Through Rate during the related Accrual Period (excluding any
Relief Act Shortfalls and Net Prepayment Interest Shortfall), (b) the
Subordination Deficit and (c) any related Preference Amounts (without
duplication) over (ii) the Total Available Funds for such Distribution Date and
(y) on the final Distribution Date, the outstanding Principal Balance of all
Classes of Class A Certificates then outstanding, to the extent not otherwise
paid on such date. The Certificate Insurance Policy expires and terminates
without any action on the part of the Certificate Insurer or any other person on
the date that is one year and one day following the date on which the Class A
Certificates have been paid in full.
"PREFERENCE AMOUNT" means any amount previously distributed to a holder of a
Class A Certificate 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
non-appealable order of a court having competent jurisdiction.
"PRINCIPAL BALANCE" means as of any date of determination and with respect to
each Class of Class A Certificates, the principal balance of the related Class
of Class A Certificates on the Closing Date less any amounts actually
distributed as principal thereon on all prior Distribution Dates.
"RELIEF ACT SHORTFALLS" are interest shortfalls resulting from the
application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
See "Certain Legal Aspects of Residential Loans--Soldiers' and Sailors' Civil
Relief Act of 1940" in the Prospectus.
"TOTAL AVAILABLE FUNDS" with respect to each Class of Class A Certificates
and on any Distribution Date is the Available Distribution Amount.
The Certificate Insurance Policy will be non-cancelable.
The Certificate Insurance Policy will be issued pursuant to, and shall be
construed under, the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.]
[THE CERTIFICATE INSURER
The following information has been supplied by __________________ (the
"CERTIFICATE INSURER") for inclusion in this Prospectus Supplement. No
representation is made by the Transferor, the Depositor, the Servicer, the
Trustee, the Underwriters or any of their respective affiliates as to the
accuracy or completeness of such information.
The Certificate Insurer is a ______________________ corporation regulated by
the Office of the Commissioner of Insurance of the State of ____________ and
licensed to do business in 50 states, the District of Columbia, the Commonwealth
of Puerto Rico and the Territory of Guam. The Certificate Insurer primarily
insures ___________________ obligations. The Certificate Insurer is a
wholly-owned subsidiary of _____________, a ___________ company. Moody's,
Standard & Poor's and Fitch have each assigned a __________ financial strength
rating to the Certificate Insurer.
The consolidated financial statements of the Certificate Insurer and its
subsidiaries as of December 31, 199_ and December 31, 199_ and for the three
years ended December 31, 199_ prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of
________________ (which was filed with the Securities and Exchange Commission
(the "COMMISSION") on March 31, 199_; Commission File No. _________) and the
unaudited consolidated financial statements of the Certificate Insurer and its
subsidiaries as of March 31, 199_ and for the periods ending March 31, 199_ and
March 31, 199_, included in the Quarterly Report on Form 10-Q of __________ for
the period ended March 31, 199_ (which was filed with the Commission on
________, 199_) are hereby incorporated by reference into this Prospectus
Supplement and shall be deemed to be a part hereof. Any statement contained in a
document incorporated herein by reference shall be modified or superseded for
the purposes of this Prospectus Supplement to the extent that a statement
contained herein by reference herein also modified or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by _________________ with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing such documents.
The following table sets forth the capitalization of the Certificate Insurer
as of December 31, 199_, December 31, 199_, December 31, 199_ and March 31,
199_, respectively, in conformity with generally accepted accounting principles.
--------------------------
CAPITALIZATION TABLE
(DOLLARS IN MILLIONS)
DECEMBER DECEMBER 31, DECEMBER MARCH 31,
31, 199_ 199_ 31, 199_ 199_
-------- ------------ -------- ----------
Unearned premium......... $ $ $ $
Other liabilities........
-------- ------------ -------- ----------
Total Liabilities........ $ $ $ $
-------- ------------ -------- ----------
Stockholder's equity(1)
Common stock........... $ $ $ $
Additional paid-in
capital..............
Accumulated other
comprehensive income.
Retained earnings......
-------- ------------ -------- ----------
Total stockholder's
equity $ $ $ $
-------- ------------ -------- ----------
Total liabilities and
stockholder's equity.... $ $ $ $
======== ============ ========= ============
(1) Components of stockholder's equity have been restated for all periods
presented to reflect "Accumulated other comprehensive income" in accordance
with the Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" adopted by the Certificate Insurer effective January
1, 1998. As this new standard only requires additional information in the
financial statements, it does not affect the Certificate Insurer's
financial position or results of operations.
For additional financial information concerning the Certificate Insurer, see
the audited and unaudited financial statements of the Certificate Insurer
incorporated by reference herein. Copies of the financial statements of the
Certificate Insurer incorporated by reference and copies of the Certificate
Insurer's annual statement for the year ended December 31, 199_ prepared in
accordance with statutory accounting standards are available, without charge,
from the Certificate Insurer. The address of the Certificate Insurer's
administrative offices and its telephone number are _________
_______________________ and (___) ___-____.
The Certificate Insurer makes no representation regarding the Certificates or
the advisability of investing in the Certificates and makes no representation
regarding, nor has it participated in the preparation of, this Prospectus
Supplement other than the information supplied by the Certificate Insurer and
presented under the headings "The Certificate Insurance Policy" and "The
Certificate Insurer" in the Prospectus Supplement and in the financial
statements incorporated herein by reference.]
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
For federal income tax purposes, we will make elections to treat designated
portions of the Trust Fund as one or more "real estate mortgage investment
conduits" ("REMICS"). The Class A Certificates will represent the "regular
interests" in a REMIC and in the right to receive such basis risk payments. The
beneficial owner of a Principal Balance Certificate will be required to allocate
its basis between such regular interest and the right to receive such basis risk
payments. The Class R Certificates will represent the "residual interest" in
each of the Trust REMICs. Upon issuance of the Offered Certificates, Cadwalader,
Wickersham & Taft, special tax counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the Pooling Agreement, for federal income tax purposes, each portion of the
Trust Fund as to which a REMIC election is made will qualify as a REMIC under
the Code and the portion of the Trust Fund not so designated will be treated as
a grantor trust. See "Certain Federal Income Tax Consequences--REMICs" in the
accompanying prospectus.
The REMIC regular interests represented by the Principal Balance Certificates
each bear interest at the lesser of their respective Pass-Through Rates and
Weighted Average Net Loan Rate less ___%. Because the interest rate of the
regular interests may be lower than the Pass-Through Rates, some or all of such
regular interests may be treated or issued with original issue discount or at a
lesser premium based on the portion of the investor's purchase price for the
Principal Balance Certificate allocable to such regular interest. See
"--Discount and Premium" below.
DISCOUNT AND PREMIUM
The regular interests represented by the Principal Balance Certificates
generally will be treated as newly originated debt instruments for federal
income tax purposes. Beneficial owners of the Offered Certificates will be
required to report income on such regular interests in accordance with the
accrual method of accounting. The Class A-6IO Certificates will be treated as
issued with original issue discount in an amount equal to all distributions
expected to be received thereon over their issue price. It is anticipated that
the regular interests represented by the Class __ and Class __ Certificates will
be issued with original issue discount and that the regular interests
represented by the Class __ and Class __ Certificates will be issued at a
premium, for federal income tax purposes. See "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates--Original
Issue Discount" and "--Premium" in the accompanying Prospectus.
For purposes of accruing original issue discount, determining whether such
original issue discount is de minimis and amortizing any premium, the Prepayment
Assumption will be ___% CPR. See "Yield and Maturity Considerations--Weighted
Average Lives" herein. No representation is made as to the rate, if any, at
which the Mortgage Loans will prepay.
CHARACTERIZATION OF INVESTMENTS IN OFFERED CERTIFICATES
Generally, except to the extent noted below, the regular interests
represented by the Offered Certificates will be "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code in the same proportion that the
assets of the Trust would be so treated. In addition, interest (including
original issue discount, if any) on the Offered 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)(4)(A) of the Code. The Offered Certificates will also generally be
considered loans secured by an interest in real property which is residential
real property as described in Section 7701(a)(19)(C) of the Code. If 95% or more
of the Mortgage Loans are treated as assets described in Section 856(c)(4)(A) or
Section 7701(a)(19)(C) of the Code, the regular interest represented by the
Offered Certificates will be treated as such assets in their entirety.
Furthermore, notwithstanding the foregoing, a Principal Balance Certificate will
not be treated as meeting the foregoing real estate asset and income tests to
the extent of an investor's basis, if any, allocable to, or amounts received
under, a Basis Risk Arrangement. As a result of the Basis Risk Arrangements, the
Offered Certificates may not be treated as "qualified mortgages" for another
REMIC under Section 860G(a)(3)(C) of the Code, but should be treated as
"permitted assets" for a financial asset securitization investment trust under
Section 860L(c) of the Code. See "Certain Federal Income Tax
Consequences--REMICs--Characterization of Investments in REMIC Certificates" in
the accompanying 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 accompanying Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each, a "PLAN") and (d) persons who have certain
specified relationships to such Plans ("Parties-in-Interest" under ERISA and
"Disqualified Persons" under the Code). Moreover, based on the reasoning of the
United States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and
Savings. Bank, 114 S. Ct. 517 (1993), an insurance company's general account may
be deemed to include assets of the Plans investing in the general account (e.g.,
through the purchase of an annuity contract), and the insurance company might be
treated as a Party-in-Interest with respect to a Plan by virtue of such
investment. ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA and prohibits certain transactions between a Plan and
Parties-in-Interest or Disqualified Persons with respect to such Plans. There
are certain exemptions issued by the United States Department of Labor (the
"DOL") that may be applicable to an investment by an ERISA Plan in the
Certificates, including Prohibited Transaction Class Exemption 83-1 ("PTE
83-1"). For further discussion of PTE 83-1, including the necessary conditions
to its applicability and other important factors to be considered by an ERISA
Plan contemplating investing in the Certificates, see "ERISA Considerations" in
the Prospectus.
The U.S. Department of Labor has granted an individual administrative
exemption to PaineWebber Incorporated (Prohibited Transaction Exemption 90-36,
Exemption Application No. D-8069, 55 Fed. Reg. 25903 (1990) (the "PWI
EXEMPTION") and on April 3, 1996[, the DOL issued to ___________ an individual
administrative exemption, Prohibited Transaction Exemption ______, __ Fed. Reg.
______ (the "_________ EXEMPTION" and together with the PWI Exemption, the
"EXEMPTIONS")], from certain of the prohibited transaction rules of ERISA with
respect to the initial purchase, the holding and the subsequent resale by an
ERISA Plan of certificates in pass-through trusts that meet the conditions and
requirements of either of the Exemptions. Among the conditions that must be
satisfied for the Exemption[s] to apply are the following:
1. The Acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with an
unrelated party;
2. The rights and interests evidenced by the Class A Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust;
3. The Class A Certificates acquired by the Plan have received a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from either S&P, Moody's, Fitch IBCA, Inc. or Duff & Phelps
Credit Rating Co.
4. The sum of all payments made to the Underwriter[s] in connection with
the distribution of the Class A Certificates represents not more than
reasonable compensation for underwriting the Class A Certificates. The sum of
all payments made to and retained by the Servicer represents not more than
reasonable compensation for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in connection therewith;
5. The Trustee must not be an affiliate of any other member of the
Restricted Group (as defined below); and
6. The Plan investing in the Class A Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities Act
of 1933, as amended.
The Trust Fund also must meet the following requirements:
a. The corpus of the Trust Fund must consist solely of assets of the type
which have been included in other investment pools;
b. certificates in such other investment pools must have been rated in one
of the three highest rating categories of S&P, Moody's, Fitch IBCA, Inc. or
Duff & Phelps, Credit Rating Co. for at least one year prior to the Plan's
acquisition of certificates; and
c. certificates evidencing interests in such other investment pools must
have been purchased by investors other than plans for at least one year prior
to any Plan's acquisition of Class A Certificates.
In order for an Exemption to apply to certain self-dealing/conflict of
interest prohibited transactions that may occur when a Plan fiduciary causes the
Plan to acquire Class A Certificates, the Exemption requires, among other
matters, that: (i) in the case of an acquisition in connection with the initial
issuance of Certificates, at least fifty percent of each class of certificates
in which Plans have invested is acquired by persons independent of the
Restricted Group and at least fifty percent of the aggregate interest in the
Trust Fund is acquired by persons independent of the Restricted Group (as
defined below); (ii) such fiduciary (or its affiliate) is an obligor with
respect to 5 percent or less of the fair market value of the obligations
contained in the Trust; (iii) the Plan's investment in Class A Certificates does
not exceed twenty-five percent (25%) of all of the certificates outstanding at
the time of the acquisition and (iv) immediately after the acquisition, no more
than twenty-five percent (25%) of the assets of the Plan are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity.
The Exemption[s] do[es] not apply to certain prohibited transactions in the
case of Plans sponsored by an Underwriter, the Trustee, the Servicer, any
obligor with respect to the Loans included in the Trust, any entity deemed to be
a "sponsor" of the Trust Fund as such term is defined in the exemption, or any
affiliate of any such party (the "RESTRICTED GROUP").
Subject to the foregoing, the Depositor believes that the Exemption[s] will
apply to the acquisition and holding of the Class A Certificates by Plans and
that all conditions of such exemption other than those within the control of the
investors have been met.
Before purchasing a Class A Certificate, a fiduciary of an ERISA Plan should
make its own determination as to the availability of the exemptive relief
provided in the Exemption or the availability of any other prohibited
transaction exemptions (including PTE 83-1), and whether the conditions of any
such exemption will be applicable to the Class A Certificates. Any fiduciary of
an ERISA Plan considering whether to purchase a Class A Certificate should also
carefully review with its own legal advisors the applicability of the fiduciary
duty and prohibited transaction provisions of ERISA and the Code to such
investment. See "ERISA Considerations" in the Prospectus.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA, or Code Section 4975. However, such a governmental plan may be subject to
a federal, state, or local law, which is, to a material extent, similar to the
provisions of ERISA or Code Section 4975 ("SIMILAR LAW"). A fiduciary of a
governmental plan should make its own determination as to the need for and the
availability of any exemptive relief under Similar Law.
The sale of Class A Certificates to an ERISA Plan is in no respect a
representation by the Depositor or the Underwriter, that this investment meets
all relevant legal requirements with respect to investments by ERISA Plans
generally or any particular ERISA Plan, or that this investment is appropriate
for ERISA Plans generally or any particular ERISA Plan.
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"),
as amended.
Institutions subject to the jurisdiction of the Office of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or state banking or insurance authorities should
review applicable rules, supervisory policies and guidelines of these agencies
before purchasing any of the Offered Certificates, since such Offered
Certificates may be deemed to be unsuitable investments under one or more of
these rules, policies and guidelines and certain restrictions may apply to such
investments. It should also be noted that certain states have enacted
legislation limiting to varying extents the ability of certain entities (in
particular, insurance companies) to invest in mortgage related securities.
Investors should consult with their own legal advisors in determining whether
and to what extent the Offered Certificates constitute legal investments for
such investors. See "Legal Investment" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Depositor[, and] PaineWebber Incorporated ("PWI") (an affiliate of the
Depositor) [and ________________ ("_________" and together with PWI, the
"UNDERWRITERS")], the Depositor has agreed to sell to the Underwriter[s], and
the Underwriter[s] ha[ve] agreed to purchase from the Depositor, the Certificate
Principal Balance or Notional Amount of Offered Certificates set forth opposite
its name in the tables below:
PRINCIPAL AMOUNT OR NOTIONAL AMOUNT OF:
--------------------------------------------------------
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- -------------------- ------------ ------------ ------------ ------------
PaineWebber
Incorporated.........
- ------------......... ------------ ------------ ------------ ------------
Total...........
============ ============ ============ ============
CLASS A-5 CLASS A-6 CLASS A-6IO
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
- -------------------- ------------ ------------ ------------
PaineWebber
Incorporated.........
- ------------......... ------------ ------------ ------------
Total...........
============ ============ ============
The Depositor has been advised by the Underwriter[s] that [it/they]
propose[s] initially to offer the Offered Certificates to the public at the
prices set forth on the cover of this Prospectus Supplement, and to certain
dealers at such prices less the initial concession set forth below for each
Class. The Underwriter[s] may allow, and such dealers may reallow, a concession
not in excess of that set forth below for each Class. After the initial public
offering of the Offered Certificates, the public offering price and such
concessions and reallowances may be changed.
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- -------------------- ------------ ------------ ------------ ------------
Concessions...........
Reallowances..........
CLASS A-5 CLASS A-6 CLASS A-6IO
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES
- -------------------- ------------ ------------ ------------
Concessions...........
Reallowances..........
Until the distribution of the Offered Certificates is completed, rules of the
Commission may limit the ability of the Underwriter[s] and certain selling group
members to bid for and purchase the Offered Certificates. As an exception to
these rules, the Underwriter[s] [is/are] permitted to engage in certain
transactions that stabilize the price of the Offered Certificates. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Offered Certificates.
If the Underwriter[s] create[s] a short position in the Offered Certificates
in connection with the offering, i.e., if they sell more Offered Certificates
than are set forth on the cover page of this Prospectus Supplement, the
Underwriter[s] may reduce that short position by purchasing Offered Certificates
in the open market.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor the Underwriter[s] make[s] any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Offered Certificates. In addition,
neither the Depositor nor the Underwriter[s] make[s] any representation that the
Underwriter[s] will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
There is currently no secondary market for the Offered Certificates. There
can be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will continue.
The Depositor has agreed to indemnify the Underwriter[s] against, or make
contributions to the Underwriter[s] with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
In addition to the purchase of the Offered Certificates pursuant to the
Underwriting Agreement, PWI and certain of its affiliates have certain financing
relationships with the Transferor.
[EXPERTS
The consolidated financial statements of the Certificate Insurer,
_______________, as of December 31, 199_ and 199_ and for each of the years in
the three-year period ended December 31, 199_, are incorporated by reference
into this Prospectus Supplement 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.]
RATINGS
It is a condition to the original issuance of the Class A Certificates that
they will receive ratings of "____" by ____________________ ("____") and "____"
____________________ ("___________", and together with _________, the "RATING
AGENCIES"). [The ratings assigned to the Class A Certificates will be based on
the financial strength rating of the Certificate Insurer.] Explanations of the
significance of such ratings may be obtained from
________________________________________ and
________________________________________________. Such ratings will be the views
only of such rating agencies. There is no assurance that any such ratings will
continue for any period of time or that such ratings will not be revised or
withdrawn. Any such revision or withdrawal of such ratings may have an adverse
effect on the market price of the Offered Certificates. A securities rating
addresses the likelihood of the receipt by the Certificateholders of
distributions on the Offered Certificates. The ratings on the Offered
Certificates do not constitute statements regarding the possibility that the
Certificateholders might realize a lower than anticipated yield. A securities
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 securities rating should be evaluated independently of
similar ratings on different securities.
LEGAL MATTERS
The validity of the Offered Certificates and certain federal income tax
matters will be passed upon for the Depositor and the Underwriters by
Cadwalader, Wickersham & Taft, New York, New York.
<PAGE>
INDEX
Accrual Period
Administrative Fee Rate
ALTA
Available Distribution Amount
Base Principal Distribution Amount
Beneficial Owner
Book-Entry Certificates
Business Day
Cedelbank
Certificate Account
Certificate Insurance Agreement
Certificate Insurance Policy
Certificate Insurer
Certificate Interest Remittance Amount
Certificate Principal Balance
Certificateholders
Certificates
Class
Class A Certificates
Class A-1 LIBOR Rate
Class A-6 Lockout Distribution Amount
Class A-6 Lockout Percentage
Class A-6 Lockout Pro Rata Distribution Amount
Closing Date
CLTA
CLTV
Code
Collection Account
Combined Loan-to-Value Ratio
Commission
Compensating Interest
CPR
Cut-Off Date
Cut-Off Date Principal Balance
Debt Service Reduction
Deficient Valuation
Depositor
Determination Date
Distributable Certificate Interest
Distribution Date
DOL
DTC
Due Period
Eligible Account
ERISA
Euroclear
Exemptions
Extra Principal Distribution Amount
FDIC
Guidelines
Holder
Insured Payment
Interest Remittance Amount
LIBOR
LIBOR Business Day
LIBOR Determination Date
Liquidated Loan
Loan Interest Rate
Loan Schedule
Loans
Manufactured Homes
Manufactured Housing Contracts
Modeling Assumptions
Mortgage Loans
Mortgage Note
Mortgaged Properties
Mortgages
Net Loan Rate
Nonrecoverable Advance
Notional Amount
Offered Certificates
Optional Termination Date
Overcollateralization Amount
Overcollateralization Deficiency Amount
Overcollateralization Target Amount
Periodic Advance
Permitted Investments
Plan
Pooling and Servicing Agreement
Preference Amount
Prepayment Assumption
Prepayment Interest Shortfall
Principal Balance
Principal Balance Certificates
Principal Distribution Amount
Private Certificates
Properties
PTE 83-1
Purchase Price
PWI
PWI Exemption
Qualified Substitute Loan
Rating Agencies
Record Date
Reduced Weighted Average Net Loan Rate
Reference Bank Rate
Reimbursement Amount
Relief Act Shortfalls
REMIC Regular Certificates
REMIC Residual Certificates
REMICs
REO Property
Restricted Group
Servicer
Servicer Remittance Amount
Servicer Remittance Date
Servicing Advances
Servicing Fee
Servicing Fee Rate
Similar Law
SMMEA
Subordination Deficit
Subservicer
Substitution Adjustment
Successor Servicer
Telerate Page 3750
Total Available Funds
Transferor
Trust
Trust Fund
Trustee
Trustee Collection Account
Trustee Fee
Trustee's Loan File
Turbo Amount
Underwriters
Weighted average life
Weighted Average Net Loan Rate
<PAGE>
=======================================
YOU SHOULD RELY ON THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE
ATTACHED PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION.
WE ARE NOT OFFERING THESE CERTIFICATES
IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
SUMMARY................................
RISK FACTORS...........................
DESCRIPTION OF THE LOANS...............
DESCRIPTION OF THE OFFERED CERTIFICATES
SERVICING OF THE LOANS.................
THE TRUSTEE............................
THE CERTIFICATE INSURANCE POLICY.......
THE CERTIFICATE INSURER................ =======================================
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
ERISA CONSIDERATIONS...................
LEGAL INVESTMENT....................... $___________ (APPROXIMATE)
UNDERWRITING...........................
EXPERTS............................... ______________ HOME
RATINGS................................ EQUITY TRUST 199_-_
LEGAL MATTERS.......................... HOME EQUITY ASSET
INDEX.................................. BACKED CERTIFICATES,
SERIES 199_-_
PROSPECTUS PAINEWEBBER MORTGAGE ACCEPTANCE
PAGE CORPORATION IV
Available Information.................. (DEPOSITOR)
Reports to Securityholders.............
Incorporation of Certain Information by ______________________
Reference.............................. (TRANSFEROR AND SERVICER)
Prospectus Supplement or Current Report
on Form 8-K............................ ---------------------------------------
Summary of Terms....................... PROSPECTUS SUPPLEMENT
Risk Factors........................... ---------------------------------------
The Trust Funds........................
Use of Proceeds........................ PAINEWEBBER INCORPORATED
Yield Considerations...................
Maturity and Prepayment Considerations.
The Depositor..........................
Residential Loan Program...............
Description of the Securities.......... _____________, 199_
Description of Primary Insurance
Coverage...............................
Description of Credit Support..........
Certain Legal Aspects of Residential =======================================
Loans..................................
Certain Federal Income Tax Consequences
State and Other Tax Consequences.......
ERISA Considerations...................
Legal Investment.......................
Plans of Distribution..................
Legal Matters..........................
Financial Information..................
Rating.................................
Index of Defined Terms.................
------------------------------
DEALERS WILL BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS OF THESE
CERTIFICATES AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. IN
ADDITION, ALL DEALERS SELLING THESE
CERTIFICATES WILL DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS UNTIL
____________, 199_.
========================================
<PAGE>
PROSPECTUS SUPPLEMENT DATED _________, 199_
(To Prospectus dated ____________, 199_)
$
(APPROXIMATE)
HOME LOAN ASSET BACKED NOTES, SERIES 199_-_
__________ HOME LOAN OWNER TRUST 199_-_
ISSUER
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
DEPOSITOR
TRANSFEROR AND MASTER SERVICER
SERVICER
----------------------------------------
o The issuer, an owner trust, is issuing notes that have an approximate
original principal balance of $ , subject to permitted variance of plus
or minus % and a per annum interest rate of one-month LIBOR plus %, which
will increase by % per annum after the call option date, in each case
subject to a cap of the available amount of interest on the loans, net of
expenses, expressed as an annualized percentage of the outstanding
principal balance of the notes.
o Interest and principal is payable monthly on the notes on the th day of
each month, beginning in , 199 .
o The notes are backed by a pool of [first lien mortgage loans on
one-to-four family residences] and other properties as described in this
prospectus supplement.
o [Credit enhancement consisting of an unconditional and irrevocable
guarantee of timely payment of interest and ultimate payment of principal
on the notes is provided by a financial guaranty insurance policy issued
by ____________________.]
- --------------------------------------------------------------------------------
You should consider carefully the risk factors beginning on page s-[ ] of
this prospectus supplement and page [ ] in the prospectus.
The notes will represent obligations of the issuer only and will not
represent obligations of PaineWebber Mortgage Acceptance Corporation IV or any
other person or entity. No governmental agency or any other person will insure
the notes or the collateral securing the notes[, except that __________________
will insure the notes]. The notes are not obligations of a bank and are not
insured or guaranteed by the FDIC.
You should consult with your own advisors to determine if the notes are
appropriate investments for you and to determine the applicable legal, tax,
regulatory and accounting treatment of the notes.
- --------------------------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE NOTES
OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The notes will not be listed on any securities exchange or on any automated
quotation system.
PaineWebber Incorporated [and _______________________], as the
underwriter[s], will purchase the notes from PaineWebber Mortgage Acceptance
Corporation IV and will offer them to the public at a price equal to ___% of the
initial principal amount of the notes. The underwriter[s] will receive an
underwriting discount equal to % of the initial principal amount of the notes.
The underwriter[s] expect[s] to deliver the notes to purchasers on or about
_________, 199_ in book-entry form through The Depository Trust Company,
Cedelbank and The Euroclear System. PaineWebber Mortgage Acceptance Corporation
IV expects to receive from this offering approximately % of the original
principal balance of the notes, before deducting expenses payable by PaineWebber
Acceptance Corporation IV.
PAINEWEBBER INCORPORATED
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
Information about the Series 199 - notes is provided in two separate
documents that progressively include more detail:
o the accompanying prospectus dated __________, 199_, which provides
general information, some of which may not apply to the Series 199_-_
notes; and
o this prospectus supplement, which describes the specific terms of the
Series 199_-_ notes.
Sales of the notes may not be completed unless you have received both this
prospectus supplement and the prospectus. Please read this prospectus supplement
and the prospectus in full.
If the terms of the notes vary between this prospectus supplement and the
accompanying prospectus, then you should rely on the information in this
prospectus supplement.
Cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials are included to assist in locating
further related discussions. The following table of contents and the table of
contents in the accompanying prospectus provide the pages on which these
captions are located.
Certain capitalized terms are defined and used in this prospectus
supplement and the prospectus to assist you in understanding the terms of the
notes and this offering. A listing of the pages where capitalized terms used in
this prospectus supplement and the accompanying prospectus are defined is
included under the caption "Index of Defined Terms" beginning on page S-__ in
this prospectus supplement and under the caption "Index of Defined Terms"
beginning on page ___ in the accompanying prospectus.
All statistical data with respect to the loans are approximate, and are
based on the scheduled principal balances of the loans as of the close of
business on ___________, 199_, except where otherwise noted.
FORWARD-LOOKING STATEMENTS
In this prospectus supplement and the accompanying prospectus, we use
certain forward-looking statements. Such forward-looking statements are found in
the material, including each of the tables, set forth under "Risk Factors" and
"Prepayment and Yield Considerations." Forward-looking statements are also found
elsewhere in this prospectus supplement and prospectus and include words like
"expects," "intends," "anticipates," "estimates" and other similar words. Such
statements are intended to convey our projections or expectations as of the date
of this prospectus supplement. Such statements are inherently subject to a
variety of risks and uncertainties. Actual results could differ materially from
those we anticipate due to changes in, among other things:
o economic conditions and industry competition,
o political and/or social conditions, and
o the law and government regulatory initiatives.
We will not update or revise any forward-looking statement to reflect
changes in our expectations or changes in the conditions or circumstances on
which such statements were originally based.
<PAGE>
TABLE OF CONTENTS
PAGE
Summary
Risk Factors
Yield, Prepayment and Maturity Considerations
Limited Liquidity
Adequacy of Credit Enhancement
Limitations on Rights of Noteholders
Underwriting Guidelines
Servicing Risk
Realization Upon Defaulted Loans
[Geographic Concentration
Non-Recordation of Assignments
Legal Considerations
Limitations on the Transferor and Servicer
The Pool
General
Payments on the Loans
Characteristics of the Loans
Loan Statistics
Master Servicer
Master Servicer Duties
Servicer
General
Servicing Procedures
Delinquency and Loss Experience May Not Be Applicable to the Pool
Underwriting Criteria
General
Prepayment and Yield Considerations
General
Excess Spread and Reduction of Overcollateralization Amount
Reinvestment Risk
Maturity Date
Yield Considerations Relating to Adjustable-Rate Loans
Weighted Average Lives of the Notes
The Owner Trust and Indenture
General
The Owner Trustee
The Indenture Trustee
Description of the Notes
General
Payments on the Notes
Priority of Payments
Related Definitions
[Securities Insurer Reimbursement Amount]
Optional Redemption
[Description of Credit Enhancement]
[Insurance Policy]
[The Securities Insurer]
[Overcollateralization]
Subordination
Description of the Transfer and Servicing Agreements
Sale and Assignment of the Loans
Representations and Warranties
Repurchase of Loans
Fees and Expenses
Servicing
Collection Account, Note Payment Account and Certificate Distribution Account
Income From Accounts
Collection and Other Servicing Procedures For Loans
Insurance
Realization Upon Defaulted Loans
Evidence as to Compliance
Certain Matters Regarding the Master Servicer
Master Servicer Events of Default
Certain Matters Regarding the Servicer
Servicer Determinations and Events of Default
Rights of Noteholders Upon Occurrence of Event of Default
Restrictions on Noteholders' Rights
The Owner Trustee and Indenture Trustee
Duties of the Owner Trustee And Indenture Trustee
Reports to Noteholders
Federal Income Tax Consequences
Classification of Investment Arrangement
Taxation of Holders
Backup Withholding and Information Reporting
ERISA Considerations
General
Prohibited Transactions
Review by Plan Fiduciaries
Legal Investment
Use of Proceeds
Underwriting
Experts
Legal Matters
Ratings
Index of Defined Terms
<PAGE>
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making an
investment decision. To understand all of the terms of the offering of the
notes, you should read carefully this entire document and the accompanying
prospectus.
RELEVANT PARTIES
Issuer..................... ________________ Home Loan Owner Trust 199_-_, a
Delaware business trust, will be established
pursuant to a trust agreement among the Depositor,
the Paying Agent, the Owner Trustee and
______________. You may contact the issuer at the
owner trust's offices. See "The Owner Trust and
Indenture" in this prospectus supplement.
Depositor.................. PaineWebber Mortgage Acceptance Corporation IV, a
Delaware corporation. The depositor's address is
1285 Avenue of the Americas, New York, New York
10019, telephone number (212) 713-2000. See "The
Depositor" in the accompanying prospectus.
Transferor and Master
Servicer................. _________________________________________________.
_______________'s address is _____________________
______________________. See "________________" and
"Master Servicer" in this prospectus supplement.
_________ will also act as the initial servicer.
Servicer................... _________________________________________________.
_______________s' address is _____________________
______________________. See "Servicer" in this
prospectus supplement. __________________ will
begin servicing the loans on or before
_____________, 199_.
[Securities Insurer........
_________________________________________________.
_______________'s address is _____________________
______________________. See "Description of Credit
Enhancement--The Securities Insurer" in this
prospectus supplement.]
Indenture Trustee, Paying
Agent and Custodian......._________________________________________________.
_______________'s address is _____________________
______________________. See "The Owner Trust and
Indenture--The Indenture Trustee" in this
prospectus supplement.
Owner Trustee.............. _________________________________________________.
_______________'s address is _____________________
______________________. See "The Owner Trust and
Indenture--The Owner Trustee" in this prospectus
supplement.
RELEVANT DATES
Closing Date............... On or about __________, 199_.
Cut-Off Date............... The close of business on __________, 199_.
Payment Date............... The ____ day of each month or, if such day is not
a business day, the next business day, commencing
in ____________ 199_.
Due Period................. The ___ day of the calendar month preceding the
month in which the relevant payment date occurs,
and ending on the 1st day of the month in which
the relevant payment date occurs.
Determination Date......... The ___ calendar day of each month or, if such day
is not a business day, then the preceding business
day.
OFFERED SECURITIES........... The issuer is offering the Series 199_-_ notes
with an approximate original principal balance of
$__________ (subject to a permitted variance of
plus or minus __%) bearing interest at a per annum
rate equal to one-month LIBOR plus a margin. The
notes represent obligations of the issuer only,
and will be secured by the assets of the issuer
pursuant to the indenture. See "Description of the
Notes" in this prospectus supplement.
Interest Payments.......... On each payment date, interest accrued during the
preceding Accrual Period will be due on the notes.
The notes will accrue interest for each Accrual
Period on their unpaid principal balance at a per
annum rate equal to the lesser of (i) one-month
LIBOR plus ____% (or on any payment date after the
call option date, one-month LIBOR plus ____%) and
(ii) the amount of interest due on the loans for
such Due Period, net of the sum of (a) the fees of
the master servicer, the servicer and the
indenture trustee and the premium payable to the
Securities Insurer and (b) on and after the
payment date in ______________, ____% of the
outstanding principal balance of the loans,
expressed as an annualized percentage of the
outstanding principal balance of the notes. The
maximum rate referred to in clause (ii) is
sometimes referred to as the "NET FUNDS CAP". Any
resulting shortfall together with interest thereon
will be carried forward and will be paid on the
next payment date to the extent there are funds
available.
The ratings assigned to the notes do not address
the likelihood of your receipt of interest carried
forward to later payment dates due to the Net
Funds Cap. Interest on the notes will be
calculated on the basis of the actual number of
days elapsed in the Accrual Period and a 360-day
year.
Each "ACCRUAL PERIOD" is the period from and
including the closing date, in respect of the
first payment date, or the period from and
including the immediately preceding payment date,
in respect of all other payment dates, through but
excluding the related payment date.
See "Description of the Notes--Payments on the
Notes" in this prospectus supplement.
Principal Payments......... On each payment date, the notes will be due
payments of principal. See "Description of the
Notes--Payments on the Notes" in this prospectus
supplement for a detailed discussion of the amount
and timing of principal payments.
The final payment of principal is scheduled to
occur on the payment date occurring in ___________
(the "MATURITY Date"). The notes are expected to
have received payments of principal in full by no
later than the Maturity Date. However, the actual
final payment date, on which the notes receive
payment of principal in full, may occur
significantly earlier than the Maturity Date. See
"Prepayment and Yield Considerations--Maturity
Date" in this prospectus supplement.
OTHER SECURITIES ISSUED...... In addition to the notes, the issuer is also
issuing residual interest certificates that
evidence the residual interest in the assets of
the issuer. The residual interest certificates are
subordinate to the notes.
The residual interest certificates are not being
offered through this prospectus supplement or the
accompanying prospectus.
ASSETS OF THE ISSUER
Loans...................... The assets of the issuer will consist primarily of
a pool of mortgage loans, which will have an
aggregate principal balance of approximately
$__________ as of __________, 199_. The loans will
be secured by first liens on one- to four-unit
single family residences, condominium units and
townhouses.
Approximately _____% of the loans, by Cut-Off Date
aggregate principal balance, will bear interest at
a fixed rate for the term of the loan.
Approximately ______% of the loans, by original
aggregate principal balance, will bear interest at
an adjustable rate.
The interest rate on each adjustable-rate loan
will be subject to adjustment after an initial
period. Approximately _____% of the loans, by
Cut-Off Date principal balance, known as "____
loans" will bear interest at a fixed rate for
approximately two years after origination.
Approximately _____% of the loans, by Cut-Off Date
aggregate principal balance, known as "____ loans"
will bear interest at a fixed rate for three years
after origination. Approximately ____% of the
loans, by Cut-Off Date aggregate principal
balance, will bear interest at a fixed rate for
six months after origination. At the end of the
six month, two year or three year period and every
six months after that date, each of these
adjustable-rate loans will be subject to an
interest rate adjustment.
The loans have been originated using underwriting
standards that are less stringent than FHLMC or
FNMA guidelines concerning first-lien mortgage
loans. See "The Pool" in this prospectus
supplement and "The Trust Funds--Residential
Loans" in the accompanying prospectus.
SERVICING OF THE LOANS....... _____________, as the servicer, will perform the
loan servicing and receive a monthly servicing fee
and other servicing compensation. The servicer
also will make reasonable and customary expense
advances with respect to the loans, in accordance
with reasonable and customary servicing
procedures. See "Description of the Transfer and
Servicing Agreements--Servicing" in this
prospectus supplement.
________________ will be the master servicer. The
master servicer will advance certain delinquent
payments of interest and principal on the loans,
will pay compensating interest to cover prepayment
interest shortfalls to the extent described in
this prospectus supplement, will monitor the
servicing activities of the servicer and will be
available to assume the servicing upon a
termination of the servicer. See "Master Servicer"
in this prospectus supplement.
___________ has agreed to service the loans
beginning on or before __________, 199_. The
master servicer will service the loans for an
interim period beginning on the closing date until
_______ has assumed its duties as servicer.
CREDIT ENHANCEMENT........... Credit enhancement for the notes will be provided
by and utilized in the following order of
priority:
o FIRST, the subordination of the residual
interest certificates;
o SECOND, the overcollateralization that results
from the cash flow structure; and
o THIRD, the Guaranty Policy as described below.
Each of these sources of credit enhancement is
intended to increase the likelihood that you will
receive the full and timely amount of interest
payments and full amount of principal payments due
on the notes and to provide protection against
losses on the loans. The credit enhancement for
the notes is for the benefit of the Series 199_-_
notes only and the Series 199_-_ notes will not be
entitled to the benefits of any other credit
enhancement. See "Risk Factors--Adequacy of Credit
Enhancement" in this prospectus supplement.
Subordination.............. The rights of the holders of the residual interest
certificates to receive payments from any
remaining amounts available on each payment date
are subordinate to your rights. See "Description
of Credit Enhancement--Subordination" in this
prospectus supplement.
[Overcollateralization;
Application of Excess
Spread............. The "OVERCOLLATERALIZATION AMOUNT" with respect to
any payment date, will equal the excess of the
aggregate principal balance of the loans over the
unpaid principal balance of the notes, after
giving effect to regular principal and interest
payments on the notes on such payment date. On the
closing date, the Overcollateralization Amount
will be equal to $__________. The
Overcollateralization Amount is expected to
increase through the application of Excess Spread
to reduce the unpaid principal balance of the
notes. This application of Excess Spread is
intended to create and maintain the
Overcollateralization Amount at a level equal to a
certain target amount.
The overcollateralization target amount may
increase or decrease over time, subject to certain
minimum and maximum amounts and trigger events
that are based on excess spread requirements and
the delinquency and loss experience of the loans
and the outstanding principal balance of the
loans. See "Description of Credit
Enhancement--Overcollateralization" in this
prospectus supplement.
An increase in the overcollateralization target
amount will occur if, among other things, the
delinquency or loss experience of the loans
exceeds certain levels established by the
Securities Insurer. These levels can be changed by
the Securities Insurer. If an increase in the
overcollateralization target amount occurs, then
the principal amortization of the notes would be
accelerated by the payment of any available Excess
Spread to the notes, until the
Overcollateralization Amount equals the increased
overcollateralization target amount.
If the delinquency or loss experience of the loans
does not exceed the levels established by the
Securities Insurer, then a decrease or stepdown in
the overcollateralization target amount may
initially occur when the outstanding principal
balance of the loans is reduced to an amount
established by the Securities Insurer. A decrease
or stepdown will likely result in the current
Overcollateralization Amount exceeding the
decreased overcollateralization target amount. If
the Overcollateralization Amount exceeds the
overcollateralization target amount, then (i) all
or a portion of the principal payments that would
otherwise be paid to the notes will instead be
paid to the residual interest certificates and
(ii) the principal amortization of the notes would
be reduced in relation to the principal
amortization of the loans. The Securities Insurer
may lower the overcollateralization target amount
at any time to certain minimum amounts.
See "Description of Credit Enhancement--
Overcollateralization" in this prospectus
supplement.]
[Guaranty Policy........... A financial guaranty insurance policy (the
"GUARANTY Policy") from ___________________ (the
"SECURITIES Insurer"), will irrevocably and
unconditionally guaranty to the indenture trustee
timely payment of interest and ultimate payment of
principal due on the notes. The Guaranty Policy
may not be canceled for any reason. The Guaranty
Policy does not guaranty any specified rate of
prepayments or any interest payments carried
forward to subsequent payment dates due to the Net
Funds Cap, nor does the Guaranty Policy provide
funds to redeem any of the notes, unless such
redemption is at the option of the Securities
Insurer. See "Description of Credit
Enhancement--Financial Guaranty Insurance Policy"
and "--The Securities Insurer" in this prospectus
supplement.
The insurance provided by the Guaranty Policy is
not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New
York Insurance Law.]
ALLOCATION AND PAYMENTS TO
THE NOTES.................. Interest and principal payments due on the notes
will be paid from the Available Payment Amount and
any Insured Payment made under the Guaranty
Policy. On each payment date, the priority of
payments from the Available Payment Amount will be
as follows:
o FIRST, to pay the Regular Payment Amount; and
o SECOND, to pay the Excess Spread, if any.
The "AVAILABLE PAYMENT AMOUNT" with respect to any
payment date, will generally equal the sum of
interest and scheduled principal payments
collected from the loans during the related Due
Period or advanced by the master servicer and any
prepayments or other unscheduled principal
payments collected during the related Due Period,
minus the payment of the issuer's fees and
expenses including the fees owed to the master
servicer, the servicer, the Securities Insurer and
the indenture trustee.
[The Securities Insurer will be required to make
an Insured Payment to the indenture trustee upon
receipt of a claim under the Guaranty Policy. See
"Description of Credit Enhancement--Financial
Guaranty Insurance Policy" in this prospectus
supplement.
An "INSURED PAYMENT" with respect to any payment
date, generally will be made under the Guaranty
Policy to cover any deficiency attributable to the
sum of (i) any deficiency resulting from the
Available Payment Amount being less than the
accrued and unpaid interest due on the notes and
(ii) any deficiency resulting from the aggregate
unpaid principal balances of the loans being less
than the aggregate unpaid principal balances of
the notes. Insured Payments will not be available
to cover interest shortfalls on the Notes
resulting from the Relief Act or interest payments
carried forward from prior payment dates due to
the application of the Net Funds Cap.]
The "REGULAR PAYMENT AMOUNT" with respect to any
payment date, will generally equal the lesser of:
o the Available Payment Amount; and
o the sum of the following amounts:
o the accrued and unpaid interest due on the notes
for the related Accrual Period; and
o the amount of principal collected on the loans,
but not in excess of the amount sufficient for
the overcollateralization amount to reach or
maintain the target overcollateralization
amount.
The "EXCESS SPREAD" with respect to any payment
date, will equal the excess, if any, of the
Available Payment Amount, over the Regular Payment
Amount.
See "Description of the Notes" in this prospectus
supplement for a further discussion of the
payments of interest and principal on the notes.
Application of the
Regular Payment
Amount................... The Regular Payment Amount and any Insured Payment
will be paid on each payment date in the following
order of priority:
o FIRST, to pay the holders of the notes accrued
and unpaid interest;
o SECOND, to pay to the holders of the notes
principal in an amount equal to scheduled
principal amounts collected on the loans during
the preceding Due Period, and any principal
prepayments or other unscheduled principal
payments collected during such Due Period,
subject to certain adjustments resulting from
the notes being either overcollateralized or
undercollateralized in certain circumstances,
until the notes have been paid their principal
balance in full; and
o THIRD, any remaining amount to be applied
together with Excess Spread for payment as
specified in "--Application of Excess Spread"
below.
See "Description of the Notes" in this prospectus
supplement.
Application of Excess
Spread................... The Excess Spread, if any, will be paid on each
payment date in the following order of priority
(after giving effect to all payments specified
above under "--Application of the Regular Payment
Amount"):
o [FIRST, to pay the Securities Insurer in the
amount that is needed to reimburse the
Securities Insurer for any Insured Payments
previously made under the Guaranty Policy and
any other amounts owed under the Insurance
Agreement, in each case, together with interest
at a rate specified in the insurance agreement;]
o SECOND, to pay the holders of the notes as
principal any Excess Spread, in an amount up to
the Overcollateralization Deficiency Amount, if
any, until the notes have been paid their
principal in full;
o THIRD, to pay the holders of the notes interest
carried forward from prior payment dates due to
the Net Funds Cap, together with accrued
interest thereon, if any; and
o FOURTH, to pay any remaining Excess Spread,
first to the servicer and the master servicer in
an amount needed to reimburse any
non-recoverable servicing advances and monthly
advances, and then to the holders of the
residual interest certificates.
The "OVERCOLLATERALIZATION DEFICIENCY AMOUNT" with
respect to any payment date, will equal the
excess, if any, of the overcollateralization
target amount over the Overcollateralization
Amount. See "Description of the Notes" in this
prospectus supplement.
OPTIONAL REDEMPTION.......... The holders of residual interest certificates have
the option to cause the issuer to effect an early
redemption of the notes on or after any payment
date on which the outstanding aggregate principal
balance of the loans declines to __% or less of
the aggregate principal balance of the loans as of
the Cut-Off Date (the first such payment date, the
"CALL OPTION DATE"), by purchasing all of the
loans at a price that will at least pay in full
accrued interest, interest carried forward due to
the Net Funds Cap, together with accrued interest
thereon, unreimbursed servicing advances and
monthly advances and principal of the notes. On or
after any payment date on which the outstanding
aggregate principal balance of the loans declines
to __% or less of the aggregate principal balance
of the loans as of the Cut-Off Date, the
Securities Insurer or the servicer will have the
option to cause the issuer to effect the same
early redemption of the notes if the holders of
the residual interest certificates fail to
exercise this early redemption option.
[In addition, whether or not the Call Option Date
has occurred, if certain events of default occur
with respect to the issuer, the Securities Insurer
may, at its option, cause an early redemption of
the notes.] See "Description of the
Notes--Optional Redemption" in this prospectus
supplement.
CLEARANCE, SETTLEMENT AND
DENOMINATIONS OF THE
NOTES...................... The Series 199_-_ notes will be issued only in
book-entry form through DTC in the United States,
or Cedel or Euroclear in Europe. Transfers will be
in accordance with the usual rules and operating
procedures of The Depository Trust Company
("DTC"), Cedelbank ("CEDEL") and The Euroclear
System ("EUROCLEAR"). You will not receive a
definitive certificate representing your note,
except in limited circumstances described in the
accompanying prospectus. See "Risk
Factors--Book-Entry Registration" and "Description
of the Securities--Book-Entry Registration of
Securities" in the accompanying prospectus.
Beneficial interests in the notes will be offered
in minimum denominations of $25,000 and integral
multiples of $1,000 in excess of that amount.
TAX STATUS................... Special counsel to the depositor and the
underwriters is of the opinion that under existing
law the notes will be characterized as debt for
federal income tax purposes and that the issuer
will not be characterized as an association or a
publicly traded partnership taxable as a
corporation or a taxable mortgage pool for federal
income tax purposes.
By acceptance of a note, you are deemed to agree
to treat your notes as debt for Federal, state and
local income tax purposes and franchise tax
purposes. See "Federal Income Tax Consequences" in
this prospectus supplement and "Certain Federal
Income Tax Consequences" in the accompanying
prospectus for additional information concerning
the application of federal income tax laws.
ERISA CONSIDERATIONS......... Subject to important considerations described in
this prospectus supplement and in the accompanying
prospectus, the notes are eligible for purchase by
persons investing assets of employee benefit plans
or individual retirement accounts. You should
carefully review with your legal advisors whether
the purchase or holding of the notes could give
rise to a prohibited transaction. See "ERISA
Considerations" in this prospectus supplement and
in the accompanying prospectus.
LEGAL INVESTMENT............. Your notes will constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended
("SMMEA") for as long as they are rated not lower
than the second highest rating category by one or
more nationally recognized statistical rating
organizations and, as such, will be legal
investments for certain entities to the extent
provided in SMMEA and applicable state laws. You
should consult your own legal advisors to
determine whether the notes constitute legal
investments for you. See "Legal Investment" in
this prospectus supplement and in the accompanying
prospectus.
NOTE RATINGS................. On the closing date, the notes are required to be
rated "___" by _________________________ and
"____" by_________________________________ (the
"RATING Agencies"). See "Ratings" in this
prospectus supplement and "Rating" in the
accompanying prospectus for a discussion of the
primary factors upon which the ratings are based.
IMPORTANT COVENANTS OF
NOTEHOLDERS................ By accepting your note, you agree not to institute
or join in any bankruptcy, reorganization or other
insolvency or similar proceeding against the
transferor, the servicer, the master servicer or
the issuer. You also agree to allow the Securities
Insurer to exercise all of your voting rights with
respect to your notes. See "Risk
Factors--Limitations on Rights of Noteholders" and
"Description of the Transfer and Servicing
Agreements--Restrictions on Noteholders' Rights"
in this prospectus supplement.
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. In particular, payments on your notes will depend on
payments received on and other recoveries with respect to the loans.
Therefore, you should carefully consider the risk factors relating to the
loans. The risks and uncertainties described below are not the only ones
relating to your notes. Additional risks and uncertainties not presently known
to _____________________ or PaineWebber Mortgage Acceptance Corporation IV, or
that they currently consider immaterial may also impair your investment.
If any of the following risks are realized, your investment could be
materially and adversely affected.
This prospectus supplement also contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this prospectus
supplement.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
BASIS RISK. The yield on your notes will be sensitive to fluctuations in
the level of One-Month LIBOR and may be adversely affected by the application of
the Net Funds Cap. The prepayment of the mortgage loans with higher mortgage
rates may result in a lower Net Funds Cap. If on any payment date the
application of the Net Funds Cap results in an interest payment lower than the
interest rate on the notes during the related Accrual Period, the value of your
notes may decline.
The mortgage pool will contain adjustable-rate mortgage loans that, after a
period of six months, two years or three years following the date of
origination, adjust semi-annually based upon the London interbank offered rate
for six-month United States dollar deposits (the "SIX-MONTH LIBOR").
Consequently, the interest due on such mortgage loans during any Due Period may
not equal the amount of interest that would accrue at One-Month LIBOR plus the
applicable margin on your notes during the related Accrual Period. In
particular, because the interest rate on your notes adjusts monthly, while the
interest rates on the mortgage loans adjust semi-annually, and in some cases,
only after the expiration of the related fixed-rate period, or with respect to
fixed-rate loans, not at all, subject to any applicable periodic cap, maximum
mortgage rate and minimum mortgage rate, in a rising interest rate environment,
the amount of interest paid on the notes on any payment date may be less than
One-Month LIBOR plus the applicable margin.
Although you will be entitled to receive on subsequent payment dates the
amount of any interest shortfall resulting from the application of the Net Funds
Cap on the notes, in light of the payment priorities on such payment dates,
there is no assurance that funds will be available. The failure to pay such
amount carried forward on subsequent payment dates due to a lack of funds will
not be an event of default under the indenture. In addition, [the Guaranty
Policy does not cover,] and the ratings of the notes do not address, the
likelihood of the payment of such amounts carried forward.
The yield to maturity on the notes may be affected by the resetting of the
mortgage rates on the adjustable-rate mortgage loans. In addition, because the
mortgage rate for most mortgage loans is based on Six-Month LIBOR plus the
related margin, such rate could be higher than prevailing market interest rates,
which may result in an increase in the rate of prepayments on the mortgage loans
after the adjustment. Also, while a substantial majority of the "2/28" and
"3/27" loans impose prepayment penalties if a loan is prepaid during the initial
one to five years of the loan, these penalties are typically suspended during
the sixty-day period following the initial adjustment date. The suspension of
the prepayment penalties may also result in increased prepayments on the
mortgage loans during such sixty-day period.
See "Certain Legal Aspects of Residential Loans--Prepayment Charges and
Prepayments" in the prospectus.
VARIATIONS IN YIELD TO MATURITY. The degree to which the actual yield of
your notes may vary from the anticipated yield will depend upon:
o the price of your notes, including the amount of any premium or discount;
o the degree to which the timing of payments on your notes is sensitive to
the prepayment experience of loans and the application of Excess Spread
as principal on the notes;
o the timing of delinquencies, defaults and losses on the loans to the
extent not covered by the credit enhancement[, including the Guaranty
Policy]; and
o a change in the overcollateralization target amount or a change in the
delinquency or loss levels with respect to the loans or excess spread
requirements used to determine an increase or decrease in the
overcollateralization target amount.
The allocation of Excess Spread as an additional payment of principal on the
notes until the Overcollateralization Amount equals the overcollateralization
target amount will accelerate the principal amortization of the notes relative
to the speed at which principal is paid on the loans. However, any reduction in
the Overcollateralization Amount will slow the principal amortization of the
notes. See "Prepayment and Yield Considerations" in this prospectus supplement.
PREPAYMENT EXPERIENCE OF THE LOANS. The rate and timing of payments of
principal on the loans, among other factors, will affect the rates of principal
payments on the notes and the aggregate amount of payments and the yield to
maturity of your notes. Because the prepayment experience of the loans will
depend on future events and a variety of factors, the prepayment experience of
the loans is uncertain and in all likelihood will not conform to any projected
rates of prepayments. See "Prepayment and Yield Considerations" in this
prospectus supplement.
LIMITED LIQUIDITY
A secondary market for the notes may not develop or, if it does develop, it
may not provide you with liquidity of investment or continue while your notes
are outstanding. See "Risk Factors--Limited Liquidity" in the accompanying
prospectus.
[ADEQUACY OF CREDIT ENHANCEMENT
RATINGS OF SECURITIES INSURER. Any reduction in a rating assigned to the
claims-paying ability of the Securities Insurer may result in a reduction in the
rating of the notes. Future events may reduce the rating of the Securities
Insurer or impair the ability of the Securities Insurer to pay claims for
Insured Payments under the Guaranty Policy. In that event, the Securities
Insurer might not have the ability to cover delays or shortfalls in payments of
interest or ultimate principal due on the notes. See "Description of Credit
Enhancement--Financial Guaranty Insurance Policy" in this prospectus supplement.
LOAN DELINQUENCIES, DEFAULTS AND LOSSES. Delinquencies, if not advanced by
the master servicer, defaults and losses on the loans will reduce the credit
enhancement available from the overcollateralization feature. If amounts
available from this credit enhancement are not adequate to protect against the
delinquencies, defaults and losses experienced on the loans, then delays or
shortfalls in payments of interest or principal due on the notes will occur,
unless such delays or shortfalls are covered under the Guaranty Policy. See
"Description of Credit Enhancement" in this prospectus supplement.
AVAILABILITY OF EXCESS SPREAD FOR OVERCOLLATERALIZATION. Excess Spread may
not be generated in sufficient amounts to create and maintain the
Overcollateralization Amount at the overcollateralization target amount at all
times. In particular, delinquencies, if not advanced by the master servicer,
defaults and principal prepayments on the loans will reduce the Excess Spread
that otherwise would be available on a payment date. The reduction of the
available Excess Spread will result in a slower principal amortization of the
notes in relation to the loans, which in turn will result in a lower level of
Overcollateralization Amount. See "Description of Credit
Enhancement--Overcollateralization" in this prospectus supplement.
LIMITATIONS ON SUBORDINATION. The holders of the Residual Interest
Certificates are never obligated to refund payments previously distributed to
them to holders of the notes, including payments of Excess Spread, even if on a
subsequent payment date insufficient funds are available to pay interest or
principal due on the notes. See "Description of Credit
Enhancement--Subordination" in this prospectus supplement.]
LIMITATIONS ON RIGHTS OF NOTEHOLDERS
[Generally, the Securities Insurer may exercise all of your voting rights
with respect to your notes (the "NOTEHOLDER RIGHTS") without your consent. The
exercise, or a refusal to consent to the exercise, by the Securities Insurer of
certain Noteholder Rights could be adverse to your interest. For example, such
an event could cause an unanticipated prepayment of principal on your notes. See
"Description of the Transfer and Servicing Agreements--Restrictions on
Noteholder Rights" in this prospectus supplement.]
UNDERWRITING GUIDELINES
The originator's underwriting standards are intended to assess the
creditworthiness of the borrower and the value of the mortgaged property and to
evaluate the adequacy of such property as collateral for the loan. In comparison
to first lien mortgage loans that conform to the underwriting guidelines of FNMA
or FHLMC the loans have generally been underwritten or reunderwritten with more
lenient underwriting criteria. For example, the loans may have been made to
borrowers having imperfect credit histories, ranging from minor delinquencies to
bankruptcies, or borrowers with higher ratios of monthly mortgage payments to
income or higher ratios of total monthly credit payments to income. Accordingly,
the loans will likely experience higher, and possibly substantially higher,
rates of delinquencies, defaults and losses than the rates experienced by loans
underwritten according to FNMA or FHLMC guidelines. Furthermore, changes in the
values of the mortgaged properties may have a greater effect on the delinquency,
foreclosure, bankruptcy and loss experience of the loans than on mortgage loans
originated according to FNMA or FHLMC guidelines. No assurance can be given that
the values of the mortgaged properties have remained or will remain at the
levels in effect on the dates of origination of the related loans. See
"--Adequacy of Credit Enhancement" above, and "Underwriting Criteria" in this
prospectus supplement.
SERVICING RISK
The servicing of loans such as those originated pursuant to the
underwriting guidelines described above (as compared to the servicing of prime
mortgage loans) requires special skill and diligence. The servicing of these
types of loans generally requires more attention to each account, earlier and
more frequent contact with borrowers in default and commencing the foreclosure
process at an earlier stage of default. The loans are not currently being
serviced by the servicer. On or before _________, 199_, the servicing of such
loans will be transferred from __________ to ______________. Following such
time, _____________ will directly service all of the loans. Interruptions in
servicing may occur during the transfer of servicing to the servicer.
Pursuant to the servicing agreement, the term of the servicer shall be
extendable for successive 90 day terms until the notes are paid in full,
provided that prior to the expiration of each term the Securities Insurer
delivers written notice of renewal to the servicer. In the event that such
renewal notice is not delivered and a successor servicer is appointed, the
servicing of the loans will be transferred. During such period, interruptions in
servicing may occur potentially resulting in the loans suffering a higher
default rate.
REALIZATION UPON DEFAULTED LOANS
ADEQUACY OF SECURITY AND SEVERITY OF LOSSES. Assuming that the mortgaged
properties provide adequate security for the loans, substantial delays in
recoveries may occur from the foreclosure or liquidation of defaulted loans. No
assurance can be given that the values of the mortgaged properties have remained
or will remain at the levels in effect on the dates of origination of the
related loans. Further, liquidation expenses (such as legal fees, real estate
taxes, and maintenance and preservation expenses) will reduce the proceeds
payable on the mortgage notes and thereby reduce the security for the loans. In
the event any of the mortgaged properties fail to provide adequate security for
the related loan[, you may experience a loss if the Securities Insurer were
unable to perform its obligations under the Guaranty Policy]. See "Description
of the Transfer and Servicing Agreements--Realization Upon Defaulted Loans" in
this prospectus supplement, and "Certain Legal Aspects of Residential Mortgage
Loans--Foreclosure on Mortgages" in the prospectus.
APPLICATION OF BANKRUPTCY LAWS. The application of federal and state laws,
including bankruptcy and debtor relief laws, may interfere with or adversely
affect the ability to realize upon the mortgaged properties, enforce deficiency
judgments or pursue collection litigation with respect to defaulted loans. As a
consequence, borrowers who have defaulted on their loans and sought, or are
considering seeking, relief under bankruptcy or debtor relief laws will have
substantially less incentive to repay their loans, and such loans will likely
experience more severe losses, which may be total losses. See "--Adequacy of
Credit Enhancement" above and "--Legal Considerations--Legal Compliance and
Regulation" below.
GEOGRAPHIC CONCENTRATION
_________________ CONCENTRATION. Because of the geographic concentration of
mortgaged properties within ______________, an economic downturn or recession in
___________ may affect the ability of the borrowers to timely pay their loans,
and accordingly the loans may experience higher rates of delinquencies, defaults
and losses than the rates experienced by loans having greater geographical
diversification. In addition, mortgaged properties located in ___________ may
experience special hazards that are not covered by any available casualty
insurance, including earthquakes, mudslides and other disasters. Accordingly,
these loans may experience higher rates of delinquencies, defaults and losses
than rates experienced for similar loans secured by residential properties
located in other states. See "--Adequacy of Credit Enhancement" above.
NON-RECORDATION OF ASSIGNMENTS
The transferor will not be required to record assignments of the mortgages
to the indenture trustee in the real property records of _____________ and
certain other states. The master servicer will retain record title to such
mortgages on behalf of the issuer, the indenture trustee and the holders of the
notes. See "Description of the Transfer and Servicing Agreements--Sale and
Assignment of the Loans" in this prospectus supplement.
The recordation of the assignments of the mortgages in favor of the
indenture trustee is not necessary to effect a pledge of the loans to the
indenture trustee. However, if the transferor or the depositor were to sell,
assign, satisfy or discharge any loan prior to recording the related assignment
in favor of the indenture trustee, the other parties to such sale, assignment,
satisfaction or discharge may have rights superior to those of the indenture
trustee. In some states, in the absence of such recordation of the assignments
of the mortgages, the pledge to the indenture trustee of the loans may not be
effective against certain creditors or purchasers from the transferor or a
trustee in bankruptcy of the transferor. If such other parties, creditors or
purchasers have rights to the loans that are superior to those of the indenture
trustee, you could lose the right to future payments of principal and interest
from such loans and could suffer a loss of principal and interest to the extent
that such loss is not otherwise covered by the applicable credit enhancement.
LEGAL CONSIDERATIONS
INSOLVENCY OF TRANSFEROR. If the FDIC is appointed receiver or conservator
of the transferor, the FDIC's administrative expenses may have priority over the
interest of the issuer and/or the indenture trustee in the loans. In addition,
the Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, gives the FDIC certain powers in
its capacity as a receiver or conservator of the transferor that if exercised
could result in delays or reductions in payments of principal and interest on
the notes[, unless such payments are covered under the Guaranty Policy.]
Salient among the FDIC's powers as receiver or conservator is the power to
disaffirm or repudiate any of the transferor's contracts or leases the
performance of which would be burdensome and the disaffirmance or repudiation of
which would promote the orderly administration of the transferor's affairs. It
is unclear whether the FDIC can utilize this power to repudiate the transfer of
the loans to the depositor and administer the loans as part of any receivership
or conservatorship of the transferor. Any attempt by the FDIC to repudiate the
transfer of the loans to the depositor in a receivership or conservatorship of
the transferor, even if unsuccessful, could result in delays or reductions in
payments of principal and interest on the notes[, unless such payments are
covered under the Guaranty Policy.]
The FDIC recently proposed a statement of policy outlining the
circumstances under which the FDIC will not seek to repudiate transfers made as
part of a securitization, such as the transfer of the loans to the depositor.
Although that statement of policy is not yet final, much of it merely reiterates
pre-existing law, and substantive changes are not expected. The transfer of the
loans to PaineWebber Mortgage Acceptance Corporation IV has been structured with
the specific intent to satisfy the requirements of the proposed statement of
policy.
See "Description of the Transfer and Servicing Agreements--Sale and
Assignment of the Loans" in this prospectus supplement.
BANKRUPTCY OF OTHER PARTIES. The depositor intends to treat the transfer of
the loans to the issuer as an absolute transfer and not as a secured lending
arrangement. In such event, the loans would not be part of the depositor's
bankruptcy estate in the event of its bankruptcy and would not be available to
the depositor's creditors. In the event of the insolvency of the depositor, it
is possible that the bankruptcy trustee or a creditor of the depositor may
attempt to recharacterize the sale of the loans as a borrowing by the depositor,
secured by a pledge of the loans. This position, if accepted by a court, could
prevent timely payments of amounts due on the notes and result in a reduction of
payments on the notes.
In the event a bankruptcy or insolvency of the master servicer or servicer,
the bankruptcy trustee or receiver may have the power to prevent [the Securities
Insurer,] the indenture trustee or the issuer from appointing a successor master
servicer or servicer.
In the event of the insolvency of the servicer, if cash collections are
commingled with such person's own funds for at least ten days, the issuer will
likely not have a perfected interest in such collections since such collections
would not have been deposited in a segregated account within ten days after the
collection thereof, and the inclusion thereof in the bankruptcy estate of such
person may result in delays in payment and failure to pay amounts due on the
notes.
In addition, federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere with
or affect the ability of the secured mortgage lender to realize upon its
security. See "Certain Legal Aspects of Residential Loans" in the prospectus.
LEGAL COMPLIANCE AND REGULATION. Federal and state laws regulate the
underwriting, origination, servicing and collection of the loans. These laws
will likely change over time and may become more restrictive or stringent with
respect to certain of these activities of the servicer, master servicer and
transferor. Violations of these Federal and state laws may limit the ability of
the servicer or master servicer to collect principal or interest on the loans,
may entitle the borrowers to a refund of amounts previously paid, and may
subject the issuer, the servicer, master servicer or transferor to damages and
administrative sanctions. The inability to collect principal or interest on the
loans because of violations of federal or state laws will likely cause the loans
to experience higher rates of delinquencies, defaults and losses. An assessment
of damages or sanctions against the issuer could result in the issuer's assets
being insufficient to pay all interest and principal due on the notes, and
against the servicer, master servicer or the transferor may adversely affect the
ability of the servicer or master servicer to service the loans or the
transferor to repurchase or replace defective loans. See "Risk Factors--Certain
Other Legal Considerations Regarding Residential Loans" in the prospectus. The
transferor will be required to repurchase or replace any loan that did not
materially comply with applicable Federal and state laws. See "--Limitations on
the Transferor and Servicer" below.
POTENTIAL LAWSUITS AGAINST THE TRANSFEROR. Because the nature of the
transferor's business involves the collection of numerous accounts, the validity
of liens and compliance with state and Federal lending laws, the transferor is
subject to numerous claims and legal actions in the ordinary course of its
business. Several class-action lawsuits have been filed against a number of
consumer finance companies alleging that the compensation of mortgage brokers
through the payment of yield spread premiums violates various Federal and state
consumer protection laws. While the transferor is not a party to any suit of
this nature, lawsuits could be filed against the transferor in the future, and
the results of any such lawsuits are uncertain.
LIMITATIONS ON THE TRANSFEROR AND SERVICER
DEPENDENCE ON SERVICER. The amount and timing of payments on the notes
generally will be dependent upon ________________ as the servicer to perform its
servicing obligations in an adequate and timely manner. See "Servicer--Servicing
Procedures" in this prospectus supplement. [The failure of the Securities
Insurer to renew the term of the servicer every ninety days or the occurrence of
certain events of default may result in the termination of the servicer.] For
example, an event that causes a material adverse effect, may result in the
termination of the servicer. See "Description of the Transfer and Servicing
Agreements--Servicer Determinations and Events of Default" in this prospectus
supplement. The master servicer or such other successor appointed by the Master
Servicer [and approved by the Securities Insurer] will assume the loan servicing
functions upon a termination of the servicer. Such termination with its transfer
of daily collection activities will likely increase the rates of delinquencies,
defaults and losses on the loans.
ABILITY TO REPURCHASE OR REPLACE DEFECTIVE LOANS. If the transferor fails
to cure a material breach of its loan representations and warranties with
respect to any loan in a timely manner, then the transferor is required to
repurchase or replace such defective loan. See "Description of the Transfer and
Servicing Agreements--Representations and Warranties" in this prospectus
supplement. The transferor may not be capable of repurchasing or replacing any
defective loans, for financial or other reasons. The transferor's inability to
repurchase or replace defective loans would likely cause the loans to experience
higher rates of delinquencies, defaults and losses. See "--Adequacy of Credit
Enhancement" above, and "______________________" and "Description of Credit
Enhancement" in this prospectus supplement.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE. The transferor and the
depositor are aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex; substantially all computer operations will be affected
in some way by the rollover of the two-digit year value to 00. The issue is
whether the computer systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The master servicer, the servicer and the indenture trustee will certify
that they are committed either to implement modifications to their respective
existing systems to the extent required to cause them to be year 2000 ready or
acquire computer systems that are year 2000 ready, in each case prior to January
1, 2000. However, the depositor has not made any independent investigation of
the computer systems of the master servicer, the servicer or the indenture
trustee. In the event that computer problems arise out of a failure of such
efforts to be completed on time, or in the event that the computer systems of
the master servicer, the servicer or the indenture trustee are not fully year
2000 ready, the resulting disruptions in the collection or distribution of
receipts on the loans could materially and adversely affect your investment.
With respect to the year 2000 problem, DTC has informed members of the
financial community that it has developed and is implementing a program so that
its systems, as they relate to the timely payment of distributions, including
principal and interest payments, to security holders, book-entry deliveries, and
settlement of trades within DTC, continue to function appropriately on and after
January 1, 2000. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, its participating
organizations, through which you will hold your notes, as well as the computer
systems of third party service providers. DTC has informed the financial
community that it is contacting and will continue to contact third party vendors
from whom DTC acquires services to:
o impress upon them the importance of such services being year 2000
compliant; and
o determine the extent of their efforts for year 2000 remediation, and, as
appropriate, testing, of their services.
In addition, DTC has stated that it is in the process of developing such
contingency plans as it deems appropriate.
If problems associated with the year 2000 problem were to occur with
respect to DTC and the services described above, payments to you could be
delayed or otherwise adversely affected.
THE POOL
GENERAL
On or about ____________, 199_ (the "CLOSING DATE"), the Depositor will
acquire from the Transferor a pool (the "POOL") of loans (the "LOANS") having an
aggregate unpaid principal balance as of the close of business on
______________, 199_ (the "CUT-OFF Date"), of approximately $__________ (the
"CUT-OFF DATE POOL PRINCIPAL BALANCE"). The Depositor will then transfer the
Loans to the Issuer pursuant to the Owner Trust Agreement in exchange for the
Notes and the Residual Interest Certificates. The Owner Trust will be entitled
to all payments of principal and interest in respect of the Loans due after the
Cut-Off Date. The Loans will be secured by first lien mortgages, deeds of trust
and security deeds of trust and security deeds on residences (the "MORTGAGED
PROPERTIES").
Approximately ____% of the Loans, by Cut-Off Date Pool Principal Balance,
will be closed-end, fully amortizing, adjustable-rate home loans (the
"ADJUSTABLE-RATE LOANS"), and approximately ____% of the Loans will be fully
amortizing fixed-rate home loans (the "FIXED-RATE LOANS") none of which are
insured or guaranteed by any governmental agency. The Loans have been originated
for the purpose of purchasing, and refinancing single-family residences,
consolidating debt, financing property improvements, providing cash to the
borrower for unspecified purposes or a combination of the foregoing. The
majority of the Loans will have been originated or acquired by the Transferor on
a flow basis, through a network of small independent mortgage brokers ("BROKER
ORIGINATIONS"), and a small number of the Loans were acquired by the Transferor
either through a network of correspondents or direct origination. No Loans were
purchased by the Transferor in bulk.
The Loans have been underwritten in compliance with the underwriting
standards of the Transferor. See "Underwriting Criteria" in this prospectus
supplement.
PAYMENTS ON THE LOANS
Interest on each Loan is payable monthly on its outstanding principal
balance at a per annum rate (the "LOAN RATE"). The Loan Rate on each
Adjustable-Rate Loan will be subject to adjustment based on Six-Month LIBOR
after an initial period. Approximately _____% of the Loans, by Cut-Off Date Pool
Principal Balance, known as "____ loans" will bear interest at a fixed rate for
approximately two years after origination. Approximately ____% of the Loans, by
Cut-Off Date Pool Principal Balance, known as "____ loans" will bear interest at
a fixed rate for three years after origination. Approximately ____% of the
Loans, by Cut-Off Date Pool Principal Balance, will bear interest at a fixed
rate for six months after origination. Approximately ____% of the Loans, by
Cut-Off Date Pool Principal Balance, will bear interest at a fixed rate for the
life of the Loans.
At the end of such six month, two year or three year period and at six
month intervals thereafter (each, a "CHANGE DATE"), the Loan Rate on each
Adjustable-Rate Loan will be adjusted to a rate equal to the sum of (1) the
London interbank offered rate for six-month United States dollar deposits
("SIX-MONTH LIBOR"), as published in The Wall Street Journal, and (2) the number
of basis points stated in the mortgage note (the "GROSS MARGIN"). The new Loan
Rate will be rounded and may be subject to Periodic Rate Caps, Lifetime Caps and
Lifetime Floors. A "PERIODIC RATE CAP" limits changes in the Loan Rate for each
Loan on a particular Change Date. The "LIFETIME CAP" for a Loan is the maximum
Loan Rate that may be charged on a Loan, and the "LIFETIME FLOOR" is the minimum
Loan Rate that may be charged on a Loan. The Loans do not provide for negative
amortization or limits on changes in monthly payments.
Six-Month LIBOR. Listed below are monthly Six-Month LIBOR rates on the
first business day of the related calendar month beginning in 199_, as published
by _____________ ("_________"). Such Six-Month LIBOR rates may fluctuate
significantly from month to month as well as over longer periods and may not
increase or decrease in a constant pattern. There can be no assurance that
levels of Six-Month LIBOR published in ____________ on a different LIBOR
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 __________). No assurance can be given as to the level of
Six-Month LIBOR on any Change Date or during the life of any Loan based on
Six-Month LIBOR.
<PAGE>
SIX-MONTH LIBOR
1999 1998 1997 1996 1995
January................................ _____% _____% _____% _____% _____%
February............................... _____% _____% _____% _____% _____%
March.................................. _____% _____% _____% _____% _____%
April.................................. _____% _____% _____% _____%
May.................................... _____% _____% _____% _____%
June................................... _____% _____% _____% _____%
July................................... _____% _____% _____% _____%
August................................. _____% _____% _____% _____%
September.............................. _____% _____% _____% _____%
October................................ _____% _____% _____% _____%
November............................... _____% _____% _____% _____%
December............................... _____% _____% _____% _____%
The initial Loan Rate in effect on an Adjustable-Rate Loan generally will
be lower, and may be significantly lower, than the Loan Rate that would have
been in effect based on the rate of Six-Month LIBOR and the Gross Margin at the
origination of the Loan. Therefore, unless Six-Month LIBOR declines after
origination of a Loan, the related Loan Rate will generally increase on the
first Change Date following origination of the Loan, subject to the Periodic
Rate Cap. The repayment of the Loans will be dependent on the ability of the
borrowers to make larger monthly payments following adjustments of the Loan
Rate. Loans that have the same initial Loan Rate at the Cut-Off Date may not
always bear interest at the same Loan Rate because the Loans may have different
Change Dates (and the Loan Rates therefore may reflect different levels of
Six-Month LIBOR), Gross Margins, Lifetime Caps and Lifetime Floors.
The "PRINCIPAL BALANCE" of a Loan on any day is equal to its unpaid
principal as of the Cut-Off Date after giving effect to scheduled principal
payments due on the Loan on or prior to the Cut-Off Date, whether or not
received, minus all principal reductions credited against the Principal Balance
of such Loan since the Cut-Off Date, including any principal losses recorded by
the Servicer on account of a short pay-off, short sale or other modification of
such Loan affecting the Principal Balance thereof; provided, however, that any
Liquidated Home Loan will have a Principal Balance of zero. With respect to any
date, the "POOL PRINCIPAL BALANCE" will be equal to the aggregate Principal
Balances of all Loans as of such date.
Although the Loans may be prepaid at any time, prepayment may subject the
borrower to a prepayment penalty, subject to state regulation. Generally,
approximately ____% of the Loans, by Cut-Off Date Pool Principal Balance,
provide for a prepayment penalty for certain partial prepayments and any
prepayments in full made during the first, second, third and fifth years of the
Loan, except for a short prepayment window at the time of the first adjustment
of the Loan Rate. The prepayment penalty would equal, generally, a certain
amount of advance interest on the amount of the prepayment of the Loan. Because
the Master Servicer is entitled to keep the prepayment penalties as additional
compensation, it will not be available to make payments on the Notes.
The Loans will be serviced under an "ACTUARIAL INTEREST" method in which
interest is charged to the related borrowers, and payments are due from such
borrowers as of a scheduled day each month that is fixed at the time of
origination. Payments received after a grace period following such scheduled day
are subject to a late charge. Each regular scheduled payment made by the
borrower is, therefore, treated as containing a predetermined amount of interest
and principal. Scheduled monthly payments made by the borrowers on the Loans
either earlier or later than their scheduled due dates will not affect the
amortization schedule or the relative application of such payments to principal
and interest. Interest accrued on each Loan will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
In connection with a partial prepayment, the Servicer, at the request of
the borrower, may recalculate the amortization schedule of the related Loan to
reduce the scheduled monthly payment over the remaining term to maturity.
CHARACTERISTICS OF THE LOANS
Set forth below is certain statistical information regarding
characteristics of the Loans included in the Pool as of the Cut-Off Date. As of
the Cut-Off Date, the Loans had an approximate aggregate principal balance of
$_________ (the "CUT-OFF DATE POOL PRINCIPAL BALANCE"). Unless the context
indicates otherwise, any numerical or statistical information presented in this
prospectus supplement is based upon the characteristics of such pool of Loans
that will be included in the Owner Trust and that comprise the Cut-Off Date Pool
Principal Balance.
Before the Closing Date, the Transferor may remove any of the Loans
identified as of the date of this prospectus supplement or may substitute
comparable loans for any of the Loans identified as of the date of this
prospectus supplement; provided, however, that the aggregate Principal Balance
of such Loans will not exceed __% of the Cut-Off Date Pool Principal Balance. As
a result, the statistical information presented below regarding the
characteristics of the Loans included in the Pool may vary in certain respects
from comparable information based on the actual composition of the Loans
included in the Pool on the Closing Date. In addition, after the Cut-Off Date,
the characteristics of the actual Loans may materially vary from the information
below due to a number of factors, including prepayments after the Cut-Off Date
or the substitution or repurchase of Loans after the Closing Date.
<PAGE>
LOAN STATISTICS
As of the Cut-Off Date, the Loans had the following characteristics:
LOANS
Number of Loans.........................................
Principal Balance
Aggregate............................................. $
Average............................................... $
Range................................................. $ to $
Current Loan Rate
Weighted Average...................................... %
Range................................................. % to %
Current Loan Rate-(Fixed-Rate Loans)
Weighted Average...................................... %
Range................................................. % to %
Current Loan Rate-(Adjustable-Rate Loans)
Weighted Average...................................... %
Range................................................. % to %
Gross Margin-(Adjustable-Rate Loans)
Weighted Average...................................... %
Range................................................. % to %
Lifetime Caps-(Adjustable-Rate Loans)
Weighted Average...................................... %
Range................................................. % to %
Lifetime Floors-(Adjustable-Rate Loans)
Weighted Average...................................... %
Range................................................. % to %
Months to Next Change Date-(Adjustable-Rate Loans)
Weighted Average...................................... months
Range................................................. months to months
Remaining Term to Maturity (months)
Weighted Average...................................... months
Range................................................. months to months
Seasoning (months)
Weighted Average...................................... months
Range................................................. months to months
Loan-to-Value Ratio
Weighted Average...................................... %
Range................................................. % to %
As of the Cut-Off Date, all of the Loans had original stated maturities of
not more than years, and no Loan was scheduled to mature later than
____________.
As of the Cut-Off Date, all of the Loans were secured by Mortgaged
Properties located in __ states.
The following tables are based on certain statistical characteristics with
respect to the Loans as of the Cut-Off Date. The sum of the dollar amounts and
percentages in the following tables may not equal the totals due to rounding.
<PAGE>
GEOGRAPHIC DISTRIBUTION
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
JURISDICTION OF LOANS BALANCE BALANCE
------------ -------- --------- ---------
-------- --------- ---------
Total..................................... 100.00%
======== ========= =========
PRINCIPAL BALANCES
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF PRINCIPAL BALANCES OF LOANS BALANCE BALANCE
--------------------------- -------- --------- ---------
$
-------- --------- ---------
Total..................................... $ 100.00%
======== ========= =========
* Less than 0.01%.
As of the Cut-Off Date, the average Cut-Off Date Principal Balance of the
Loans was approximately $ .
<PAGE>
CURRENT LOAN RATES
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF LOAN RATES OF LOANS BALANCE BALANCE
------------------- -------- --------- ---------
$ %
-------- --------- ---------
Total..................................... $ %
======== ========= =========
As of the Cut-Off Date, the weighted average Loan Rate of the Loans was
approximately _____% per annum.
CURRENT LOAN RATES--FIXED-RATE LOANS
% OF
CUT-OFF DATE
PRINCIPAL
AGGREGATE BALANCE OF
NUMBER OF PRINCIPAL FIXED-RATE
RANGE OF LOAN RATES LOANS BALANCE LOANS
------------------- --------- --------- ------------
%
------------------- --------- --------- ------------
Total................................. $ %
========= ========= ============
As of the Cut-Off Date, the weighted average Loan Rate of the Fixed-Rate
Loans was approximately _______% per annum.
<PAGE>
CURRENT LOAN RATES--ADJUSTABLE-RATE LOANS
% OF
CUT-OFF DATE
PRINCIPAL
AGGREGATE BALANCE OF
NUMBER OF PRINCIPAL ADJUSTABLE-RATE
RANGE OF LOAN RATES LOANS BALANCE LOANS
------------------- --------- --------- ---------------
$ %
--------- --------- ---------------
Total.............................. $ %
========= ========= ===============
As of the Cut-Off Date, the weighted average Loan Rate of the Adjustable-
Rate Loans was approximately _____% per annum.
DISTRIBUTION OF GROSS MARGINS--ADJUSTABLE-RATE LOANS
% OF
CUT-OFF DATE
PRINCIPAL
AGGREGATE BALANCE OF
NUMBER PRINCIPAL ADJUSTABLE-RATE
RANGE OF GROSS MARGINS LOANS BALANCE LOANS
---------------------- ------ --------- ---------------
$ %
------ --------- ---------------
Total................................. $ 100.00%
====== ========= ===============
As of the Cut-Off Date, the weighted average Gross Margin of the
Adjustable-Rate Loans was approximately ____% per annum.
<PAGE>
DISTRIBUTION OF LIFETIME CAPS--ADJUSTABLE-RATE LOANS
% OF
CUT-OFF DATE
PRINCIPAL
AGGREGATE BALANCE OF
NUMBER PRINCIPAL ADJUSTABLE-RATE
RANGE OF LIFETIME CAPS LOANS BALANCE LOANS
---------------------- ------ --------- ---------------
$ %
------ --------- ---------------
Total................................. $ 100.00%
====== ========= ===============
As of the Cut-Off Date, the weighted average Lifetime Cap on the
Adjustable-Rate Loans was approximately ______% per annum.
DISTRIBUTION OF LIFETIME FLOORS--ADJUSTABLE-RATE LOANs
% OF
CUT-OFF DATE
PRINCIPAL
AGGREGATE BALANCE OF
NUMBER PRINCIPAL ADJUSTABLE-RATE
RANGE OF LIFETIME FLOORS LOANS BALANCE LOANS
------------------------ ------ --------- ---------------
$ %
------ --------- ---------------
Total................................. $ 100.00%
====== ========= ===============
As of the Cut-Off Date, the weighted average Lifetime Floor of the
Adjustable-Rate Loans was approximately ______% per annum.
<PAGE>
MONTH OF NEXT CHANGE DATE--ADJUSTABLE-RATE LOANs
% OF
CUT-OFF DATE
PRINCIPAL
AGGREGATE BALANCE OF
NUMBER PRINCIPAL ADJUSTABLE-RATE
RANGE OF LIFETIME FLOORS LOANS BALANCE LOANS
------------------------ ------ --------- ---------------
$ %
------ --------- ---------------
Total................................. $ 100.00%
====== ========= ===============
As of the Cut-Off Date, the weighted average next Change Date of the
Adjustable-Rate Loans was approximately ___________, 200_.
LOAN-TO-VALUE RATIOS
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF LOAN-TO-VALUE RATIO OF LOANS BALANCE BALANCE
---------------------------- -------- --------- ---------
$ %
-------- --------- ---------
Total..................................... $ 100.00%
======== ========= =========
As of the Cut-Off Date, the weighted average Loan-to-Value Ratio of the
Loans was approximately %.
<PAGE>
OCCUPANCY STATUS
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
OCCUPANCY OF LOANS BALANCE BALANCE
--------- -------- --------- ---------
Owner Occupied............................... $ %
Non-Owner Occupied...........................
Second Home..................................
-------- --------- ---------
Total..................................... $ 100.00%
======== ========= =========
MORTGAGED PROPERTY TYPES
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
PROPERTY TYPE OF LOANS BALANCE BALANCE
------------- -------- --------- ---------
$ %
-------- --------- ---------
Total..................................... $ 100.00%
======== ========= =========
MONTHS SINCE ORIGINATION
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
RANGE OF LOAN AGE (IN MONTHS) OF LOANS BALANCE BALANCE
----------------------------- -------- --------- ---------
$ %
-------- --------- ---------
Total..................................... $ 100.00%
======== ========= =========
As of the Cut-Off Date, the weighted average number of months since
origination of the Loans was approximately __ months.
<PAGE>
REMAINING TERMS TO MATURITY
% OF
CUT-OFF
AGGREGATE DATE
RANGE OF REMAINING TERMS TO MATURITY NUMBER PRINCIPAL PRINCIPAL
(IN MONTHS) OF LOANS BALANCE BALANCE
------------------------------------ -------- --------- ---------
$ %
-------- --------- ---------
Total..................................... $ 100.00%
======== ========= =========
As of the Cut-Off Date, the weighted average remaining term to maturity of
the Loans was approximately ___ months.
TRANSFEROR ASSIGNED RISK CATEGORIES
% OF
CUT-OFF
AGGREGATE DATE
NUMBER PRINCIPAL PRINCIPAL
TRANSFEROR ASSIGNED RISK CATEGORIES OF LOANS BALANCE BALANCE
----------------------------------- -------- --------- ---------
$ %
-------- --------- ---------
Total..................................... $ 100.00%
======== ========= =========
<PAGE>
MASTER SERVICER
MASTER SERVICER DUTIES
__________, as Master Servicer, will be responsible for performing the loan
master servicing functions for the Loans pursuant to the Sale and Master
Servicing Agreement among the Issuer, the Master Servicer, the Transferor, the
Depositor and the Indenture Trustee (the "SALE AND MASTER SERVICING AGREEMENT").
All references in the accompanying prospectus to "Master Servicer" shall mean
the "Servicer" with respect to this prospectus supplement. In consideration for
the performance of the master servicing functions for the Loans, the Master
Servicer is entitled to receive a monthly servicing fee (the "MASTER SERVICER
FEE") as to each Loan in the amount equal to one-twelfth of the product of ___%
(the "MASTER SERVICER FEE RATE") and the Principal Balance of such Loan as of
the first day of the immediately preceding Due Period (or as of the Cut-Off
Date, with respect to the first Due Period). In addition, the Master Servicer is
entitled to receive on a monthly basis additional compensation attributable to
investment earnings from amounts on deposit in the Collection Account, the Note
Payment Account, a portion of late payment charges, and prepayment penalties
which, together with the Master Servicer Fee, are referred to as the "MASTER
SERVICER COMPENSATION".
The Master Servicer will service the Loans for an interim period beginning
on the Closing Date and ending on or before May 1, 1999. During this time the
Master Servicer shall be entitled to all Servicing Compensation, and shall be
vested with all of the rights and obligations of the Servicer. The Master
Servicer will transfer the servicing of the Loans to the Servicer on or before
________, 199_ and thereafter the Servicer will perform the servicing functions
with respect to the Loans.
Under the Sale and Master Servicing Agreement, the Master Servicer will
perform the following master servicing functions:
o The Master Servicer will advance delinquent payments of interest and
principal on the Loans in order to maintain a regular flow of scheduled
payments to holders of the Notes ("NOTEHOLDERS"). Prior to each Payment
Date, the Master Servicer will cause to be remitted an advance (a
"MONTHLY ADVANCE"), if necessary, to the Indenture Trustee for deposit
into the Note Payment Account to be paid on the related Payment Date. The
Monthly Advance will equal interest and principal due on the Loans (net
of the Servicing Fee and Master Servicer Fee) during the related Due
Period but delinquent. The Master Servicer may recover Monthly Advances,
first from the borrower on whose behalf such Monthly Advance was made,
then from subsequent collections on the related Loan. The Master Servicer
is not required to make any Monthly Advance it deems not recoverable from
subsequent collections on the related Loan;
o If a Loan prepays in full or in part in any month other than on the date
the related monthly payment was due, the borrower is only required to pay
interest to the date of prepayment. In such event, the Master Servicer
and the Servicer are obligated to pay any shortfall in interest
("COMPENSATING INTEREST") up to an amount equal to the sum of the Master
Servicer Fee and the Servicing Fee for such Payment Date. Such
Compensating Interest will first be paid by the Master Servicer out of
its Master Servicer Compensation on any Payment Date and any required
Compensating Interest in excess of the Master Servicer Compensation will
be paid by the Servicer out of its Servicing Fee. The Servicer will be
reimbursed for all amounts paid by it in respect of Compensating Interest
first, on the related Payment Date, from amounts that would otherwise be
paid to the Residual Certificateholder and second, on subsequent Payment
Dates, by the Master Servicer out of amounts otherwise payable in respect
of the Master Servicer Compensation and amounts that would otherwise be
payable to the Residual Certificateholder;
o The Master Servicer will periodically review the servicing reports, loan
level information and other relevant information as may be reasonably
required by the Master Servicer to ascertain whether the Servicer is in
compliance with the Servicing Agreement;
o If the reports submitted by the Servicer are inaccurate or incomplete,
then the Master Servicer will prepare and submit exception reports to the
Indenture Trustee[, the Securities Insurer] and the Rating Agencies and
notify the Indenture Trustee[, the Securities Insurer] and the Rating
Agencies of any event of default with respect to the Servicer under the
Servicing Agreement;
o If the Servicer is terminated as Servicer under the Servicing Agreement,
then the Master Servicer will accept appointment as, or cause another
entity [as directed by the Securities Insurer] to act as, the successor
servicer thereunder; and
o The Master Servicer will either maintain computer systems and software
compatible with the computer systems of the Servicer or will obtain
computer systems allowing it to assume the servicing of the Loans, if
necessary.
Under the Servicing Agreement, the Servicer will facilitate the master
servicing functions of the Master Servicer as follows:
o the Servicer will comply with the terms of the various agreements it is
entering into in connection with the Loans, including but not limited to,
the Transfer and Servicing Agreements;
o the Servicer will provide to the Master Servicer certain information
regarding the Loans and its servicing activities of such Loans;
o the Servicer will permit the Master Servicer to inspect the Servicer's
books and records; and
o the Servicer will reimburse and indemnify the Master Servicer, the Issuer
and the Indenture Trustee for certain losses, liabilities and expenses
incurred by any of them.
o In certain limited circumstances and conditions, the Master Servicer may
resign [or be removed by the Securities Insurer,] in which event another
third-party master servicer will be sought to become the successor master
servicer. The Master Servicer has the right to resign under the Sale and
Master Servicing Agreement upon 60 days' notice any time on or after one
year from the Closing Date. No removal or resignation of the Master
Servicer will become effective until the Indenture Trustee, the Owner
Trustee or a successor master servicer[, acceptable to the Securities
Insurer,] has assumed the Master Servicer's responsibilities and
obligations under the Sale and Master Servicing Agreement.
See "Description of the Transfer and Servicing Agreements" in this
prospectus supplement.
SERVICER
GENERAL
_____________________ (the "SERVICER"), will service the Loans in
accordance with the Servicing Agreement between the Master Servicer and the
Servicer (the "SERVICING Agreement"). _________________________________________
_________________________. The Servicer's corporate offices are located at
_______________________________________________________________________________.
The Master Servicer will service the Loans for an interim period beginning
on the Closing Date and ending on or before __________, 199_. During this time
the Master Servicer shall be entitled to all Servicing Compensation, and shall
be vested with all of the rights and obligations of the Servicer. The Master
Servicer will transfer the servicing of the Loans to the Servicer on or before
_______, 199_ and thereafter the Servicer will perform the servicing functions
with respect to the Loans.
The information contained herein with regard to the Servicer has been
provided to the Depositor, or compiled from information provided to the
Depositor, by the Servicer. None of the Depositor, the Indenture Trustee, the
Master Servicer, the Transferor, the Securities Insurer or any of their
respective affiliates has made any independent investigation of such information
or has made or will make any representation as to the accuracy or completeness
of such information.
SERVICING PROCEDURES
The following is a general description of the Servicer's servicing policies
and procedures currently employed by the Servicer with respect to its
conventional loan portfolio. All references in this prospectus supplement to the
"SERVICER" shall mean "MASTER SERVICER" for purposes of the accompanying
prospectus. For a description of certain other servicing procedures applicable
to the Loans, see "Description of the Transfer and Servicing Agreements" in this
prospectus supplement. In response to changes and developments in the consumer
finance area (including economic, legal and technological developments), as well
as the refinement of the Servicer's servicing and collection procedures, the
Servicer's servicing policies and procedures for certain types of loans,
including the Loans, may change from time to time. The manner in which the
Servicer performs its servicing obligations will affect the amount and timing of
principal and interest payments on the Loans, which in turn will affect payments
to the holders of the Notes.
The Servicer's loan servicing activities include responding to borrower
inquiries, processing and administering loan payments, reporting and remitting
principal and interest to trustees, investors and other interested parties,
collecting delinquent loan payments, evaluating and conducting loss mitigation
efforts, charging off uncollectible loans, and otherwise administering the
loans. The Servicer has developed loss mitigation methodologies for conventional
loans, which includes short sales with repayment plans, short pay-offs,
substitutions of collateral and modifications that use borrower-specific
repayment schedules. Servicing operations also include customer complaint
monitoring, maintenance of daily delinquency information, analysis and
monitoring of legal remedies (including collection litigation, and foreclosure
proceedings and dispositions), accounting for principal and interest, contacting
delinquent borrowers, handling borrower defaults, recording mortgages and
assignments, investor and securitization reporting, and management portfolio
reporting.
The Servicer utilizes a computer-based loan servicing system. It provides
payment processing and cashier functions, automated payoff statements, on-line
collection, statement and notice mailing, along with a full range of investor
reporting information. The Servicer has installed a predictive automated dialing
system and computerized telephone loan inquiry system to increase the
productivity of its collections staff.
Collection activity usually begins once a loan is 5 days delinquent
(without regard to any grace period). At this time, if payment has not been
received the "5-DAY NOTICE" is sent. The focus of collection activity is
understanding the cause of, and finding a solution for, the delinquency.
Throughout the entire process there is a continual effort to contact the
borrower and make acceptable payment arrangements. Late notices are sent to
borrowers whose payment has not been received by the 11th day after the due
date. Borrowers whose loans are 16 days delinquent will receive written notice
that late fees have been imposed. If payment has not been received by the 21st
day, the "21-DAY LATE NOTICE" is sent. If the borrower cannot be contacted
within 15 days after the first attempted phone call, or at 20 days of
delinquency, a third party property inspection company may be engaged to visit
the borrower's home to complete an exterior inspection of the property securing
the loan, if applicable. The inspection provides specific details about the
property, including whether the property is vacant or occupied, and a notice is
left to call the Servicer's servicing department.
If payment is not received by the 26th day of delinquency a notice advising
of the pending "NOTICE OF DEFAULT" is sent via Western Union. The demand is sent
via either Western Union or certified mail, return receipt requested, AND
regular first class mail. The demand requires the borrower to pay the full
amount due within 30 days to avoid further legal action. If the demand for
payment has expired with no plan for reinstatement, the loan will be submitted
to a default review committee. If the committee approves the foreclosure, the
loan is referred to the legal department to commence foreclosure proceedings in
accordance with applicable servicing agreement requirements. Between 15 and 30
days after the expiration of the demand, if the Servicer and the borrower have
not agreed on a plan to cure the default, the legal department will refer the
loan to local counsel for foreclosure. Again, continuous effort will be made by
telephone to remain in contact with the borrower while the loan is being
approved for foreclosure and even during the foreclosure process in an effort to
exhaust all avenues to cure the default.
Under the Servicing Agreement, the Servicer may resign from its duties only
in accordance with the terms of the agreement. No removal or resignation will
become effective until the Master Servicer or a successor servicer has assumed
the Servicer's responsibilities and obligations under the Servicing Agreement.
The Servicer may not assign its obligations under the Servicing Agreement.
Notwithstanding anything in the preceding sentence to the contrary, the Servicer
may delegate certain of its obligations to a sub-servicer pursuant to a
sub-servicing agreement. A sub-servicer must meet certain eligibility
requirements, as set forth in the Servicing Agreement, and each sub-servicing
agreement shall require that the Loans be serviced in a manner that is
consistent with the terms of the Servicing Agreement. The Servicer will not be
released of its servicing obligations and duties with respect to any subserviced
Loans. As of the Closing Date, the Servicer will not have subcontracted its
servicing obligations and duties to a sub-servicer with respect to the Loans.
Delinquency and Loss Experience. The following tables set forth certain
information relating to:
o the delinquency experience (including foreclosures in progress and
bankruptcies) as of the end of indicated period, and
o the loan loss experience for the indicated period
of those portfolios of one- to four- family residential mortgage loans that
consisted primarily of performing loans at the time the Servicer began servicing
such loans. The Servicer did not service any such portfolios prior to 1998. The
indicated periods of delinquency are based on the number of days past due on a
contractual basis.
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE MAY NOT BE APPLICABLE TO THE POOL
It is unlikely that the delinquency experience of the Loans will correspond
to the delinquency experience of the Servicer's mortgage portfolios set forth in
the following tables. The statistics shown below represent the delinquency
experience of the Servicers' mortgage servicing portfolios only for the periods
presented, whereas the aggregate delinquency experience on the Loans will depend
on the results obtained over the life of the Loans. There can be no assurance
that the Loans will perform in a manner consistent with the delinquency or
foreclosure experience of the Servicer's mortgage servicing portfolios described
in this prospectus supplement. 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 the Servicer. In addition, adverse economic conditions
or other factors may affect the timely payment by borrowers of scheduled
payments of principal and interest on the Loans and, accordingly, the actual
rates of delinquencies and foreclosures with respect to the Loans.
DELINQUENCIES AND FORECLOSURES
(DOLLARS IN THOUSANDS)
AT _______________, 199_
-----------------------------------------
PERCENT
PERCENT BY
BY NO. BY DOLLAR BY NO. DOLLAR
OF LOANS AMOUNT OF LOANS AMOUNT
-------- --------- -------- -------
Total portfolio(1).................. $ N/A
-------- --------- -------- -------
Period of delinquency
31-59 days.......................... $ % %
60-89 days..........................
90 days or more.....................
-------- --------- -------- -------
Total delinquent loans(2)........... $ % %
======== ========= ======== =======
Loans in foreclosure................ $ % %
======== ========= ======== =======
(1) The information presented represents only the Servicer's one-to-four family
residential mortgage loan portfolios that consisted primarily of performing
loans at the time the Servicer began servicing such loans.
(2) Includes loans in foreclosure.
<PAGE>
REAL ESTATE OWNED
(DOLLARS IN THOUSANDS)
AT ______________, 199_
-----------------------
BY NO. BY DOLLAR
OF LOANS AMOUNT
-------- ---------
Total portfolio(1)................................. $
Foreclosed loans(2)................................
Foreclosure ratio(3)............................... % %
(1) The information presented represents only the Servicer's one-to-four family
residential mortgage loan portfolios that consisted primarily of performing
loans at the time the Servicer began servicing such loans.
(2) For the purposes of these tables, foreclosed loans means the principal
balance of mortgage loans secured by mortgaged properties the title to
which has been acquired by the Servicer, by investors or by an insurer
following foreclosure or delivery of a deed in lieu of foreclosure.
(3) The foreclosure ratio is equal to the aggregate principal balance or number
of foreclosed loans divided by the aggregate principal balance or number,
as applicable, of mortgage loans in the total portfolio at the end of the
indicated period.
LOAN LOSS EXPERIENCE ON THE SERVICER'S
SERVICING PORTFOLIO OF MORTGAGE LOANS
(DOLLARS IN THOUSANDS)
YEAR ENDED
____________, 199_
------------------
Total portfolio(1)(2)...................................... $
Gross losses(3)............................................
Recoveries(4)..............................................
------------------
Net losses(5).............................................. $
==================
Annualized net losses as a percentage of total portfolio... %
------------------
(1) The information presented represents only the Servicer's one-to-four family
residential mortgage loan portfolios that consisted primarily of performing
loans at the time the Servicer began servicing such loans.
(2) Aggregate principal balance of the mortgage loans outstanding on the last
day of the period.
(3) Actual losses incurred on liquidated properties for each respective period.
Losses are calculated after repayment of all principal, foreclosure costs
and accrued interest to the date of liquidation.
(4) Recoveries from liquidation proceeds and deficiency judgments.
(5) Gross losses minus recoveries.
<PAGE>
UNDERWRITING CRITERIA
GENERAL
The Loans were underwritten or reunderwritten in accordance with ________'s
underwriting standards (the "__________GUIDELINES"), which are designed to
permit mortgage lending to borrowers whose creditworthiness and repayment
ability do not satisfy the more stringent underwriting requirements used as
standards for FNMA and FHLMC. __________ has established risk categories by
which it aggregates acceptable loans into groupings considered to have
progressively greater risk characteristics. A more detailed description of those
risk categories applicable to the Loans is set forth below.
______________'s underwriting of the Loans generally consisted of analyzing
the following as standards applicable to the Loans: the creditworthiness of a
borrower; the income sufficiency of a borrower's projected family income
relative to the mortgage payment and to other fixed obligations (including in
certain instances rental income from investment property); and the adequacy of
the mortgaged property (expressed in terms of Loan-to-Value Ratio) to serve as
the collateral for a mortgage loan.
The Transferor has implemented a credit policy that provides a number of
guidelines to assist underwriters in the credit decision process. The
creditworthiness characteristics emphasized by the Transferor are the borrower's
Debt-to-Income Ratio, credit history and employment stability. The
"DEBT-TO-INCOME RATIO" for a borrower is calculated by dividing (x) the
borrower's total monthly payment obligations (including payments due under the
loan with the Transferor, but after any debt consolidation from the proceeds of
such loan), by (y) such borrower's monthly gross income.
A credit bureau report that reflects the applicant's credit history is
obtained by the Transferor from an independent, nationally recognized
credit-reporting agency. The credit report typically contains information
reflecting delinquencies, repossessions, judgments, foreclosures, bankruptcies
and similar instances of adverse credit that can be discovered by a search of
public records. A loan applicant's credit report must be current (generally less
than 90 days old) at the time of application and is used to evaluate the
borrower's payment record and tendency to repay debts in a timely manner. A lack
of credit payment history will not necessarily preclude a loan if other
favorable borrower characteristics exist, including sufficient equity in the
property or an adequate Debt-to-Income Ratio.
The calculation of the borrower's Debt-to-Income Ratio involves a careful
review of all debts listed on the credit report and the loan application, as
well as the verification of gross income. Other than with respect to "Stated
Income Applications" described below, a borrower's income is verified through
various means, including applicant interviews, written verifications with
employers, and the review of pay stubs, bank statements, tax returns, W-2's or
other acceptable forms of documentation. The Debt-to-Income Ratio is calculated
to determine if a borrower demonstrates sufficient income levels to cover or
satisfy all debt repayment requirements.
Generally, each borrower would have been required to complete an
application designed to provide to the original lender pertinent credit
information concerning the borrower. As part of the description of the
borrower's financial condition, each borrower furnished information (which may
have been supplied solely in such application) with respect to its assets,
liabilities, income, credit history, employment history and personal
information, and furnished an authorization to apply for a credit report which
summarized the borrower's credit history with local merchants and lenders and
any record of past or present bankruptcy or foreclosure proceedings. The
borrower may have also been required to authorize verifications of deposits at
financial institutions where the borrower had demand or savings accounts. In the
case of investment properties, income derived from the mortgaged property may
have been considered for underwriting purposes. With respect to mortgaged
property consisting of vacation or second homes, generally no income derived
from the property was considered for underwriting purposes, but could be
considered as a compensating factor.
Based on the data provided in the application, certain verifications (which
are not required with respect to "Stated Income Applications" or "Easy
Documentation" program as described below), and the appraisal or other valuation
of the mortgaged property, a determination was made by ___________ that the
borrower's monthly income would be sufficient to enable the borrower to meet its
monthly obligations on the mortgage loan and other expenses related to the
property (such as property taxes, utility costs, standard hazard insurance and
other, fixed obligations other than housing expenses). In certain circumstances,
___________ may also have considered the amount of liquid assets available to
the borrower after origination.
Prospective borrowers may submit loan applications under one of three
programs, which differ from each other with respect to the requirements for the
verification of the income of the borrower and the source of funds required to
be deposited by the applicant in order to close the loan. Certain of the Loans
have been originated under "Easy Documentation" programs that require less
documentation and verification than do traditional "Full Documentation"
programs. Generally, under such a program, minimal investigation into a
borrower's income profile would have been undertaken by the originator and the
underwriting for such mortgage loans will place a greater emphasis on the value
of the mortgaged property and credit history. Under the "Easy Documentation"
program, applicants must have income evidenced by six months of personal bank
statements. Under the "Full Documentation" program, borrowers are generally
required to submit documentation verifying at least two years of income and
employment history. Under the "Stated Income Application" program, no
verification of the applicant's income is required; rather, the applicant may be
qualified based on monthly income as stated in the mortgage loan application, if
that income is supported by the general information included in the loan
application package.
As used herein, "LOAN-TO-VALUE RATIO" shall generally mean that ratio,
expressed as a percentage of, (a) the principal amount of the Loan at
origination, over (b) the lesser of the sales price or the appraised value of
the related mortgaged property at origination, or in the case of a refinanced or
modified Loan, either the appraised valued determined at origination or, if
applicable, at the time of the refinancing or modification.
The adequacy of a mortgaged property as security for repayment of the
related mortgage loan generally has been determined by an appraisal in
accordance with preestablished appraisal procedure Guidelines for appraisals
established by __________. Appraisers were typically licensed independent
appraisers selected in accordance with the _________ Guidelines. The appraisal
procedure guidelines generally required the appraiser or an agent on its behalf
to inspect the property personally and to verify whether the property was in
good condition and that construction, if new, had been substantially completed.
The appraisal would have considered a market data analysis of recent sales of
comparable properties and, when deemed applicable, an analysis based on income
generated from the property or replacement cost analysis based on the current
cost of constructing or purchasing a similar property. The Loan-to-Value Ratio
has been supported by a review appraisal conducted by ________ or an independent
review company.
Pursuant to the ___________Guidelines, each Loan was assigned a risk grade
and categorized in a "Loan Class," denominated by a letter. ___________'s risk
classification system is designed to assess the likelihood that each borrower
will satisfy the repayment obligations associated with the related mortgage loan
and to establish the maximum permissible Loan-to-Value Ratio for the mortgage
loan. Time frames referred to below (e.g., "within the last 12 months") are
measured from the time of underwriting of a borrower's credit.
[Loan Class A: For a Loan to have been assigned to a Loan Class A, the
prospective borrower must have overall "good" to "excellent" consumer credit. No
30-day, 60-day or 90-day late payments within the last 12 months are acceptable
on an existing mortgage loan, any existing mortgage loan must be current at the
time of the application and no notices of default within the last three years on
an existing mortgage loan are permitted. Minor derogatory items are allowed as
to non-mortgage credit (provided, open collections and charge-offs in excess of
$500 must be paid down to zero at closing unless they are three years old or
older and not reflected in the title report or are medical related). No Chapter
7 bankruptcies with respect to the borrower may have been discharged during the
previous three years, and no Chapter 13 bankruptcy filings may have been made by
the borrower during the previous three years. No foreclosures may have been
filed within the last three years with respect to borrower property or no
foreclosure sales with respect to borrower property may have been conducted
within the last three years. The mortgaged property must be in average to good
condition. A maximum Loan-to-Value Ratio of 90% is permitted for a mortgage loan
secured by a single family owner-occupied property (or 80% for a mortgage loan
originated under an "Easy Documentation" program and 80% for a mortgage loan
originated under a "Stated Income" application program). A maximum Loan-to-Value
Ratio of 80% (or 75% for mortgage loans originated under the "Easy
Documentation" program and 65% for mortgage loans originated under the "Stated
Income" application program) is permitted for a mortgage loan secured by a
non-owner occupied property. The maximum permissible Loan-to-Value Ratio is
lower for mortgage loans with initial principal amounts in excess of $300,000
secured by owner-occupied properties (or lower dollar amounts for loans secured
by non-owner-occupied properties), and for mortgage loans made in connection
with a borrower refinancing in which the borrower borrows more than is needed to
refinance his old mortgage loan. The borrower's debt service-to-income ratio
generally is 45% or less.
Loan Class A-: For a Loan to have been assigned to Loan Class A-, the
prospective borrower is required to have overall "good" to "excellent" consumer
credit. A maximum of two 30-day late payments, and no 60-day or 90-day late
payments within the last 12 months is acceptable on an existing mortgage loan.
Any existing mortgage loan must be current at the time of the application and no
notices of default within the last three years on an existing mortgage loan are
permitted. As to non-mortgage credit, some prior defaults may have occurred
(provided, open collections and charge-offs in excess of $500 must be paid down
to zero at closing unless they are three years old or older and not reflected in
the title report or are medical related). No Chapter 7 bankruptcies with respect
to the borrower may have been discharged during the two years, and no Chapter 13
bankruptcy filings may have been made by the borrower during the previous two
years. No foreclosures may have been filed within the last three years with
respect to borrower property or no foreclosure sales with respect to the
borrower property may have been conducted within the last two years. The
mortgaged property must be in average to good condition. A maximum Loan-to-Value
Ratio of 90% (or 80% for a loan originated under an "Easy Documentation" program
and 80% for a mortgage loan originated under a "Stated Income" application
program) is permitted for a mortgage loan secured by an owner-occupied property.
A maximum Loan-to-Value Ratio of 80% (or 75% for mortgage loans originated under
an "Easy Documentation" program and 65% for mortgage loans originated under a
Stated Income Application program) is permitted for a mortgage loan secured by
non-owner-occupied property. The maximum permissible Loan-to-Value Ratio is
lower for mortgage loans with initial principal amounts in excess of $300,000
secured by owner-occupied properties (or lower dollar amounts for loans secured
by non-owner-occupied properties), and for mortgage loans made in connection
with a borrower refinancing in which the borrower borrows more than is needed to
refinance his old mortgage loan. The debt service-to-income ratio generally is
50% or less.
Loan Class B: For a Loan to have been assigned to Loan Class B, the
prospective borrower may not have paid all previous or existing installment or
revolving debt according to its terms and may have some charge-offs, and is
required to have overall "satisfactory" consumer credit. A maximum of four
30-day late payments, or two 30-day late payments and one 60-day late payment,
but no 90-day late payments, within the last 12 months is acceptable on an
existing mortgage loan and no notices of default within the last two years on an
existing mortgage loan are permitted. As to non-mortgage credit, some prior
defaults may have occurred (provided, open collections and chargeoffs must be
paid down to an amount not in excess of $500 at closing unless they are three
years old or older and not reflected in the title report or are medical
related). No Chapter 7 bankruptcies with respect to the borrower may have been
discharged during the previous two years, and no Chapter 13 bankruptcy filings
may have been made by the borrower during the previous two years. No
foreclosures may have been filed within the last two years with respect to
borrower property. A maximum Loan-to-Value Ratio of 85% (or 75% for a mortgage
loan originated under an "Easy Documentation" program and 75% for a mortgage
loan originated under a "Stated Income" application program) is permitted for a
mortgage loan secured by an owner-occupied property. A maximum Loan-to-Value
Ratio of 75% (or 70% for mortgage loans originated under an "Easy Documentation"
program and 65% for mortgage loans originated under a "Stated Income"
application program) is permitted for a mortgage loan secured by a
non-owner-occupied property. The maximum permissible Loan-to-Value Ratio is
lower for mortgage loans with initial principal amounts in excess of $300,000
secured by owner-occupied properties (or lower dollar amounts for loans secured
by non-owner-occupied properties), and for mortgage loans made in connection
with a borrower refinancing in which the borrower borrows more than is needed to
refinance his old mortgage loan. The debt service-to-income ratio generally is
50% or less.
Loan Class C: For a Loan to have been assigned to Loan Class C, the
prospective borrower may have experienced significant credit problems in the
past, with overall "fair" consumer credit and a majority of credit not currently
delinquent. As to mortgage credit, the borrower may have had a history of being
generally 30 days delinquent, and a maximum of two 60-day late payments and one
90-day late payment within the last 12 months is acceptable on an existing
mortgage loan and no notices of default within the last twelve months (or
eighteen months if the Loan-to-Value Ratio is 75% or higher) or on an existing
mortgage loan are permitted. As to non-mortgage credit, significant prior
defaults may have occurred (provided, open collections and charge-offs must be
paid down to an amount not in excess of $1,500 at closing unless they are three
years old or older and not reflected in the title report or are medical
related). No bankruptcies may have been filed or discharged during the 12-month
period prior to the date the mortgage loan was made. No foreclosures may have
been filed within the last year with respect to borrower property. The mortgaged
property must be in average to good condition. A maximum Loan-to-Value Ratio of
80% (or 70% for a mortgage loan originated under an "Easy Documentation" program
and 70% for a mortgage loan originated under a "Stated Income" application
program) is permitted for a mortgage loan secured by an owner-occupied property.
A maximum Loan-to-Value Ratio of 70% (or 65% for mortgage loans originated under
an "Easy Documentation" program and 65% for mortgage loans originated under a
"Stated Income" application program) is permitted for a mortgage loan secured by
a non-owner-occupied property. The maximum permissible Loan-to-Value Ratio is
lower for mortgage loans with initial principal amounts in excess of $300,000
secured by owner-occupied properties (or lower dollar amounts for loans secured
by non-owner occupied properties), and for mortgage loans made in connection
with a borrower refinancing in which the borrower borrows more than is needed to
refinance his old mortgage loan. The debt service-to-income ratio generally is
55% or less.
Loan Class C-: For a Loan to have been assigned to Loan Class C-, the
prospective borrower may have experienced significant credit problems in the
past, with overall "poor" consumer credit. As to mortgage credit, the borrower
may have had a history of being generally 30 days delinquent, is not more than
120-days delinquent on an existing mortgage loan and there may not be a current
notice of default outstanding on an existing mortgage loan. As to non-mortgage
credit, significant prior defaults may have occurred (provided, open collections
and charge-offs must be paid down to an amount not in excess of $1,500 at
closing unless they are three years old or older and not reflected in the title
report or are medical related). The mortgaged property must be in average to
good condition. A maximum Loan-to-Value Ratio of 70% (or 70% for a mortgage loan
originated under an "Easy Documentation" program and 65% for a mortgage loan
originated under a "Stated Income" application program) is permitted for a
mortgage loan secured by an owner-occupied property. A maximum Loan-to-Value
Ratio of 65% for all programs is permitted for a mortgage loan secured by a non-
owner-occupied property. The maximum permissible Loan-to-Value Ratio is lower
for mortgage loans with initial principal amounts in excess of $300,000 secured
by owner-occupied properties (or lower dollar amounts for loans secured by
non-owner occupied properties), and for mortgage loans made in connection with a
borrower refinancing in which the borrower borrows more than is needed to
refinance his old mortgage loan. The debt service-to-income ratio generally is
55% or less.
Loan Class D: For a Loan to have been assigned to Loan Class D, the
prospective borrower will have experienced substantial credit problems in the
past, and generally will have overall poor credit. The prospective borrower's
credit history is poor and a notice of default on an existing mortgage loan may
have been filed against the borrower. As to non-mortgage credit, significant
prior defaults may have occurred (provided, open collections and charge-offs
must be paid down to an amount not in excess of $2,500 at closing unless they
are three years old or older and not reflected in the title report or are
medical related). A bankruptcy filing by the borrower is permitted if it is
discharged at closing. Also, on a case-by-case basis, ___________ may make a
loan on a mortgage that takes a borrower out of foreclosure. ____________ will
make a mortgage loan to a borrower to take him out of bankruptcy or foreclosure
only if it improves the borrower's financial situation. The mortgaged property
must be in average to good condition. A maximum Loan-to-Value Ratio of 65% is
permitted for mortgage loans originated under a full documentation program,
"Easy Documentation" program or "Stated Income" application program. A maximum
Loan-to-Value Ratio of 60% for mortgage loans originated under a full
documentation program, "Easy Documentation" program or "Stated Income"
application program is permitted for a mortgage loan secured by a
non-owner-occupied property. The maximum permissible Loan-to-Value Ratio is
lower for mortgage loans with initial principal amounts in excess of $300,000
secured by owner-occupied properties (or lower dollar amounts for loans secured
by non-owner-occupied properties), and for mortgage loans made in connection
with a borrower refinancing in which the borrower borrows more than is needed to
refinance his old mortgage loan. The debt service-to-income ratio generally is
65% or less.
As described above, the indicated underwriting standards applicable to the
Loans include the foregoing categories and characteristics as guidelines only.
On a case-by-case basis, __________ may have determined in the course of its
underwriting process that a prospective borrower warrants a Loan-to-Value Ratio
upgrade based on compensating factors. For example, a borrower may be able to
get a loan in a particular Loan Class with a Loan-to-Value Ratio __% higher than
the ratio that would otherwise be permitted for such Loan Class if certain
compensating factors exist.
Based on the indicated underwriting standards applicable for mortgage loans
with risk features originated thereunder, and in particular Loans in Loan
Classes C- and D as described herein,] such Loans are likely to experience
greater rates of delinquency, foreclosure and loss, and may experience
substantially greater rates of delinquency, foreclosure and loss, than mortgage
loans underwritten under more stringent underwriting standards.
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The yield on the Notes will be sensitive to fluctuations in the level of
One-Month LIBOR and the Net Funds Cap. In addition, because the rate and timing
of principal payments on the Notes depends primarily on the rate and timing of
principal payments (i.e., the prepayment experience) of the Loans and the
availability and amount of Excess Spread, the final payment of principal on the
Notes could occur significantly earlier than the Maturity Date. If significant
principal payments are made on the Notes, the holders of the Notes may not be
able to reinvest such payments in a comparable alternative investment having a
comparable yield. No prediction can be made as to the rate of prepayments on the
Loans in either stable or changing interest rate environments. Any reinvestment
risk resulting from the rate of prepayments on the Loans will be borne entirely
by the holders of such Notes.
The rate of principal payments on the Notes, the aggregate amount of each
interest payment on the Notes and the yield to maturity on the Notes will be
directly related to and affected by: (i) the prepayment experience of the Loans;
(ii) the application of Excess Spread to reduce the Note Principal Balance of
the Notes to the extent described in this prospectus supplement under
"Description of Credit Enhancement--Overcollateralization," and (iii) under
certain circumstances, the rates of delinquencies, defaults or losses
experienced on the Loans. The prepayment experience of the Loans will be
affected by: (1) the scheduled amortization of the Loans; and (2) any
unscheduled principal prepayments or reductions of the Loans, which may include
(a) borrower prepayments and refinancings, (b) liquidations, write-offs and
certain modifications of the Loans due to defaults, casualties, condemnations or
other dispositions, and (c) repurchases of defective and defaulted Loans
pursuant to the Transfer and Servicing Agreements. Certain modifications of
defaulted Loans by the Servicer may have the effect of delaying or decreasing
principal reductions that would have otherwise occurred on such defaulted Loans.
On or after any Payment Date on which the Pool Principal Balance declines to __%
or less of the Cut-Off Date Pool Principal Balance, the Majority Residual
Interest Certificateholders may purchase all of the Loans from the Issuer at a
price equal to or greater than the Termination Price, thereby resulting in a
redemption of the Notes. Furthermore, to the extent that the Majority Residual
Interest Certificateholders fail to exercise such optional redemption rights,
the Securities Insurer and the Servicer may be entitled to exercise a similar
right to effect an optional redemption of the Notes if the Pool Principal
Balance declines to __% or less of the Cut-Off Date Pool Principal Balance. See
"Description of the Notes--Optional Redemption" in this prospectus supplement.
The "WEIGHTED AVERAGE LIFE" of a Note refers to the average amount of time
that will elapse from the Closing Date to the date each dollar in respect of
principal of such Note is repaid. The weighted average life of a Note will be
influenced by, among other factors, the following: (1) the prepayment experience
of the Loans; (2) the rate at which Excess Spread is paid to holders of such
Notes; (3) the extent to which any reduction of the Overcollateralization Amount
is paid to the holders of the Residual Interest Certificates; and (4) under
certain circumstances, the rates of delinquencies, defaults or losses
experienced on the Loans. If substantial principal prepayments on the Loans are
received from unscheduled prepayments, liquidations or repurchases, then the
payments to the holders of the Notes resulting from such prepayments may
significantly shorten the actual average lives of such Notes. If the Loans
experience delinquencies and certain defaults in the payment of principal, then
the holders of the Notes may similarly experience a delay in the receipt of
principal payments attributable to such delinquencies and defaults which in
certain instances may result in longer actual average lives of such Notes than
would otherwise be the case. However, to the extent that the Principal Balances
of Liquidated Home Loans are included in the principal payments on the Notes
then the holders of such Notes will experience an acceleration in the receipt of
principal payments which in certain instances may result in shorter actual
average lives of such Notes than would otherwise be the case. See "Risk
Factors--Adequacy of Credit Enhancement" in this prospectus supplement.
The prepayment experience of the Loans will be influenced by a variety of
general economic and social factors, as well as other factors and
characteristics that relate specifically to each Loan. Factors that relate
specifically to the Loans and that may affect the prepayment rate of the Loans
include the following: (1) the outstanding principal balances of the Loans; (2)
the interest rates on the Loans; (3) changes in the value of the related
Mortgaged Properties and the related Loan-to-Value Ratios; (4) changes in the
creditworthiness of the borrowers; (5) changes in the availability of comparable
financing to the borrowers on either more or less favorable terms; and (6)
changes in the borrowers' housing needs or employment status. Additional factors
that relate to the Loans on a specific basis include the seasoning of the Loans,
the existence and enforceability of "due-on-sale" clauses, and the existence and
enforceability of prepayment penalties. For example, certain of the Loans
contain due-on-sale provisions and the Servicer intends to enforce such
provisions, unless (i) the Servicer, in a manner consistent with the accepted
servicing procedures, permits the purchaser of the related Mortgaged Property to
assume the Loan, or (ii) such enforcement is not permitted by applicable law.
See "Certain Legal Aspects of Residential Loans--Enforceability of Certain
Provisions" in the accompanying prospectus. In certain cases, if the borrower is
selling its Mortgaged Property, the Servicer, in a manner consistent with the
accepted servicing procedures, may permit a substitution of collateral, short
sales, short pay-offs or other modifications. See "Description of the Transfer
and Servicing Agreements--Realization Upon Defaulted Loans" in this prospectus
supplement. Certain of the Loans contain prepayment penalties, which generally
obligate the related borrower to pay penalties in connection with a prepayment
of the borrower's Loan. The Servicer will enforce prepayment penalties unless
doing so would be unlawful or the Master Servicer consents to waiver. The Master
Servicer has no obligation to enforce prepayment penalties and will exercise its
rights to enforce them to the extent it deems appropriate. In addition, the
prepayment penalties are typically suspended during the 60-day period that
coincides with the initial adjustment date for a Loan, where applicable. The
Master Servicer is entitled to retain all prepayment penalties to the extent the
Servicer collects such from borrowers. The existence of prepayment penalties and
any enforcement by the Master Servicer of the prepayment penalties contained in
the Loans may have an effect on the decisions of borrowers to prepay their Loans
and thus may affect the weighted average lives of the Notes.
Other general economic and social factors that may affect the prepayment
rate of the Loans, include, among other matters, the rate of inflation,
unemployment levels, personal bankruptcy levels, prevailing interest rates,
consumer spending and saving habits, competition within the mortgage and
consumer finance industries, and consumer, bankruptcy and tax law developments.
For example, any further limitations on the rights of borrowers to deduct
interest payments on mortgage loans for federal income tax purposes may result
in a higher rate of prepayments on the Loans. In addition, the rate of
prepayment on a pool of mortgage loans is generally affected by prevailing
market interest rates for similar types of loans of a comparable term and risk
level. If prevailing interest rates were to fall significantly below the
respective Loan Rates on the Loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing interest rates were to
rise significantly above the respective Loan Rates on the Loans, the rate of
prepayment on the Loans would be expected to decrease. Depending on prevailing
market interest rates, the outlook for market interest rates, and economic
conditions generally, some borrowers may sell or refinance their mortgaged
properties to realize their equity in order to meet cash flow needs or to make
other investments.
As a result of the foregoing general economic and social factors, as well
as the loan specific factors and characteristics, the prepayment experience of
the Loans (1) cannot be predicted with certainty, (2) will be likely to
fluctuate over the life of the Loans and (3) may differ significantly from the
prepayment rates of other similar loans. None of the Transferor, the Servicer,
the Master Servicer, the Securities Insurer, the Depositor, nor the Underwriters
makes any representation as to the particular factors that will affect the
prepayment of the Loans, as to the relative importance of such factors, or as to
the percentage of the principal balances of the Loans that will be paid as of
any date.
Payments of principal to holders of the Notes at a faster rate than
anticipated will increase the yields on such Notes purchased at discounts but
will decrease the yields on such Notes purchased at premiums, which payments of
principal may be attributable to scheduled payments and prepayments of principal
on the Loans and to the application of Excess Spread. The effect on an
investor's yield due to payments of principal to the holders of such Notes
(including, without limitation, prepayments on the Loans) occurring at a rate
that is faster (or slower) than the rate anticipated by the investor during any
period following the issuance of such Notes will not be entirely offset by a
subsequent like reduction (or increase) in the rate of such payments of
principal during any subsequent period.
The rate of delinquencies and defaults on the Loans, and the recoveries, if
any, on defaulted Loans and foreclosed properties, will also affect the
prepayment experience of the Loans and, accordingly, the weighted average lives
of the Notes. To the extent that such delinquencies, defaults and losses cause a
reduction in the amount of Excess Spread, then payments of principal to the
holders of the Notes could be delayed and result in a slower rate of principal
amortization of the Notes. See "Description of Credit
Enhancement--Overcollateralization" in this prospectus supplement. However, to
the extent that such delinquencies, defaults and losses cause an increase in the
Overcollateralization Deficiency Amount, then an increasing amount of Excess
Spread may be applied to the payment of principal to the holders of the Notes
and result in a faster rate of principal amortization of the Notes. If the
Overcollateralization Amount is reduced to zero, then such defaults and losses
would cause an increase in the payment of principal to the holders of the Notes
to the extent that such defaults or losses are covered by the credit enhancement
available for the Notes[, including the Guaranty Policy]. Several factors may
influence such delinquencies, defaults and losses: the outstanding Loan
principal balances; the related Loan-to-Value Ratios; and other underwriting
standards for such Loans. In general, defaults on mortgage loans are expected to
occur with greater frequency in their early years, although few data are
available with respect to the rate of default on home loans similar to the
Loans. See "Risk Factors--Realization Upon Defaulted Loans" and "Underwriting
Criteria" in this prospectus supplement. Furthermore, the rate and timing of
prepayments, delinquencies, defaults, liquidations and losses on the Loans will
be affected by the general economic condition of the region of the country in
which the related Mortgaged Properties are located or the related borrowers are
residing. See "Risk Factors--Geographic Concentration" and "The Pool" in this
prospectus supplement. The risk of delinquencies, defaults and losses is greater
and voluntary principal 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.
EXCESS SPREAD AND REDUCTION OF OVERCOLLATERALIZATION AMOUNT
[The overcollateralization feature has been designed to accelerate the
principal amortization of the Notes relative to the principal amortization of
the Loans. If on any Payment Date, the Overcollateralization Target Amount
exceeds the Overcollateralization Amount, Excess Spread, if any, will be paid as
principal to the holders of the Notes in the amounts described under
"Description of the Notes--Priority of Payments" in this prospectus supplement.
If the Overcollateralization Amount equals or exceeds the Overcollateralization
Target Amount for such Payment Date, Excess Spread otherwise payable to the
holders of the Notes will instead be paid to the holders of the Residual
Interest Certificates. On any Payment Date after the Stepdown Date as to which
the Overcollateralization Amount is, or after taking into account all other
payments to be made on such Payment Date, would be at least equal to the
Overcollateralization Target Amount, principal collections on the Loans
otherwise payable as principal to the holders of the Notes on such Payment Date
in reduction of their Note Principal Balance may instead be paid to the holders
of the Residual Interest Certificates, thereby reducing the rate of, and under
certain circumstances delaying, the principal amortization of such Notes, until
the Overcollateralization Amount is reduced to the Overcollateralization Target
Amount.
The yield to maturity on Notes purchased at a premium or discount will be
affected by the extent to which any Excess Spread is paid to holders of the
Notes or is paid to the holders of the Residual Interest Certificates, in lieu
of payment to such holders of the Notes. If such Excess Spread payments to the
holders of the Residual Interest Certificates occur sooner than anticipated by
an investor who purchases Notes at a discount, the actual yield to such investor
may be lower than anticipated. If such Excess Spread payments to the holders of
the Residual Interest Certificates occur later than anticipated by an investor
who purchases Notes at a premium, the actual yield to such investor may be lower
than anticipated. In particular, high rates of delinquencies on the Loans during
any Due Period will cause the Excess Spread available on the related Payment
Date to be reduced. Such an occurrence may cause the Note Principal Balance of
the Notes to amortize at a slower rate relative to the Pool Principal Balance,
resulting in a possible reduction of the Overcollateralization Amount.
If the Securities Insurer changes the Overcollateralization Target Amount
or the delinquency or loss levels or excess spread requirements that determine
whether the Overcollateralization Target Amount will increase or decrease, your
principal on the Notes may be paid more slowly or quickly than otherwise would
be the case. This could adversely affect the yield to maturity of your Notes.
See "--Reinvestment Risk" and "Description of Credit
Enhancement--Overcollateralization" in this prospectus supplement.]
REINVESTMENT RISK
The reinvestment risk with respect to an investment in the Notes will be
affected by the rate and timing of principal payments (including prepayments) in
relation to the prevailing interest rates at the time of receipt of such
principal payments. For example, during periods of falling interest rates,
holders of the Notes may receive an increased amount of principal payments from
the Loans at a time when such holders may be unable to reinvest such payments in
investments having a yield and rating comparable to their respective Notes.
Conversely, during periods of rising interest rates, holders of the Notes may
receive a decreased amount of principal prepayments from the Loans at a time
when such holders may have an opportunity to reinvest such payments in
investments having a higher yield than, and a comparable rating to, their
respective Notes. If the Securities Insurer changes the Overcollateralization
Target Amount or the delinquency or loss levels or excess spread requirements
that determine whether the Overcollateralization Target Amount will increase or
decrease, your principal on the Notes may be paid more slowly or quickly than
may otherwise be the case. This could adversely affect your reinvestment risk.
MATURITY DATE
The Maturity Date of the Notes was determined by adding one year to the
Payment Date which occurs in the month following the maturity date of the latest
maturing Loan. The actual maturity of the Notes may be significantly earlier
than the Maturity Date.
YIELD CONSIDERATIONS RELATING TO ADJUSTABLE-RATE LOANS
During the initial period following origination, substantially all of the
Adjustable-Rate Loans bore interest at Loan Rates which were set independently
of the Six-Month LIBOR applicable at the time of origination. See "The
Pool--Payments on the Loans" in this prospectus supplement.
At the initial Change Date for each Adjustable-Rate Loan, the Loan Rate was
or will be adjusted to a rate based on the applicable Six-Month LIBOR plus the
related Gross Margin, subject to the applicable Periodic Rate Cap and applicable
Lifetime Cap and Lifetime Floor. On a Change Date, increases in Six-Month LIBOR
will increase the Loan Rates of the Adjustable-Rate Loans, subject to the
applicable Periodic Rate Cap and the applicable Lifetime Cap. Resulting
increases in the amount of the required monthly payments on the Adjustable-Rate
Loans in excess of those assumed in underwriting such Adjustable-Rate Loans may
result in a default rate higher than that on mortgage loans with fixed mortgage
rates.
Notwithstanding prevailing market interest rates, in the event the Loan
Rate on any Adjustable-Rate Loan cannot increase above a certain level due to
the applicable Periodic Rate Cap or the applicable Lifetime Cap, the yield on
the Notes could be adversely affected. In addition, should the Loan Rate on any
Adjustable-Rate Loan not be able to decrease below a certain level due to the
applicable Lifetime Floor or Periodic Rate Cap, the related borrower may be more
likely to prepay such Adjustable-Rate Loan in full in order to refinance at a
lower rate.
The Loan Rates on the Adjustable-Rate Loans adjust periodically based upon
Six-Month LIBOR, whereas the Note Interest Rate adjusts monthly based upon
One-Month LIBOR as described under "Description of the Notes" herein, subject to
a Net Funds Cap. The interest due on the Adjustable-Rate Loans during any Due
Period may not equal the amount of interest that would accrue on the Notes
during the related Accrual Period, and, to the extent any shortfall is created
as a result, any such shortfall will only be paid to Noteholders to the extent
and in the priority described under "Description of the Notes--Payments on the
Notes" herein. In addition, Six-Month LIBOR and One-Month LIBOR may respond to
different economic and market factors, and there is not necessarily a
correlation between them. Thus, it is possible, for example, that One-Month
LIBOR may rise during periods in which Six-Month LIBOR is stable or is falling
or that, even if both One-Month LIBOR and Six-Month LIBOR rise during the same
period, One-Month LIBOR may rise more rapidly than Six-Month LIBOR.
The Transferor is not aware of any publicly available statistics that set
forth principal prepayment experience or prepayment forecasts of adjustable-rate
mortgage loans over an extended period of time, and its experience with respect
to such loans is insufficient to draw any conclusions with respect to the
expected prepayment rates on the Adjustable-Rate Loans. The rate of principal
prepayments with respect to adjustable-rate mortgage loans has fluctuated in
recent years. In addition, the features of adjustable-rate mortgage loan
programs in the past have varied significantly in response to market conditions
such as interest rates, consumer demand, regulatory restrictions and other
factors. The lack of uniformity of the terms and provisions of such
adjustable-rate mortgage loan programs has made it impracticable to compile
meaningful comparative data on prepayment rates and, accordingly, there can be
no certainty as to the rate of prepayments on the Adjustable-Rate Loans in
stable or changing interest rate environments. As is the case with conventional
fixed-rate mortgage loans, adjustable-rate mortgage loans may be subject to a
greater rate of principal prepayment in a declining interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable-rate
mortgage loans could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate mortgage
loans at competitive interest rates may cause borrowers to refinance their
adjustable-rate mortgage loans in order to obtain lower fixed interest rates.
WEIGHTED AVERAGE LIVES OF THE NOTES
The following information is given solely to illustrate the effect of
prepayments of the Loans on the weighted average lives of the Notes under
certain stated assumptions and is not a prediction of the prepayment rate that
may actually be experienced by the Loans. Weighted average lives of the Notes,
refers to the average amount of time that will elapse from the date of delivery
of the Notes until each dollar of principal of the Notes will be repaid to the
investor on the Notes. The weighted average lives of the Notes will be
influenced by the rate at which principal of the Loans is paid, which may be in
the form of scheduled amortization or prepayments (for this purpose, the term
"PREPAYMENT" includes reductions of principal, including, without limitation,
those resulting from unscheduled full or partial prepayments, refinancings,
liquidations and write-offs due to defaults, casualties or other dispositions
and substitutions and repurchases by or on behalf of the Transferor), the rate
at which Excess Spread is paid to holders of the Notes, the extent to which any
reduction in Overcollateralization Amount is paid to the Residual Interest
Certificates and the rate of delinquencies and losses on the Loans from time to
time. See "Description of Credit Enhancement--Overcollateralization" in this
prospectus supplement.
The model used in this prospectus supplement is the constant prepayment
rate ("CPR") which represents an assumed rate of prepayment each month to the
then outstanding principal balance of a pool of loans for the life of such
loans. CPR does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
loans, including the Loans. The Transferor believes that no existing statistics
of which it is aware provide a reliable basis for the holders of the Notes to
predict the amount or the timing of receipt of prepayments on the Loans.
Modeling assumptions. For purposes of preparing the tables below, the
following assumptions (the "MODELING ASSUMPTIONS") have been made:
(1) all scheduled principal payments on the Loans are timely received
on the first day of each Due Period, with the first Due Period for the
Loans commencing on _______, 199_, and no delinquencies or losses occur on
the Loans;
(2) the scheduled payments on the Loans have been calculated on the
outstanding Principal Balance (before giving effect to prepayments), the
Loan Rate and the remaining term to stated maturity such that the Loans
will fully amortize by their remaining term to stated maturity;
(3) all scheduled payments of interest and principal in respect of the
Loans have been made through the Cut-Off Date;
(4) the Loan Rate on each Adjustable-Rate Loan is adjusted on its next
Change Date (and subsequent Change Dates, if necessary) to equal the sum of
(a) an assumed level of Six-Month LIBOR (equal to ___%) and (b) the Gross
Margin (subject to the Periodic Rate Caps, the Lifetime Cap and the
Lifetime Floor);
(5) LIBOR remains constant at ______% per annum;
(6) all Loans prepay monthly at the specified percentage of CPR, no
optional or other early termination of the Notes occurs (except with
respect to the calculation of the "Weighted Average Life-to-Call (Years)"
figures in the following tables) and no substitutions or repurchases of the
Loans occur;
(7) all prepayments in respect of the Loans include 30 days' accrued
interest;
(8) the Closing Date for the Notes is ________, 199_;
(9) each year will consist of twelve 30-day months;
(10) cash payments in full are received by the holders of the Notes on
the ____ day of each month, commencing in _______ 199_;
(11) the Overcollateralization Target Amount will be _____% of the
Cut-Off Date Pool Principal Balance with respect to any Payment Date prior
to the Stepdown Date and the greater of (a) ___% of the Pool Principal
Balance and (b) ___% of the Cut-Off Date Pool Principal Balance thereafter;
(12) the Note Interest Rate for the Notes is a per annum rate equal to
One-Month LIBOR plus ____%; provided, however, that the Note Interest Rate
on the Notes will be increased commencing on the Call Option Date, as
described herein;
(13) all Servicing Fees and Master Servicer Fees assumed to be
deducted from the interest collections in respect of the Loans equal ____%
of the Pool Principal Balance;
(14) other fees and expenses assumed to be deducted from the interest
collections in respect of the Loans equal ___% of the principal balance of
the Notes;
(15) no reinvestment income from any Account is earned and available
for payment; and
(16) the Pool consists of Loans having the following characteristics:
<PAGE>
<TABLE>
ASSUMED LOAN CHARACTERISTICS
<CAPTION>
REMAINING ORIGINAL GROSS GROSS
TERM TO TERM TO INITIAL SUBSEQUENT GROSS GROSS
CUT-OFF DATE LOAN MATURITY MATURITY GROSS PERIODIC PERIODIC LIFETIME LIFETIME
SUB-POOL TYPE PRINCIPAL BALANCE RATE (MONTHS) (MONTHS) MARGIN CAP CAP CAP FLOOR
- -------- ---- ----------------- -------- --------- -------- ------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ % % % % % ______%
2 $ % % % % % ______%
3 $ % % % % % ______%
4 $ % % % % % ______%
5 $ % % % % % ______%
6 $ % % % % % ______%
7 $ % % % % % ______%
8 $ % % % % % ______%
9 $ % % % % % ______%
10 $ % % % % %
</TABLE>
<PAGE>
The following table indicates the percentages of the initial principal
balance of the Notes that would be outstanding, based on the specified
percentages of the CPR.
PERCENTAGE OF ORIGINAL NOTE PRINCIPAL BALANCE(1)
DATE 0% 15% 25% 30% 35% 45%
- ---- -- --- --- --- --- ---
Weighted Average Life-to-Maturity (Years)(2)
Weighted Average Life-to-Call (Years)(2)
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life is determined by (a) multiplying the amount of
each payment of principal thereof by the number of years from the date of
issuance to the related Payment Date, (b) summing the results and (c)
dividing the sum by the aggregate payments of principal referred to in
clause (a) and rounding to two decimal places.
This table has been prepared based on the Modeling Assumptions (including
the assumptions regarding the characteristics and performance of the Loans which
may differ from the actual characteristics and performance thereof) and should
be read in conjunction therewith.
<PAGE>
The pay-down scenarios for the Notes set forth in the foregoing table is
subject to significant uncertainties and contingencies (including those
discussed above under this caption "Prepayment and Yield Considerations"). As a
result, neither the foregoing pay-down scenarios nor the Modeling Assumptions on
which they were made will likely prove to be accurate. Indeed, the actual
weighted average lives of the Notes will likely vary from those set forth in the
foregoing table, which variations may be shorter or longer, and which variations
may be greater with respect to later years. Furthermore, the Loans in all
likelihood will not prepay at a constant rate or at the same rate. Moreover, the
payment experience of the Loans and certain other factors affecting the payments
on the Notes will not conform to the Modeling Assumptions. In fact, the
characteristics and payment experience of the Loans will differ in many respects
from the Modeling Assumptions. See "The Pool" in this prospectus supplement. To
the extent that the Loans actually included in the Pool have characteristics and
a payment experience that differ from those assumed in preparing the foregoing
tables, the Notes are likely to have weighted average lives that are shorter or
longer than those set forth in the foregoing tables. See "Risk Factors--Yield,
Prepayment and Maturity Considerations" in this prospectus supplement.
In light of the uncertainties inherent in the foregoing pay-down scenarios,
the inclusion of the weighted average lives of the Notes in the foregoing table
should not be regarded as a representation by the Transferor, the Depositor, the
Underwriters or any other person that any of the above pay-down scenarios will
be experienced.
THE OWNER TRUST AND INDENTURE
GENERAL
_________ Home Loan Owner Trust 199_-_ (the "OWNER TRUST" or the "ISSUER")
is a business trust to be formed under the laws of the State of Delaware
pursuant to the Owner Trust Agreement (the "OWNER TRUST AGREEMENT") among the
Depositor, the Paying Agent, the Owner Trustee and _________. On the Closing
Date, the Depositor will sell the Loans to the Issuer pursuant to a Sale and
Master Servicing Agreement. After its formation, the Issuer, as an Owner Trust,
will not engage in any activity other than the activities related to the Notes,
which will include:
o acquiring and holding the Loans and the other assets of the Issuer and
proceeds therefrom,
o issuing the Notes and the Residual Interest Certificates,
o making payments on the Notes and distributions on the Residual Interest
Certificates, and
o engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or in connection
therewith.
The Residual Interest Certificates represent the residual interest in the
assets of the Issuer. The Issuer will initially be capitalized with equity equal
to the value of the Residual Interest Certificates. The Residual Interest
Certificates, together with the Notes, will be transferred by the Issuer to the
Depositor as consideration for the Loans pursuant to the Sale and Master
Servicing Agreement. The Residual Interest Certificates will thereupon be
transferred by the Depositor to the Transferor as partial consideration for the
Loans.
The assets of the Issuer will consist primarily of the Loans and all
amounts distributable thereon. The assets of the Issuer also will include
(1) amounts on deposit in the Collection Account, Note Payment Account
and the Certificate Distribution Account;
(2) payments of principal and interest in respect of the Loans
received after the Cut-Off Date;
(3) an assignment of the Depositor's rights under the Home Loan
Purchase Agreement;
(4) an assignment of the Transferor's rights under the Servicing
Agreement; and
(5) certain other ancillary or incidental funds, rights and properties
related to the foregoing. The Issuer's principal offices will be located in
___________________________, in care of ________________, (the "OWNER
TRUSTEE"), at the address set forth below under "--The Owner Trustee."
THE OWNER TRUSTEE
_________________, a __________________, will act as the Owner Trustee
under the Owner Trust Agreement. ________________ is a ______________________
and its principal offices are located at ________________________________.
Certain functions of the Owner Trustee under the Owner Trust Agreement and
the Sale and Master Servicing Agreement will be performed by the Indenture
Trustee, including maintaining the Certificate Distribution Account and making
distributions to the Residual Interest Certificates.
THE INDENTURE TRUSTEE
On the Closing Date, the Issuer will pledge the Loans and its other assets
under an Indenture (the "INDENTURE") between the Issuer and ________________, a
national banking association (" "), as the indenture trustee (in such capacity,
the "INDENTURE TRUSTEE"). __________ also will act:
o as the paying agent under the Owner Trust Agreement (in such capacity,
the "PAYING AGENT"
o as the custodian (in such capacity, the "CUSTODIAN") under the Custodial
Agreement (the "CUSTODIAL AGREEMENT") between the Custodian, the Issuer
and the Indenture Trustee, and
o as the administrator (in such capacity, the "ADMINISTRATOR") under the
Administration Agreement (the "ADMINISTRATION AGREEMENT") among the
Issuer, the Administrator and the Master Servicer.
DESCRIPTION OF THE NOTES
GENERAL
The Issuer will issue one class of notes (the "NOTES") pursuant to the
Indenture. The assets of the Issuer will secure the Notes under the Indenture.
The Notes will have an approximate aggregate original principal balance (the
"ORIGINAL NOTE PRINCIPAL BALANCE") of $__________ and will bear interest at a
per annum rate (the "NOTE INTEREST RATE") equal to the lesser of (i) One-Month
LIBOR plus _____%, provided that on any Payment Date on or after the Call Option
Date, this rate shall be One-Month LIBOR plus ___%; and (ii) the Net Interest
Rate.
The "NET INTEREST RATE" for any Payment Date will be equal to the
annualized percentage derived from the fraction (which shall not be greater than
1), the numerator of which is the positive difference, if any, between the
amount of all interest due on the Loans during the related Due Period and the
Interest Reduction Amount and the denominator of which is the aggregate
principal amount of the Notes immediately prior to such Payment Date. The
"INTEREST REDUCTION AMOUNT" for any Payment Date will be equal to the sum of the
Servicing Fee, the Master Servicer Fee, the Indenture Trustee Fee and the
Guaranty Insurance Premium; provided that on any Payment Date on or after the
Payment Date occurring in ________, 200_, the Interest Reduction Amount will be
increased by an amount equal to one-twelfth of the product of ____% and the
aggregate Principal Balance of the Loans as of the first day of the related Due
Period.
The Issuer will also issue certificates (the "RESIDUAL INTEREST
CERTIFICATES") evidencing the ownership interest in the Issuer pursuant to the
Owner Trust Agreement. The Residual Interest Certificates are not being offered
through this prospectus supplement or the accompanying prospectus.
On each Payment Date the Indenture Trustee or its designee will be required
to pay to the persons in whose names the Notes are registered on the last
Business Day of the month immediately preceding the month of the related Payment
Date (each such date, a "RECORD DATE"), the portion of the aggregate payment to
be made to each holder of a Note as described below. Before any termination of
the book-entry provisions, payments on the Notes will be made to persons with
beneficial ownership interests in the Notes (the "SECURITY OWNERS") only through
The Depository Trust Company ("DTC") and Participants in the United States, or
Cedelbank or The Euroclear System, or indirectly through Participants in such
systems in Europe. See "Description of the Securities--Book-Entry Registration
of Securities" in the accompanying prospectus.
Beneficial ownership interests in the Notes may only be held in minimum
denominations of $25,000 and integral multiples of $1,000 in excess thereof;
provided, however, that one Note may be issued in such denomination as may be
necessary to represent the remainder of the aggregate amount of Notes.
"ONE-MONTH LIBOR" shall mean the London interbank offered rate for
one-month United States dollar deposits. One-Month LIBOR for each Accrual Period
shall be determined on the second business day preceding the first day of any
such Accrual Period (each, a "LIBOR DETERMINATION DATE"), on the basis of the
offered rates of the Reference Banks for one-month United States dollar
deposits, as such rates appear on the Telerate Screen Page 3750, as of 11:00
a.m. (London time) on such LIBOR Determination Date. As used in this paragraph,
"BUSINESS DAY" means a day on which banks are open for dealing in foreign
currency and exchange in London and New York City; 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
Telerate Screen Page 3750 on the LIBOR Determination Date in question, (iii)
which have been designated as such by the Indenture Trustee and (iv) which are
not controlling, controlled by or under common control with the Issuer, the
Depositor or the Transferor.
On each LIBOR Determination Date, One-Month LIBOR will be established by
the Indenture Trustee as follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR shall be the arithmetic
mean (rounded upwards if necessary to the nearest whole multiple of
_______%) of such offered quotations.
(b) If on such LIBOR Determination Date fewer than two Reference Banks
provide such offered quotations, One-Month LIBOR shall be the greater of
(x) One-Month LIBOR as determined on the previous LIBOR 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 _____%) of the one-month U.S. dollar lending rates which New York City
banks selected by the Indenture Trustee are quoting on the relevant LIBOR
Determination Date to the principal London offices of leading banks in the
London interbank market or, in the event that the Indenture Trustee can
determine no such arithmetic mean, (ii) the lowest one-month U.S. dollar
lending rate which New York City banks selected by the Indenture Trustee
are quoting on such LIBOR Determination Date to leading European banks.
<PAGE>
Listed below are monthly One-Month LIBOR rates on the last day of the
related calendar month beginning in 1995, as published by _____________. The
following does not purport to be a prediction of the performance of One-Month
LIBOR in the future.
MONTH
- -----
January................................. % % % % %
February................................ % % % % %
March................................... % % % %
April................................... % % % %
May..................................... % % % %
June.................................... % % % %
July.................................... % % % %
August.................................. % % % %
September............................... % % % %
October................................. % % % %
November................................ % % % %
December................................ % % % %
The establishment of One-Month LIBOR on each LIBOR Determination Date by
the Indenture Trustee and the Indenture Trustee's calculation of the Note
Interest Rate for the related Accrual Period shall (in the absence of manifest
error) be final and binding. Each such rate of interest may be obtained by
telephoning the Indenture Trustee at ________________.
PAYMENTS ON THE NOTES
For the definitions of certain of the defined terms used in the following
subsections, see "--Related Definitions" below.
Available Collection Amount. Payments on the Notes on each Payment Date
will be made from the Available Collection Amount. The Servicer will calculate
the Available Collection Amount on the ___ calendar day of each month or, if
such day is not a Business Day, then the immediately preceding Business Day
(each such day, a "DETERMINATION Date"). With respect to each Payment Date, the
"AVAILABLE COLLECTION AMOUNT" is the sum of (1) all amounts received on the
Loans or required to be paid by the Master Servicer, the Servicer or the
Transferor during the related Due Period; or with respect to prepayments and
other unscheduled principal payments during the related Due Period (exclusive of
amounts not required to be deposited by the Servicer in the Collection Account
and amounts permitted to be withdrawn by the Indenture Trustee from the
Collection Account); (2) the Purchase Price paid for any Loans required to be
repurchased and the Substitution Adjustment to be deposited in the Collection
Account in connection with any substitution, in each case before the related
Determination Date; and (3) upon the exercise of an optional redemption by the
Majority Residual Interest Certificateholders, the Servicer [or the Securities
Insurer,] the Termination Price.
On each Payment Date, the "AVAILABLE PAYMENT AMOUNT" will equal the related
Available Collection Amount deposited into the Note Payment Account and
remaining after providing for the payment of all Issuer Fees and Expenses for
such Payment Date. On each Payment Date, interest and principal payments on the
Notes will be made from the Available Payment Amount and any Insured Payments
for such Payment Date. [If for any Payment Date the Securities Insurer is
required to make an Insured Payment, the Indenture Trustee must make a claim for
such Insured Payment under the Guaranty Policy by submitting the required notice
no later than 12:00 noon, New York time, on the second Business Day preceding
such date.] See "Description of Credit Enhancement--Financial Guaranty Insurance
Policy" in this prospectus supplement.
Payments of Interest. Interest on the Note Principal Balance will accrue
thereon during each Accrual Period at the Note Interest Rate, and will be
payable to the holders of the Notes monthly on each Payment Date, commencing in
________.
On each Payment Date, interest payments on the Notes will be made from the
Available Payment Amount [and any Insured Payments for such Payment Date]. Under
certain circumstances, [and in the event of a Securities Insurer Default], the
amount available for interest payments could be less than the amount of interest
payable on the Notes on any Payment Date. In such event, each Note will receive
its ratable share (based upon the aggregate amount of interest due to the Notes)
of the remaining amount available to be paid as interest. In addition, any such
interest deficiency will be carried forward as a Noteholders' Interest Shortfall
Amount, and will be paid to holders of the Notes on subsequent Payment Dates to
the extent that sufficient funds are available. Any such interest deficiency
could occur, for example, if delinquencies or losses realized on the Loans were
exceptionally high or were concentrated in a particular month [and Insured
Payments were not timely received under the Guaranty Policy.] No interest will
accrue on any Noteholders' Interest Shortfall Amount.
Payments of Principal. Principal payments will be made to the holders of
the Notes on each Payment Date in an amount described under "--Priority of
Payments" below. The aggregate payments of principal to the Notes will not
exceed the Original Note Principal Balance.
PRIORITY OF PAYMENTS
A. On each Payment Date, the Regular Payment Amount [and any Insured
Payments] will be paid in the following order of priority:
FIRST, to the holders of the Notes, the applicable portion of the
Noteholders' Interest Payment Amount required to be paid in respect of the
Notes;
SECOND, to pay principal of the Notes, until the Note Principal
Balance is reduced to zero, in an amount up to the sum of the Regular
Principal Payment Amount and the Noteholders' Principal Deficiency Amount,
if any; and
THIRD, any remaining amount to be applied together with Excess Spread
in the manner specified in paragraph B below.
B. On each Payment Date, the Excess Spread, if any, will be applied in the
following order of priority:
[FIRST, to pay the Securities Insurer the Securities Insurer
Reimbursement Amount, if any;]
[SECOND, in an amount up to the Overcollateralization Deficiency
Amount, if any, to pay principal of the Notes, until the Note Principal
Balance is reduced to zero;]
THIRD, to the holders of the Notes, pro rata, Noteholders' Interest
Carry-Forward Amount due and unpaid, if any; and
FOURTH, any remaining amount (A) first, concurrently, to the Servicer
in an amount needed to reimburse any non-recoverable Servicing Advances,
and to the Master Servicer in an amount needed to reimburse any
non-recoverable Monthly Advances, and (B) then to the Residual Interest
Certificates.
RELATED DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
ACCRUAL PERIOD: The period from and including the immediately preceding
Payment Date (or, in the case of the first Payment Date, from the Closing Date)
through but excluding the related Payment Date. Interest on the Notes will be
calculated on the basis of the actual number of days elapsed in the Accrual
Period in a 360-day year.
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the City of New York or in the city in which
the corporate trust office of the Indenture Trustee is located or in the city in
which the Servicer's servicing operations or the Master Servicer's master
servicing operations are primarily located and are authorized or obligated by
law or executive order to be closed.
EXCESS SPREAD: With respect to any Payment Date, the excess, if any, of (1)
the Available Payment Amount, over (2) the Regular Payment Amount.
INSURANCE PROCEEDS: With respect to any Payment Date, the proceeds paid to
the Servicer by any insurer pursuant to any insurance policy covering a Loan,
Mortgaged Property or REO Property or any other insurance policy that relates to
a Loan, net of any expenses which are incurred by the Servicer in connection
with the collection of such proceeds and not otherwise reimbursed the Servicer,
but excluding Insured Payments, the proceeds of any insurance policy that are to
be applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with the accepted servicing procedures.
LIQUIDATED LOAN: Any Loan in respect of which a monthly payment is in
excess of 30 days past due and as to which the Servicer has determined that all
recoverable liquidation and insurance proceeds have been received, which will be
deemed to occur upon the earliest of: (1) the liquidation of the related
Mortgaged Property acquired through foreclosure or similar proceedings or (2)
the Servicer's determination in accordance with the accepted servicing
procedures that there is not a reasonable likelihood of an economically
significant recovery from the borrower or the related Mortgaged Property in
excess of the costs and expenses in obtaining such recovery and in relation to
the expected timing of such recovery.
NET LIQUIDATION PROCEEDS: With respect to any Payment Date, any cash
amounts received from Liquidated Home Loans, whether through trustee's sale,
foreclosure sale, disposition of Mortgaged Properties or otherwise (other than
Insurance Proceeds and Released Mortgaged Property Proceeds), and any other cash
amounts received in connection with the management of the Mortgaged Properties
from defaulted Loans, in each case, net of any reimbursements to the Servicer or
the Master Servicer, as applicable, made from such amounts for any unreimbursed
Servicing Compensation, Master Servicer Compensation, Servicing Advances and
Monthly Advances, as applicable, and any other fees and expenses paid in
connection with the foreclosure, conservation and liquidation of the related
Liquidated Home Loans or Mortgaged Properties.
NOTE PRINCIPAL BALANCE: With respect to the Notes and as of any date of
determination, the Original Note Principal Balance of the Notes reduced by all
amounts paid in respect of principal of the Notes on all Payment Dates prior to
such date of determination.
NOTEHOLDERS' INTEREST CARRY-FORWARD AMOUNT: With respect to any Payment
Date, (A) if on such Payment Date the Note Interest Rate is limited pursuant to
clause (ii) of the definition of "Note Interest Rate," the excess, if any, of
the amount of interest that would have accrued on the Notes for the immediately
preceding Payment Date pursuant to clause (i) of the definition of "Note
Interest Rate," over the amount of interest that is due on the Notes for such
Payment Date pursuant to clause (ii) of the definition of "Note Interest Rate,"
plus (B) any outstanding Noteholders' Interest Carry-Forward Amount remaining
unpaid from prior Payment Dates, together with interest thereon at the Note
Interest Rate (without regard to clause (ii) thereof).
NOTEHOLDERS' INTEREST SHORTFALL AMOUNT: With respect to any Payment Date,
the excess, if any, of the Noteholders' Monthly Interest Payment Amount for the
preceding Payment Date over the amount in respect of interest that is actually
paid on such preceding Payment Date.
NOTEHOLDERS' INTEREST PAYMENT AMOUNT: With respect to any Payment Date, the
sum of the Noteholders' Monthly Interest Payment Amount and the Noteholders'
Interest Shortfall Amount on such date.
NOTEHOLDERS' MONTHLY INTEREST PAYMENT AMOUNT: With respect to any Payment
Date, interest accrued for the related Accrual Period on the Notes at the Note
Interest Rate on the Note Principal Balance thereof immediately preceding such
Payment Date (or, in the case of the first Payment Date, on the Closing Date),
after giving effect to all payments of principal to the holders of the Notes on
or before such preceding Payment Date.
[OVERCOLLATERALIZATION AMOUNT: With respect to any Payment Date, the amount
equal to the excess, if any, of (i) the Pool Principal Balance as of the end of
the preceding Due Period, over (ii) the Note Principal Balance (after giving
effect to payments on the Notes on such Payment Date).]
[OVERCOLLATERALIZATION DEFICIENCY AMOUNT: With respect to any date of
determination, the excess, if any, of the Overcollateralization Target Amount
over the Overcollateralization Amount.]
[OVERCOLLATERALIZATION REDUCTION AMOUNT: With respect to any Payment Date
that occurs on or after the Stepdown Date, the lesser of (1) the excess, if any,
of (a) the Overcollateralization Amount (assuming principal payments of the
Notes on such Payment Date are equal to the Regular Principal Payment Amount,
without regard to this Overcollateralization Reduction Amount), over (b) the
Overcollateralization Target Amount and (2) the Regular Principal Payment Amount
(as determined without the deduction of this Overcollateralization Reduction
Amount therefrom) on such Payment Date. Prior to the occurrence of a Stepdown
Date, the Overcollateralization Reduction Amount will be zero.]
[OVERCOLLATERALIZATION TARGET AMOUNT: As defined under the heading
"Description of Credit Enhancement--Overcollateralization" in this prospectus
supplement.]
REGULAR PAYMENT AMOUNT: With respect to any Payment Date, the lesser of (1)
the Available Payment Amount and (2) the sum of (a) the Noteholders' Interest
Payment Amount and (b) the Regular Principal Payment Amount.
REGULAR PRINCIPAL PAYMENT AMOUNT: On each Payment Date, an amount (but not
in excess of the Note Principal Balance immediately before such Payment Date)
equal to the sum of (i) each scheduled payment of principal collected by the
Servicer in the related Due Period, (ii) all full and partial principal
prepayments received by the Servicer during such related Due Period, (iii) the
principal portion of all Net Liquidation Proceeds, Insurance Proceeds and
Released Mortgaged Property Proceeds received during the related Due Period,
(iv) that portion of the Purchase Price of any repurchased Loan which represents
principal received before the related Determination Date, (v) the principal
portion of any Substitution Adjustments required to be deposited in the
Collection Account as of the related Determination Date, and (vi) on the Payment
Date on which the Issuer is to be terminated pursuant to the Sale and Master
Servicing Agreement, the Termination Price (net of any accrued and unpaid
interest, due and unpaid Issuer Fees and Expenses[, amounts due and owing the
Securities Insurer under the Insurance Agreement] and unreimbursed Servicing
Advances and Monthly Advances owing to the Servicer and the Master Servicer, as
applicable). Notwithstanding the foregoing, if such Payment Date occurs on or
after a Stepdown Date, then the Regular Principal Payment Amount will be reduced
(but not less than zero) by the Overcollateralization Reduction Amount, if any,
for such Payment Date.
RELEASED MORTGAGED PROPERTY PROCEEDS: With respect to any Loan, the
proceeds received by the Servicer in connection with (i) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise, which proceeds are
not released to the borrower in accordance with applicable law, accepted
servicing procedures and the Sale and Master Servicing Agreement.
STEPDOWN DATE: The first Payment Date occurring on the later of: (a)
_________; or (b) the Payment Date on which the Pool Principal Balance as of the
end of the related Due Period has been reduced to __% of the Cut-Off Date Pool
Principal Balance.
[SECURITIES INSURER REIMBURSEMENT AMOUNT
On each Payment Date, after the holders of the Notes have been paid all
amounts, other than the Overcollateralization Deficiency Amount and the
Noteholders' Interest Carry-Forward Amount, to which they are entitled and prior
to any distributions to the holders of the Residual Interest Certificates, the
Securities Insurer will be entitled to be reimbursed for any unreimbursed
Insured Payments in respect of the Notes not previously reimbursed and any other
amounts owed to the Securities Insurer under the Insurance Agreement (including
legal fees and other expenses incurred by the Securities Insurer) together with
interest thereon at the rate specified in the Insurance Agreement (the
"SECURITIES INSURER REIMBURSEMENT AMOUNT") and any accrued and unpaid Guaranty
Insurance Premiums. The "INSURANCE AGREEMENT" means the Insurance and Indemnity
Agreement among the Securities Insurer, the Depositor, ________ and the Issuer.
In connection with each Insured Payment, the Indenture Trustee, as
attorney-in-fact for the holder thereof, will be required to assign to the
Securities Insurer the rights of the holders of the Notes with respect to the
Notes, to the extent of such Insured Payments, including, without limitation, in
respect of any amounts due to the holders of the Notes as a result of a
securities law violation arising from the offer and sale of the Notes. In the
event that any Securities Insurer Reimbursement Amount is outstanding, the
holders of the Residual Interest Certificates will not be entitled to receive
distributions of any amounts of Excess Spread until the Securities Insurer has
been distributed such Securities Insurer Reimbursement Amount in full.]
OPTIONAL REDEMPTION
The holders of an aggregate percentage interest in the Residual Interest
Certificates in excess of 50% (the "MAJORITY RESIDUAL INTEREST
CERTIFICATEHOLDERS") may, at their option, cause the Issuer to effect an early
redemption of the Notes on or after any Payment Date on which the Pool Principal
Balance declines to __% or less of the Cut-Off Date Pool Principal Balance, by
purchasing all of the Loans from the Owner Trust at a price equal to or greater
than the Termination Price. The "TERMINATION PRICE" shall be an amount equal to
the greater of (a) the sum of (i) the then outstanding Note Principal Balance
and all accrued and unpaid interest thereon at the Note Interest Rate determined
pursuant to clause (i) of the definition thereof and all unpaid Noteholders'
Interest Carry-Forward Amounts through the last day of the Accrual Period
relating to such Payment Date; (ii) any Issuer Fees and Expenses due and unpaid
on such date; (iii) any unreimbursed Servicing Advances and unreimbursed Monthly
Advances including such advances deemed to be nonrecoverable[; and (iv) any
unpaid Securities Insurer Reimbursement Amount and (b) the sum of (i) the
Principal Balance of each Loan included in the Owner Trust as of the close of
business on the first day of the month of such Payment Date; (ii) all unpaid
interest accrued on the Principal Balance of each such Loan at the related
interest rate to such date; (iii) the aggregate fair market value of each
foreclosure property included in the Owner Trust on such date, as determined by
an independent appraiser acceptable to the Indenture Trustee as of a date not
more than 30 days before such date; and (iv) any unpaid Securities Insurer
Reimbursement Amount]. The proceeds from such sale will be paid (1) first, to
the outstanding Issuer Fees and Expenses, (2) second, to the Servicer for
unreimbursed Servicing Advances and to the Master Servicer for unreimbursed
Monthly Advances, including such advances deemed to be nonrecoverable, (3)
third, to the holders of Notes in an amount equal to the then outstanding Note
Principal Balance of the Notes plus all accrued and unpaid interest thereon at
the Note Interest Rate determined pursuant to clause (i) of the definition of
Note Interest Rate and all unpaid Noteholder's Interest Carry-Forward Amounts,
[(4) fourth, to the Securities Insurer the Securities Insurer Reimbursement
Amount, if any,] and (5) fifth, to the holders of the Residual Interest
Certificates, in an amount equal to the amount of proceeds remaining, if any,
after the payments specified in clauses (1) through (4) above.
On or after any Payment Date the Pool Principal Balance declines to 5% or
less of the Cut-Off Date Pool Principal Balance, [the Securities Insurer or] the
Servicer may, at each one's option, cause the Issuer to effect an early
redemption of the Notes if the Majority Residual Interest Certificateholders
fail to exercise their option to cause to the Issuer to effect an early
redemption.
In addition, if certain events of default of the Issuer occur as set forth
in the Indenture, including (a) a default in payment of any interest or
principal amounts due the holders of the Notes, (b) the failure by the Issuer to
observe or perform in any material respect any of its covenants or agreements in
the Indenture, which failure continues unremedied for 30 days, and (c) certain
events of bankruptcy, insolvency or other similar proceedings relating to the
Issuer, [then the Securities Insurer may, at its option, effect an early
redemption of the Notes, by purchasing all of the Loans from the Owner Trustee
at a price equal to the Termination Price.]
DESCRIPTION OF CREDIT ENHANCEMENT
[Credit enhancement with respect to the Notes will be provided by the
Guaranty Policy. Additional credit enhancement with respect to the Notes that
will be utilized before the Guaranty Policy will be provided by (i) the
overcollateralization feature described below under "--Overcollateralization,"
and (ii) the subordination of the right of the Residual Interest Certificates to
receive payments of any remaining amounts as described below under
"--Subordination."]
[FINANCIAL GUARANTY INSURANCE POLICY
The following summary of the terms of the________________________________
(the "GUARANTY POLICY") does not purport to be complete and is qualified in its
entirety by reference to the Policy, which will be filed under cover of Form 8-K
shortly after the Closing Date.
Simultaneously with the issuance of the Notes, the Securities Insurer will
deliver the Guaranty Policy to the Indenture Trustee for the benefit of each
Noteholder. Under the Guaranty Policy, the Securities Insurer unconditionally
and irrevocably guarantees to the Indenture Trustee for the benefit of each
holder of the Notes the full and complete payment of (i) Insured Payments (as
defined below) on the Notes; and (ii) the amount of any Insured Payment which
subsequently is avoided in whole or in part as a preference payment under
applicable law.
"INSURED PAYMENTS" means, on any Payment Date the sum of any insufficiency
resulting from the Available Payment Amount being less than the accrued and
unpaid interest due on the Notes (less Noteholders' Interest Carry-Forward
Amounts and Relief Act shortfalls), and any Noteholders' Principal Deficiency
Amount.
"NOTEHOLDERS' PRINCIPAL DEFICIENCY AMOUNT" means (1) with respect to any
Payment Date (other than as set forth in clause (2) below), the excess, if any,
of (a) the Note Principal Balance as of such Payment Date (after giving effect
to all payments of principal on the Notes on such Payment Date, but without
giving effect to payments in respect of the Noteholders' Principal Deficiency
Amount to be made on such Payment Date), over (b) the Pool Principal Balance as
of the end of the related Due Period and (2) with respect to the Maturity Date
of the Notes, the excess of (a) the Note Principal Balance (after giving effect
to all payments of principal on the Notes on such date, but without giving
effect to payments in respect of this Noteholders' Principal Deficiency Amount
to be made on such date) over (b) the Available Payment Amount remaining after
the payment of the Noteholders' Interest Payment Amount and Regular Principal
Payment Amount for such date.
Payment of claims on the Guaranty Policy made in respect of Insured
Payments will be made by the Securities Insurer following Receipt by the
Securities Insurer of the appropriate notice for payment on the later to occur
of (i) 12:00 noon, New York City time, on the second Business Day following
Receipt of such notice for payment, and (ii) 12:00 noon, New York City time, on
the date on which such payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Guaranty Policy, the Securities Insurer shall cause such payment to be made
on the later of (a) the date when due to be paid pursuant to the Order referred
to below or (b) the first to occur of (i) the ______ Business Day following
Receipt by the Securities Insurer from the Indenture Trustee of (A) a certified
copy of the order (the "ORDER") of the court or other governmental body which
exercised jurisdiction to the effect that the Noteholder is required to return
principal or interest paid on the Notes during the term of the Guaranty Policy
because such payments were avoidable as preference payments under applicable
bankruptcy law, (B) a certificate of the Noteholder that the Order has been
entered and is not subject to any stay, and (C) an assignment duly executed and
delivered by the Noteholder, in such form as is reasonably required by the
Securities Insurer and provided to the Noteholder by the Securities Insurer,
irrevocably assigning to the Securities Insurer all rights and claims of the
Noteholder relating to or arising under the Notes against the Issuer or
otherwise with respect to such preference payment, or (ii) the date of Receipt
by the Securities Insurer from the Indenture Trustee of the items referred to in
clauses (A), (B) and (C) above if, at least four Business Days prior to such
date of Receipt, the Securities Insurer shall have received written notice from
the Indenture Trustee that such items were to be delivered on such date and such
date was specified in such notice. Such payment shall be disbursed to the
receiver, conservator, debtor-in-possession or trustee in bankruptcy named in
the Order and not to the Indenture Trustee or any Noteholder directly (unless a
Noteholder has previously paid such amount to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order, in which case
such payment shall be disbursed to the Indenture Trustee for distribution to
such Noteholder upon proof of such payment reasonably satisfactory to the
Securities Insurer). In connection with the foregoing, the Securities Insurer
shall have the rights provided pursuant to the Indenture.
The terms "RECEIPT" and "RECEIVED", with respect to the Guaranty Policy,
shall mean actual delivery to the Securities Insurer or its fiscal agent, if
any, prior to 12:00 noon, New York City time, on a Business Day; delivery either
on a day that is not a Business Day or after 12:00 noon, New York City time,
shall be deemed to be Receipt on the next succeeding Business Day. If any notice
or certificate given under the Guaranty Policy by the Indenture Trustee is not
in proper form or is not properly completed, executed or delivered, it shall be
deemed not to have been Received, and the Securities Insurer, or its fiscal
agent, if any, shall promptly so advise the Indenture Trustee and the Indenture
Trustee may submit an amended notice.
Under the Guaranty Policy, "BUSINESS DAY" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the City of
New York, New York, the city in which the corporate trust office of the
Indenture Trustee is located or in the city in which the Servicer's servicing
operations or the Master Servicer's master servicing operations are primarily
located and are authorized or obligated by law or executive order to be closed.
The Securities Insurer's obligations under the Guaranty Policy in respect
of Insured Payments shall be discharged to the extent funds are transferred to
the Indenture Trustee as provided in the Guaranty Policy whether or not such
funds are properly applied by the Indenture Trustee.
The Securities Insurer shall be subrogated to the rights of each Noteholder
to receive payments of principal and interest under the Notes to the extent of
any payment by the Securities Insurer under the Guaranty Policy. For a
discussion of the rights and powers of the Securities Insurer upon an event of
default under the Transfer and Servicing Agreements, see "Description of the
Transfer and Servicing Agreements" in this prospectus supplement.
To the fullest extent permitted by applicable law, the Securities Insurer
agrees under the Guaranty Policy not to assert, and waives, for the benefit of
each Noteholder, all its rights (whether by counterclaim, setoff or otherwise)
and defenses (including, without limitation, the defense of fraud), whether
acquired by subrogation, assignment or otherwise, to the extent that such rights
and defenses may be available to the Securities Insurer to avoid payment of its
obligations under the Guaranty Policy in accordance with the express provisions
of the Guaranty Policy.
Claims under the Guaranty Policy constitute direct, unsecured and
unsubordinated obligations of the Securities Insurer ranking not less than pari
passu with other unsecured and unsubordinated indebtedness of the Securities
Insurer for borrowed money. Claims against the Securities Insurer under the
Guaranty Policy and claims against the Securities Insurer under each other
financial guaranty insurance policy issued thereby constitute pari passu claims
against the general assets of the Securities Insurer. The terms of the Guaranty
Policy cannot be modified or altered by any other agreement or instrument, or by
the merger, consolidation or dissolution of the Issuer. The Guaranty Policy may
not be cancelled or revoked prior to payment in full of the Notes. The Guaranty
Policy is not covered by the property/casualty insurance security fund specified
in Article 76 of the New York Insurance Law.]
THE SECURITIES INSURER
[The information set forth below under "The Securities Insurer" has been
supplied by as the Securities Insurer, for inclusion in this prospectus
supplement and has not been reviewed or verified by _________, the Servicer, the
Depositor, the Indenture Trustee, the Owner Trustee, the Underwriters or any of
their respective affiliates.]
GENERAL. The principal executive offices of the Securities Insurer are
located at _____________________________________________________________________
______________________________________________________.
REINSURANCE. Pursuant to an intercompany agreement, liabilities on
financial guaranty insurance written or reinsured from third parties by the
Securities Insurer or its domestic or Bermuda operating insurance company
subsidiaries are generally reinsured among such companies on an agreed-upon
percentage substantially proportional to their respective capital, surplus and
reserves, subject to applicable statutory risk limitations. In addition, the
Securities Insurer reinsures a portion of its liabilities under certain of its
financial guaranty insurance policies with other reinsurers under various
treaties and on a transaction-by-transaction basis. Such reinsurance is utilized
by the Securities Insurer as a risk management device and to comply with
statutory and rating agency requirements; it does not alter or limit the
Securities Insurer's obligations under any financial guaranty insurance policy.
RATINGS. The Securities Insurer's insurance financial strength is rated
"____"by _______________. The Securities Insurer's insurer financial strength is
rated "_________" by _____________. The Securities Insurer's claims-paying
ability is rated "____" by _____________. Investment Information, Inc. Such
ratings reflect only the views of the respective rating agencies, and are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
CAPITALIZATION. The following table sets forth the capitalization of the
Securities Insurer and its wholly owned subsidiaries on the basis of generally
accepted accounting principles as of ________________, as well as such
capitalization as adjusted to give effect to certain transactions entered into
during ___________:
<PAGE>
____________, 199_
----------------------------
ACTUAL AS ADJUSTED(1)
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
Deferred Premium Revenue (net of prepaid
reinsurance premiums)...........................
----------- -----------
Surplus Notes.....................................
----------- -----------
Minority Interest.................................
----------- -----------
Shareholder's Equity:
Common Stock..................................
Additional Paid-In Capital....................
Accumulated Other Comprehensive Income
(net of deferred income taxes)..............
Accumulated Earnings..........................
----------- -----------
Total Shareholder's Equity........................
----------- -----------
Total Deferred Premium Revenue, Surplus Notes,
Minority Interest and Shareholder's Equity......
=========== ===========
For further information concerning the Securities Insurer, see the
Consolidated Financial Statement of the Securities Insurer and Subsidiaries, and
the notes thereto, incorporated by reference herein. The Securities Insurer's
financial statements are included as exhibits to the Annual Reports on Form 10-K
and Quarterly Reports on Form 10-Q filed with the Securities and Exchange
Commission and at the Holdings web site, http://www.fsa.com. Copies of the
statutory quarterly and annual statements filed with the State of New York
Insurance Department by the Securities Insurer are available upon request to the
State of New York Insurance Department.
The consolidated financial statements of the Securities Insurer are
included in, or as exhibits to, the following documents, which have been filed
with the Securities and Exchange Commission by Holdings and which are hereby
incorporated by reference in this prospectus supplement:
(a) Annual Report on Form 10-K of Holdings for the year ended
__________, which Report includes as an exhibit the Securities Insurer's
audited consolidated financial statements for the year ended ___________;
and
(b) Quarterly Report on Form 10-Q for the period ended ____________,
which report includes as an exhibit the Securities Insurer's unaudited
financial statements for the nine month period ended ________________.
All financial statements of the Securities Insurer included in documents
filed by Holdings pursuant to Section 13(a) 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), subsequent to the date of
this prospectus supplement and prior to the termination of the offering of the
Notes shall be deemed to be incorporated by reference into this prospectus
supplement and to be a part hereof from the respective dates of filing such
documents.
The Depositor will provide without charge to any person to whom this
prospectus supplement is delivered, upon the oral or written request of such
person, a copy of any or all of the foregoing financial statements incorporated
herein by reference. Requests for such copies should be directed to the
Depositor at 1285 Avenue of the Americas, New York, New York 10019.
The Depositor hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the financial
statements of the Securities Insurer included in or as an exhibit to the annual
report of Holdings filed pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement (as
defined in the accompanying Prospectus) shall be deemed to be a new registration
statement relating to the Notes offered hereby, and the offering of such Notes
at that time shall be deemed to be the initial bona fide offering thereof.
The Securities Insurer is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, the Securities Insurer and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York, the
Securities Insurer is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each such insurer to financial
guaranty insurance and related lines, requires that each such insurer maintain a
minimum surplus to policy holders, establishes contingency, loss and unearned
premium reserve requirements for each such insurer, and limits the size of
individual transactions and the volume of transactions that may be underwritten
by each such insurer. Other provisions of the New York Insurance Law, applicable
to non-life insurance companies such as the Securities Insurer, regulate, among
other things, permitted investments, payment of dividends, transactions with
affiliates, mergers, consolidations, acquisitions or sales of assets and
incurrence of liability for borrowings.]
OVERCOLLATERALIZATION
A limited acceleration of the principal amortization of the Notes relative
to the principal amortization of the Loans has been designed to increase the
Overcollateralization Amount over time by making additional payments of
principal to the holders of the Notes from the payment of Excess Spread until
the Overcollateralization Amount is equal to the Overcollateralization Target
Amount.
If on any Payment Date there exists an Overcollateralization Deficiency
Amount, payments of Excess Spread, if any, will be made as an additional payment
of principal to the holders of the Notes as set forth under "Description of the
Notes--Priority of Payments" in this prospectus supplement. Such payments of
Excess Spread are intended to accelerate the amortization of the Note Principal
Balance relative to the amortization of the Loans, thereby increasing the
Overcollateralization Amount. The relative percentage of the Note Principal
Balance to the Pool Principal Balance will decrease as a result of the
application of Excess Spread to reduce the Note Principal Balance.
On any Payment Date with respect to which the Overcollateralization
Deficiency Amount is equal to zero, all or a portion of the Excess Spread may be
distributed to the holders of the Residual Interest Certificates as described in
this prospectus supplement rather than being paid as principal to the holders of
the applicable Notes. This would have the effect of ceasing the acceleration of
principal amortization of such Notes in relation to the principal amortization
of the Pool until such time as the Overcollateralization Deficiency Amount is
greater than zero (i.e., due to a reduction in the Overcollateralization Amount
as a result of Realized Losses or delinquencies or due to an increase in the
Overcollateralization Target Amount as a result of the failure to satisfy
certain delinquency or loss criteria).
On any Payment Date occurring on or after a Stepdown Date or the date on
which the Securities Insurer has reduced the Overcollateralization Target
Amount, the holders of the Residual Interest Certificates may receive payments,
to the extent of the Overcollateralization Reduction Amount, attributable to all
or a portion of the Regular Principal Payment Amount that would otherwise be
paid to the holders of the Notes.
The Overcollateralization Target Amount may decrease or "stepdown" (1) as a
result of the performance of the Loans with respect to the principal
amortization of the Loans declining to certain levels and the delinquency and
default experience of the Loans staying lower than certain levels established by
the Securities Insurer, and (2) if following an increase in the rates of
delinquencies and defaults on the Loans, such rates improve in relation to the
levels established by the Securities Insurer. Pursuant to the Sale and Master
Servicing Agreement, the Securities Insurer may modify, without the requirement
of an amendment to the Sale and Master Servicing Agreement, the manner in which
the Overcollateralization Target Amount is determined such that the
Overcollateralization Target Amount is decreased at any time in the discretion
of the Securities Insurer, but not below the amounts set forth below.
While the application of Excess Spread in the manner specified above has
been designed to produce and maintain a given level of overcollateralization,
there can be no assurance that Excess Spread will be generated in sufficient
amounts to ensure that such overcollateralization level will be achieved or
maintained at all times. In particular, a high rate of delinquencies on the
Loans during any Due Period could cause the amount of interest received on the
Loans during such Due Period to be less than the amount of interest payable on
the Notes on the related Payment Date. In such a case, the Note Principal
Balance could decrease at a slower rate relative to the Pool Principal Balance,
resulting in a possible reduction of the Overcollateralization Amount. In
addition, Realized Losses from Liquidated Loans and Defaulted Loans will reduce
the Pool Principal Balance, which in turn will reduce the Overcollateralization
Amount. See "Risk Factors--Adequacy of Credit Enhancement" in this prospectus
supplement.
RELATED DEFINITIONS. For purposes of this prospectus supplement, the
following terms shall have the following meanings:
"OVERCOLLATERALIZATION TARGET AMOUNT": With respect to any Payment Date, an
amount determined as follows:
(1) with respect to any Payment Date occurring prior to the Stepdown
Date, the amount equal to ________of the Cut-Off Date Pool Principal
Balance;
(2) with respect to any other Payment Date occurring on or after the
Stepdown Date, an amount equal to the greatest of (a) an amount that may
stepdown over a period generally equal to six months to not less than ____%
of the Pool Principal Balance as of the end of the related Due Period based
on the formula set forth in the Transfer and Servicing Agreements, (b)
_____ of the Cut-Off Date Pool Principal Balance and (c) an amount equal to
the aggregate Principal Balance of the three largest Loans then
outstanding; and
(3) with respect to any Payment Date occurring on or after an OC
Trigger Increase Event, notwithstanding any of the preceding clauses (1)
through (2), an amount equal to 100% of the Cut-Off Date Pool Principal
Balance; provided, however, that with respect to any Payment Date occurring
on or after an OC Trigger Reversal Event, an amount determined pursuant to
clause (1) or (2) above, as applicable;
provided, however, with respect to any Payment Date, notwithstanding the
preceding clauses (1) through (3), the Overcollateralization Target Amount
shall not exceed the Note Principal Balance. The Overcollateralization
Target Amount will be subject to certain stepups and stepdowns based on
certain delinquency and loss tests and excess spread requirements with
respect to the Loans. The Securities Insurer may reduce the
Overcollateralization Target Amount, at any time to, but not below, (1)
with respect to any Payment Date occurring prior to the Stepdown Date,
_____% of the Cut-Off Date Pool Principal Balance or (2) with respect to
any Payment Date occurring on or after the Stepdown Date, an amount equal
to the greater of (a) _____% of the Pool Principal Balance as of the end of
the related Due Period, (b) _____% of the Cut-Off Date Pool Principal
Balance or (c) an amount equal to the aggregate Principal Balance of the
three largest Loans then outstanding.
"OC TRIGGER INCREASE EVENT" and "OC TRIGGER REVERSAL EVENT" are defined in
the Transfer and Servicing Agreements and are based on excess spread
requirements and delinquency and loss levels established by the Securities
Insurer. The Securities Insurer may change these delinquency and loss
levels at any time._
SUBORDINATION
Payments of interest will be made first to the Notes. The rights of the
holders of the Residual Interest Certificate to receive any payments on any
Payment Date will be subordinated to the rights of the holders of the Notes.
This subordination of the Residual Interest Certificates is intended to enhance
the likelihood of the regular receipt of interest and principal due to the
holders of the Notes and to afford such holders protection against losses on the
Loans. See "Risk Factors--Adequacy of Credit Enhancement" in this prospectus
supplement.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Indenture, Sale and
Master Servicing Agreement, the Servicing Agreement, the Administration
Agreement and the Owner Trust Agreement (collectively, the "TRANSFER AND
SERVICING AGREEMENTS"). Copies of the Transfer and Servicing Agreements will be
filed with the Commission following the issuance of the Notes. The summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Transfer
and Servicing Agreements set forth under the heading "Description of the
Securities" in the accompanying prospectus, to which description reference is
hereby made.
SALE AND ASSIGNMENT OF THE LOANS
On the Closing Date, all of the Transferor's right, title and interest in
and to the Loans will be sold, conveyed, transferred and assigned from the
Transferor to the Depositor and then from the Depositor to the Issuer. The
Issuer, concurrently with the sale, conveyance, transfer and assignment of the
Loans, will cause the Notes and the Residual Interest Certificates to be
delivered to the Depositor in exchange for the Loans. The Issuer will pledge and
assign the Loans to the Indenture Trustee in exchange for the Notes.
In addition, the Transferor will, as to each Loan, deliver or cause to be
delivered, to the Custodian, the related note endorsed in blank or to the order
of the Indenture Trustee without recourse, any assumption and modification
agreements and the mortgage, deed of trust, or other similar security
instruments (the "MORTGAGE"), with evidence of recording indicated thereon
(except for any Mortgage not returned from the public recording office), an
assignment of the Mortgage, if any, in the name of the Indenture Trustee in
recordable form, a title insurance policy and any intervening assignments of the
Mortgage (collectively, as to each Loan, the "INDENTURE TRUSTEE'S LOAN FILE").
Subject to the confirmation by the Rating Agencies and to the approval of the
Securities Insurer, with respect to the Loans secured by Mortgaged Properties
located in certain states, the Transferor will not be required to record
assignments of the Mortgages to the Indenture Trustee in the real property
records of such states. In such circumstances, the Transferor will deliver to
the Custodian the assignments of the Mortgages in the name of the Indenture
Trustee and in recordable form, and the Transferor, in its capacity as the
Master Servicer, will retain the record title to such Mortgages under the
applicable real property records, on behalf of the Issuer, the Indenture Trustee
and the Security Owners. In all other circumstances, pursuant to the direction
of the Rating Agencies or the Securities Insurer, assignments of the Mortgages
to the Indenture Trustee will be recorded in the real property records for those
states in which such recording is deemed necessary to protect the Indenture
Trustee's interest in the Loans against the claims of certain creditors of the
Transferor or subsequent purchasers. In these circumstances, the Transferor will
deliver to the Custodian after recordation the assignments of the Mortgages in
the name of the Indenture Trustee. The Custodian will agree, for the benefit of
the holders of the Notes, to review (or cause to be reviewed) each Indenture
Trustee's Loan File delivered to it within __ days after the pledge of the
related Loan to the Indenture Trustee to ascertain that all required documents
have been executed and received. Subject to certain cure provisions set forth in
the Transfer and Servicing Agreements, the Transferor will be required to
repurchase or replace Loans as to which a material document deficiency exists.
Although the recordation of the assignments of the Mortgages in favor of
the Indenture Trustee is not necessary to effect a pledge of the Loans to the
Indenture Trustee, if the Transferor or the Depositor were to sell, assign,
satisfy or discharge any Loan prior to recording the related assignment in favor
of the Indenture Trustee, the other parties to such sale, assignment,
satisfaction or discharge may have rights superior to those of the Indenture
Trustee. In some states, in the absence of such recordation of the assignments
of the Mortgages, the transfer to the Indenture Trustee of the Loans may not be
effective against certain creditors or purchasers from the Transferor or a
trustee in bankruptcy of the Transferor. If such other parties, creditors or
purchasers have rights to the Loans that are superior to those of the Indenture
Trustee, the holders of the Notes could lose the right to future payments of
principal and interest from such Loans and could suffer a loss of principal and
interest to the extent that such loss is not otherwise covered by the applicable
credit enhancement. See "Risk Factors--Adequacy of Credit Enhancement" in this
prospectus supplement.
REPRESENTATIONS AND WARRANTIES
In the Sale and Master Servicing Agreement, the Transferor will represent
and warrant to the Issuer and Indenture Trustee, among other things, that: (i)
the information with respect to each Loan set forth in the schedule appearing as
an exhibit to the Sale and Master Servicing Agreement delivered to the Issuer
(the "LOAN SCHEDULE" is true and correct in all material respects; (ii) upon the
sale to the Depositor of each Loan, the Depositor will have good and
indefeasible legal title to each Loan, the related note and any related
mortgage, free of all liens, pledges, charges, mortgages, encumbrances or rights
of others; (iii) as of the Cut-Off Date, no more than approximately ____% of the
Loans were 30 days or more past due; no more than approximately _____% of the
Loans were 60 or more days past due; and ____of the Loans were more than 89 days
past due; and (iv) at origination, each Loan complied in all material respects
with applicable state and federal laws.
REPURCHASE OF LOANS
The Transferor will have a limited option after the Closing Date to
repurchase any Loan incident to foreclosure (a "DEFAULTED LOAN"). Each purchase
of a Defaulted Loan will be conducted in the same manner as a repurchase of a
Defective Loan as described below. The Transferor will also be obligated either
to repurchase any Defective Loan or to remove such Defective Loan and substitute
a Qualified Substitute Loan. The repurchase of any Loan (rather than the
replacement of the Loan through substitution) will result in accelerated
principal payments on the Notes.
Unless waived by the Securities Insurer, the Transferor is required (a)
within 60 days after discovery or notice thereof to cure in all material
respects any breach of the representations or warranties which materially and
adversely affects the value of a Loan or the interests of the Owner Trustee, the
Securities Insurer or the Indenture Trustee or as to which a material document
deficiency exists (each, a "DEFECTIVE LOAN") or (b) on or before the
Determination Date next succeeding the end of such 60 day period, to repurchase
such Defective Loan at a price (the "PURCHASE PRICE") equal to the Principal
Balance of such Defective Loan as of the date of repurchase, plus all accrued
and unpaid interest on such Defective Loan from the Closing Date to but not
including the date of repurchase computed at the Loan Rate, plus the amount of
any unreimbursed Servicing Advances and Monthly Advances made by the Servicer
and Master Servicer, respectively, with respect to such Defective Loan. In lieu
of repurchasing a Defective Loan, the Transferor may replace such Defective Loan
with one or more Qualified Substitute Loans within two years of the Closing
Date. If the aggregate outstanding principal balance plus all accrued and unpaid
interest of the Qualified Substitute Loan(s) is less than the outstanding
Principal Balance of the Defective Loan(s) plus all accrued and unpaid interest,
the Transferor will also remit for payment to the holders of the Notes an amount
(a "SUBSTITUTION ADJUSTMENT") equal to such shortfall which will result in a
prepayment of principal on the Notes for the amount of such shortfall. As used
in this prospectus supplement, a "QUALIFIED SUBSTITUTE LOAN" means a loan that
(1) has an interest rate which differs from the Loan Rate for the Defective Loan
which it replaces (each a "DELETED LOAN") by no more than two percentage points
in excess of such Loan Rate and no lower than the interest rate of the Deleted
Loan, and pays interest in the same manner as the Deleted Loan (i.e., fixed-rate
or adjustable-rate), (2) matures not more than one year later than, and not more
than one year earlier than, the maturity date of the Deleted Loan, and in any
case not later than ___________, (3) has a principal balance (after application
of all payments received on or before the date of such substitution) equal to or
less than the principal balance of the Deleted Loan as of such date, (4) has a
lien priority no lower than the Deleted Loan, (5) complies as of the date of
substitution with each representation and warranty set forth in the Sale and
Master Servicing Agreement with respect to the Loans and is not more than 89
days delinquent as of the date of substitution for such Deleted Loan, (6) has a
borrower with a debt-to-income ratio no higher than the debt-to-income ratio of
the borrower with respect to the Deleted Loan, and (7) is otherwise acceptable
to the Securities Insurer provided that with respect to a substitution of
multiple loans, items (1), (2) and (3) above may be considered on an aggregate
or weighted average basis.__
At any particular time, the Transferor may not be capable, financially or
otherwise, of repurchasing Defective Loans or substituting Qualified Substitute
Loans for Defective Loans in the manner described above. Events relating to the
Transferor and its operations may occur that would adversely affect the ability
of the Transferor to repurchase or replace Defective Loans, or the sale or other
disposition of all or any significant portion of its assets. If the Transferor
is unable to repurchase or replace a Defective Loan, the Servicer will utilize
other accepted servicing procedures to realize any reasonable recovery of net
proceeds from such Defective Loan.
FEES AND EXPENSES
The fees and expenses for the Series ______ (the "ISSUER FEES AND
EXPENSES") consist of the following:
(a) as compensation for its services pursuant to the Sale and Master
Servicing Agreement and the Servicing Agreement, (1) the Servicer is
entitled to the Servicing Compensation and reimbursement as described under
"--Servicing" below, and (2) the Master Servicer is entitled to the Master
Servicer Compensation as described under the "Master Servicer" in this
prospectus supplement;
(b) as compensation for its services pursuant to the applicable
Transfer and Servicing Agreements, the Indenture Trustee is entitled to a
monthly fee in an amount equal to one twelfth of the product of ______% and
the Principal Balance of the Loans as of the first day of the immediately
preceding Due Period (or as of the Cut-Off Date, with respect to the first
Due Period) (the "INDENTURE TRUSTEE FEE") and reimbursement of expenses;
(c) [as compensation for issuing the Guaranty Policy, the Security
Insurer is entitled to a premium (the "GUARANTY INSURANCE PREMIUM") to be
determined based on the outstanding Note Principal Balance.]
SERVICING
In consideration for the performance of the daily loan servicing functions
for the Loans, the Servicer is entitled to receive a monthly servicing fee (the
"SERVICING FEE") as to each Loan in the amount equal to one-twelfth of the
product of _____% (the "SERVICING FEE RATE") and the Principal Balance of such
Loan as of the first day of the immediately preceding Due Period (or as of the
Cut-Off Date, with respect to the first Due Period). See "--Servicer
Determinations and Events of Defaults" below. The Servicer may subcontract its
servicing obligations pursuant to a subservicing agreement (each such servicer,
in this capacity, a "subservicer"; provided, however, the Servicer will not be
relieved of its servicing obligations and duties with respect to any subserviced
Loans. The Servicer will pay the fees of any Subservicer out of the amounts it
receives as the Servicing Fee. In addition to the Servicing Fee, the Servicer is
entitled to retain additional servicing compensation in the form of assumption,
modification and other administrative fees, insufficient funds charges, and
certain other servicing-related penalties and fees (such additional compensation
and the Servicing Fee, collectively, the "SERVICING COMPENSATION").
In the event of a delinquency or default with respect to a Loan, the
Servicer will have no obligation to advance scheduled monthly payments of
principal or interest with respect to such Loan. However, the Master Servicer
will advance Monthly Advances. The Servicer will make reasonable and customary
expense advances with respect to the Loans (each, a "SERVICING ADVANCE") in
accordance with accepted servicing procedures. For example, such Servicing
Advances with respect to a Loan may include costs and expenses advanced for the
preservation, restoration and protection of the related Mortgaged Property,
including advances to pay delinquent real estate taxes and assessments, or for
any collection, enforcement or judicial proceedings. The Servicer need not make
such advance if it determines there is no reasonable likelihood of (i)
recovering such Servicing Advance, together with any prior or expected future
Servicing Advances for such Loan, and (ii) recovering an economically
significant amount from the interest and principal owing on such Loan in excess
of the costs and expenses to obtain such recovery. The Servicer will be entitled
to receive reimbursement for such Servicing Advances from the related borrower
or any proceeds realized from the liquidation of the related Loan or Mortgaged
Property. Any Servicing Advances previously made and determined by the Servicer
in accordance with accepted servicing procedures to be nonrecoverable will be
reimbursable from amounts in the Note Payment Account after payments are made to
the holders of the Notes.
COLLECTION ACCOUNT, NOTE PAYMENT ACCOUNT AND CERTIFICATE DISTRIBUTION ACCOUNT
The Servicer is required to use its best efforts to deposit in an Eligible
Account (as defined in the Sale and Master Servicing Agreement) (the "COLLECTION
ACCOUNT"), within one Business Day after receipt, all payments on the related
Loans received after the Cut-Off Date on account of principal and interest, all
Net Liquidation Proceeds, Insurance Proceeds, Released Mortgaged Property
Proceeds, any amounts payable in connection with the repurchase or substitution
of any Loan, interest and gains on funds held in the Collection Account and any
amount required to be deposited in the Collection Account in connection with the
termination of the Notes. The foregoing requirements for deposit in the
Collection Account will be exclusive of payments on account of principal and
interest collected on the Loans on or before the Cut-Off Date. Withdrawals will
be made from the Collection Account only for the purposes specified in the Sale
and Master Servicing Agreement. The Collection Account may be maintained at any
depository institution, which satisfies the requirements set forth in the
definition of Eligible Account in the Sale and Master Servicing Agreement.
The Indenture Trustee will establish and maintain an account, in the name
of the Indenture Trustee on behalf of the holders of the Notes, into which
amounts released from the Collection Account in respect of distributions on the
Loans [and any proceeds from the Guaranty Policy] for payment to the holders of
Notes will be deposited and from which all payments to the holders of the Notes
will be made (the "NOTE PAYMENT ACCOUNT"). The Indenture Trustee will also
establish and maintain an account in the name of the Owner Trustee on behalf of
the holders of the Residual Interest Certificates, into which amounts released
from the Collection Account or Note Payment Account for distribution to the
Residual Interest Certificates will be deposited and from which all
distributions to the Residual Interest Certificates will be made (the
"CERTIFICATE DISTRIBUTION ACCOUNT" and, together with the Note Payment Account,
the "PAYMENT ACCOUNTS").
On the_____ Business Day before each Payment Date, the Servicer will remit
to the Indenture Trustee for deposit into the Note Payment Account the
applicable portions of the Available Collection Amount by making the appropriate
withdrawals from the Collection Account in respect of payments on the Loans. On
each Payment Date, the Indenture Trustee will make withdrawals from the Note
Payment Account for application of the amounts specified under "Description of
the Notes--Payments on the Notes" in this prospectus supplement and for deposit
to the Certificate Distribution Account.
INCOME FROM ACCOUNTS
So long as no Event of Default will have occurred and is continuing,
amounts on deposit in the Payment Accounts and the Collection Account
(collectively, the "ACCOUNTS") will be invested by the Indenture Trustee, as
directed by the Master Servicer in the case of the Collection Account and the
Note Payment Account, in one or more investments permitted under the Sale and
Master Servicing Agreement bearing interest or sold at a discount. No such
investment in any Account will mature later than the Business Day immediately
preceding the next Payment Date. All income or other gain from investments in
the Collection Account and the Note Payment Account will be paid to the Master
Servicer as part of the Master Servicer Compensation. The Master Servicer will
be obligated to reimburse the Collection Account and the Note Payment Account
for any realized investment losses that are incurred in respect of investments
of amounts therein.
COLLECTION AND OTHER SERVICING PROCEDURES FOR LOANS
The Servicer has agreed to manage, service, administer and make collections
on the Loans and perform the other actions required by the Servicer under the
Servicing Agreement. In performing such obligations, the Servicer is required to
act in good faith in a commercially reasonable manner and in accordance with the
terms of the Servicing Agreement. The Servicer has full power and authority,
subject only to the specific requirements and prohibitions of the Servicing
Agreement and the respective Loans, to do any and all things in connection with
such servicing and administration which are consistent with its accepted
servicing procedures. Under the Servicing Agreement, the Servicer's "ACCEPTED
SERVICING PROCEDURES" shall mean those servicing procedures that (1) meet at
least the same standards the Servicer would follow in exercising reasonable care
in servicing mortgage and consumer loans such as the Loans held for its own
account, (2) comply with applicable state and federal law, (3) comply with the
provisions of the related notes and Mortgages, and (4) give due consideration to
the accepted standards of practice of prudent consumer loan servicers that
service comparable loans and the reliance placed by the holders of the Notes,
the holders of the Residual Interest Certificates and the Securities Insurer on
the Servicer for the servicing of the Loans.
If any payment due under any Loan is not paid when the same becomes due and
payable, or if the related borrower fails to perform any other covenant or
obligation under the Loan and such failure continues beyond any applicable grace
period, the Servicer, in accordance with the accepted servicing procedures, must
take such action as it shall deem to be in the best interest of the Security
Owners. In determining whether to undertake certain servicing actions with
respect to one or more delinquent or defaulted Loans, the Servicer is expected
to consider the reasonable likelihood of (A) recovering an economically
significant amount attributable to the unpaid principal and interest owing on
such Loan as a result of such actions, in excess of (B) the costs and expenses
to obtain such recovery (including without limitation any Servicing Advances,
and in relation to (C) the expected timing of such recovery therefrom.
INSURANCE
The Servicer is required to cause to be maintained any fire and hazard
insurance with respect to any Mortgaged Property acquired by the Owner Trustee
in foreclosure.
REALIZATION UPON DEFAULTED LOANS
Subject to certain limitations in the Sale and Master Servicing Agreement,
the Servicer may modify any provision of any Loan if, in the Servicer's good
faith judgment, such modification would minimize the loss that might otherwise
be experienced with respect to such Loan, only in the event of a payment default
with respect to such Loan or if a payment default with respect to such Loan is
reasonably foreseeable by the Servicer. For example, the Servicer must obtain
the prior consent of the Securities Insurer to effect modifications,
substitutions of collateral, or dispositions of Loans through short sales or
short pay-offs, if the aggregate of the principal balances of such modified
Loans exceeds ____% of the Cut-Off Date Principal Balance of the Loans.
With respect to any Loan in default and subject to the prior written
consent of the Securities Insurer and the Master Servicer, the Servicer may,
among other things, accept short pay-offs or short sales, enter into assumptions
and modifications, refer to a collection agency or attorney, pursue collection
litigation or alternative court proceedings to foreclosure actions, sell such
Loan to another person, institute foreclosure proceedings, exercise any power of
sale to the extent permitted by law, obtain a deed in lieu of foreclosure, or
otherwise acquire possession of or title to any Mortgaged Property, by operation
of law or otherwise. The Servicer will be acting in the best interests of the
holders of the Notes, when the Servicer, in accordance with the accepted
servicing procedures, undertakes actions to collect a defaulted Loan that have a
higher likelihood of a reasonable recovery within a shorter time period, and
foregoes taking actions that have a lower likelihood of a larger recovery over a
longer time period. See "Risk Factors--Realization Upon Defaulted Loans" in this
prospectus supplement. Subject to the prior consent of the Securities Insurer,
the Servicer may, in a manner consistent with the accepted servicing procedures,
permit a borrower who is selling his principal residence and relocating to
another location, to substitute as collateral for the related Loan the
borrower's new single family residence in place of the Mortgaged Property being
sold or any other real or personal property of the borrower, which may include
an interim substitution of personal property pending the borrower's acquisition
of a new residence. Under certain circumstances, if such borrower has received
net proceeds from the sale of the prior residence that will not be applied to
the purchase of the new residence, then the Servicer, in its discretion, may
require that such borrower either (i) make a partial prepayment in reduction of
the principal balance of the Loan, or (ii) place such funds into a depository
account or certificate of deposit as collateral for the related Loan. If a
borrower is selling its Mortgaged Property in a distressed situation or a
situation involving compensating factors, then the Servicer, in a manner
consistent with the accepted servicing procedures, may (i) accept a partial
payment for the release of the lien on the Mortgaged Property, which will leave
the related Loan unsecured (i.e., a short sale), or (ii) accept a settlement
involving a partial payment for the release of the lien on the Mortgaged
Property and the cancellation of the Loan, which will result in a net loan loss
from any unpaid principal shortfall (i.e., a short payoff).
In connection with any such foreclosure proceeding, power of sale, deed in
lieu of foreclosure or other acquisition of a Mortgaged Property and any sale or
liquidation of the Loan or related Mortgaged Property, the Servicer shall comply
with the requirements of the Sale and Master Servicing Agreement, including the
requirement that the Servicer follow the accepted servicing procedures for
foreclosure and operation of foreclosed property.
EVIDENCE AS TO COMPLIANCE
The Servicing Agreement provides that the Servicer shall deliver to the
Master Servicer, and the Sale and Master Servicing Agreement provides that the
Master Servicer shall provide to the Indenture Trustee, the Issuer, the
Depositor, the Securities Insurer and the Rating Agencies an annual statement
signed by an officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Servicing Agreement throughout the preceding year, except
as specified in such statement.
Each year (within 90 days following the end of the Servicer's fiscal year),
beginning in _____, the Servicer will furnish to the Master Servicer, and the
Master Servicer shall provide to the Indenture Trustee, the Issuer, the Rating
Agencies, the Securities Insurer and the Depositor a report prepared by a firm
of nationally recognized independent public accountants (which may also render
other services to the Servicer) to the effect that such firm has examined
certain documents and the records relating to servicing of the Loans as
specified in the Sale and Master Servicing Agreement and the Servicing Agreement
and such firm's conclusion that the Servicer is in compliance with respect
thereto.
The Servicer's fiscal year begins on _____- and ends on ______.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Sale and Master Servicing Agreement provides that the Master Servicer
may not resign from its obligations and duties thereunder except (i) with the
consent of the Owner Trustee, the Securities Insurer and Indenture Trustee or
(ii) upon determination that the performance of its duties under the Sale and
Master Servicing Agreement are no longer permissible under applicable law. Any
such determination permitting the resignation of the Master Servicer pursuant to
clause (ii) of the immediately preceding sentence shall be evidenced by an
opinion of counsel to such effect delivered and acceptable to the Owner Trustee,
the Securities Insurer and the Indenture Trustee. No resignation of the Master
Servicer shall become effective until a successor master servicer acceptable to
the Securities Insurer, the Rating Agencies and the Indenture Trustee shall have
assumed the Master Servicer's responsibilities and obligations.
The Master Servicer has agreed not to merge or consolidate with any other
company or permit any other company to become the successor to the Master
Servicer's business unless, after the merger or consolidation, the successor or
surviving entity shall be an Eligible Servicer (as defined in the Sale and
Master Servicing Agreement) acceptable to the Securities Insurer, and shall be
capable of fulfilling the duties of the Master Servicer contained in the Sale
and Master Servicing Agreement. Any company into which the Master Servicer may
be merged or consolidated shall be the successor to the Master Servicer under
the Sale and Master Servicing Agreement without the execution or filing of any
paper or any further act.
The Sale and Master Servicing Agreement provides that neither the Master
Servicer nor any of its directors, officers, employees or agents shall have any
liability to the Issuer or to the Security Owners for any action taken, or for
refraining from taking any action, in good faith pursuant to the Sale and Master
Servicing Agreement or for errors in judgment, unless liability would otherwise
be imposed by reason of willful misfeasance, bad faith, negligence or reckless
disregard in performing the Master Servicer's duties or failure to perform its
duties.
MASTER SERVICER EVENTS OF DEFAULT
"MASTER SERVICER EVENTS OF DEFAULT" will consist of, among other things:
(i) (1) any failure of the Servicer to deposit in the Collection Account any
amount required to be deposited under the Servicing Agreement or the Sale and
Master Servicing Agreement, which failure continues unremedied for two Business
Days, (2) any failure of the Servicer to pay when due any amount required under
the Servicing Agreement or the Sale and Master Servicing Agreement and such
failure results in a draw under the Guaranty Policy and (3) the occurrence and
continuance of a Servicer Event of Default that continues unremedied for 30 days
after certain notices have been given; (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 Sale and Master Servicing Agreement or Servicing Agreement,
which failure continues unremedied for 30 days after notice; (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings relating to the Master Servicer and certain
actions by the Master Servicer indicating insolvency, reorganization or
inability to pay its obligations (an "INSOLVENCY EVENT" or the Master Servicer
shall dissolve or liquidate, in whole or in part, in any material respect; or
(iv) events established by the Securities Insurer, such as (1) the occurrence of
certain events which have a material adverse effect on the Master Servicer's
business, financial condition, operations or prospects; (2) a default by the
Master Servicer or any of its affiliates on a material obligation; (3) the
Master Servicer is no longer able to discharge its duties under the Sale and
Master Servicing Agreement; (4) the Master Servicer has ceased to conduct its
business in the ordinary course; and (5) certain other events of default
established by the Securities Insurer as further described in the Sale and
Master Servicing Agreement. Certain events of default may be eliminated with the
consent of the Securities Insurer.
If a Master Servicer Event of Default shall occur and be continuing, the
Securities Insurer, or the Indenture Trustee with the prior written consent of
the Securities Insurer, or the holders of Notes representing more than 50% of
the aggregate voting interests of the Note with prior written consent of the
Securities Insurer, by notice given in writing to the Master Servicer (and to
the Indenture Trustee, if given by such holders of Notes) may terminate all of
the rights and obligations of the Master Servicer under the Sale and Master
Servicing Agreement, in which event another entity acceptable to the Securities
Insurer will become the successor Master Servicer. Upon the termination of the
Master Servicer, the Indenture Trustee is obligated to fulfill the duties of
master servicer until a successor is appointed. On or after the receipt by the
Master Servicer of such written notice, and the appointment of and acceptance of
appointment by a successor Master Servicer, all authority, power, obligations
and responsibilities of the Master Servicer under the Sale and Master Servicing
Agreement shall become obligations and responsibilities of the successor Master
Servicer.
Upon the termination of the Master Servicer, the Master Servicer shall at
its own expense execute and deliver the documents reasonably requested in order
to orderly transfer the master servicing of the Loans. Any successor Master
Servicer shall be entitled to such compensation as the Master Servicer would
have been entitled to under the Sale and Master Servicing Agreement if the
Master Servicer had not resigned or been terminated thereunder.
CERTAIN MATTERS REGARDING THE SERVICER
The Servicing Agreement provides that the Servicer shall not resign from
its obligations and duties thereunder except upon the determination that its
duties thereunder are no longer permissible under applicable law and that such
incapacity cannot be cured by the Servicer. Any determination permitting the
resignation of Servicer under the Servicing Agreement shall be evidenced by an
opinion of counsel, at the Servicer's expense, to the effect delivered to the
Master Servicer and the Securities Insurer in form and substance reasonably
acceptable to the Master Servicer and the Securities Insurer. The Servicer's
resignation shall not become effective until the Master Servicer or another
successor acceptable to the Securities Insurer has assumed the Servicer's
responsibilities and obligations under the Servicing Agreement.
The Servicer has agreed not to merge or consolidate with any other company
or permit any other company to become the successor to the Servicer's business
unless, after the merger or consolidation, the successor or surviving entity
shall meet the qualifications of the Servicer set forth in the Servicing
Agreement, shall be approved in advance by the Master Servicer and the
Securities Insurer in their sole discretion, and shall expressly assume the
obligations of the Servicer under the Servicing Agreement.
SERVICER DETERMINATIONS AND EVENTS OF DEFAULT
Under the Sale and Master Servicing Agreement and the Servicing Agreement,
the term of the Servicer shall be extendable for successive 90 day terms until
the Notes are paid in full, provided that prior to the expiration of each term
the Securities Insurer delivers written notice of renewal to the Servicer (each
such notice a "SERVICER EXTENSION Notice"). If a Servicer Extension Notice is
not delivered on or before the last day of the servicing term, the Servicer's
term will be terminated.
"SERVICER EVENT OF DEFAULT" will consist of, among other things: (i) a
failure by the Servicer to make any deposit or payment, or to remit any payment,
required to be made under the terms of the Servicing Agreement and the Sale and
Master Servicing Agreement which continues unremedied for a period of two
Business Days; (ii) any failure on the part of the Servicer to remit certain
reports and certificates required under the terms of the Servicing Agreement,
and such failure continues for two Business Days after the date on which either
the Securities Insurer or the Master Servicer shall have given the Servicer
written notice of such failure and demanding that such failure be cured; (iii)
any failure on the part of the Servicer duly to observe or perform in any
material respect certain covenants and agreements in the Servicing Agreement, or
any breach of certain representations or warranties, which continues uncured for
a period of 10 days after the date on which either the Securities Insurer or the
Master Servicer shall have given to the Servicer written notice of such failure
or breach and demanding that such default be cured; (iv) any involuntary
petition in bankruptcy or any other similar petition shall be filed against the
Servicer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future federal,
state or other statute, law, or regulation, and shall remain in force
undischarged or unstayed for 45 days, or if any custodian, trustee, receiver or
liquidator of all or any substantial part of the assets of the Servicer shall be
appointed or take possession of such assets without the consent or acquiescence
of the Servicer and such appointment remains unvacated for 45 days; (v) the
Servicer shall consent to the appointment of a trustee, conservator, or receiver
or liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities, or similar proceedings of, or relating to, the Servicer, or all or
substantially all of the Servicer's property; (vi) 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 take any corporate action in furtherance
of the foregoing; (vii) the Servicer assigns or attempts to assign its rights to
the Servicing Compensation hereunder or attempts to assign the Servicing
Agreement or the servicing responsibilities thereunder or in the Sale and Master
Servicing Agreement without the consent of the Master Servicer and the
Securities Insurer except as otherwise expressly permitted by the terms of the
Servicing Agreement; or (viii) the Servicer fails to remain qualified as a
mortgage servicer for FHLMC loans and/or the Servicer disposes of substantially
all of its assets.
In case of any Servicer Event of Default, the Securities Insurer (or in
certain instances, the Master Servicer) may provide the Servicer with written
notice of the termination of all of the Servicer's authority, powers, and rights
under the Servicing Agreement. On or after the receipt by the Servicer of such
written notice, all authority and power of the Servicer under the Servicing
Agreement and the Sale and Master Servicing Agreement shall terminate. The
Servicing Agreement provides that in such case either of the Securities Insurer
or the Master Servicer may execute and deliver on behalf of the Servicer, as the
Servicer's attorney-in-fact, all documents, and to do or accomplish all acts
that in the Securities Insurer's judgment may be necessary or appropriate to
effect termination (with or without cause). The Master Servicer is obligated to
perform the duties of servicer under the Servicing Agreement upon the
termination of the Servicer until a successor is appointed. The Servicer will
continue to provide services in accordance with the Servicing Agreement and the
Sale and Master Servicing Agreement until terminated, and shall in good faith
cooperate fully to transfer the servicing and the management of the Loans. The
Servicing Agreement requires that the Servicer cooperate with the Master
Servicer to effect the termination of its responsibilities, rights, and powers
thereunder, including providing to the Master Servicer all documents and records
reasonably requested to enable the Master Servicer or its designee to assume and
carry out the duties and obligations of the Servicer.
RIGHTS OF NOTEHOLDERS UPON OCCURRENCE OF EVENT OF DEFAULT
Under the Indenture, a failure to pay the full amount of the portion of the
Noteholders' Interest Payment Amount payable to the Notes within five days of
the Payment Date on which such payment is due or the full amount of principal
thereon on the related Maturity Date (without regard to the amount of the
Available Collection Amount) will constitute an Event of Default (an "EVENT OF
DEFAULT"), as will certain material breaches under the Insurance Agreement. See
also "Description of the Securities--Events of Default--Indenture" in the
accompanying prospectus for a description of certain other Events of Default.
Upon the occurrence of an Event of Default, the Securities Insurer or
holders of Notes representing more than 50% of the aggregate of the voting
interests of the Notes then outstanding, with the prior written consent of the
Securities Insurer, may exercise their remedies under the Indenture.
RESTRICTIONS ON NOTEHOLDERS' RIGHTS
So long as (i) there does not exist a continuing failure by the Securities
Insurer to make a required payment under the Guaranty Policy and (ii) certain
bankruptcy-related events specified in the Sale and Master Servicing Agreement
have not occurred with respect to the Securities Insurer (any of the events
described in (i) and (ii), a "SECURITIES INSURER DEFAULT"), the Securities
Insurer will have the right to exercise all rights, including voting rights,
which the Security Owners are entitled to exercise pursuant to the Indenture and
Owner Trust Agreement ("SECURITY OWNER RIGHTS"), without any consent of such
Security Owners; provided however, that without the consent of each holder of
the Notes affected thereby, the Securities Insurer shall not exercise such
Security Owner Rights to amend the indenture in any manner that would (i) reduce
the amount of, or delay the timing of, collections of payments on the Loans or
distributions which are required to be made on any Note, (ii) adversely affect
in any material respect the interests of the holders of the Notes or (iii) alter
the rights of any Security Owner to consent to any such amendment.
THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The Owner Trustee and the Indenture Trustee (together, the "TRUSTEES") and
any of their respective affiliates may hold Notes in their own names or as
pledgees.
For the purpose of meeting the legal requirements of certain jurisdictions,
the Servicer, the Owner Trustee and the Indenture Trustee acting jointly (or in
some instances, the Owner Trustee or the Indenture Trustee acting alone) will
have the power to appoint co-trustees or separate trustees of all or any part of
the Issuer. In the event of such an appointment, all rights, powers, duties and
obligations conferred or imposed upon the Owner Trustee by the Sale and Master
Servicing Agreement and the Owner Trust Agreement and upon the Indenture Trustee
by the Sale and Servicing Agreement and the Indenture will be conferred or
imposed jointly upon the Owner Trustee and the Indenture Trustee, respectively,
and in each such case such separate trustee or co-trustee, or, in any
jurisdiction in which the Owner Trustee or Indenture Trustee will be incompetent
or unqualified to perform certain acts, singly upon such separate trustee or
co-trustee which will exercise and perform such rights, powers, duties and
obligations solely at the direction of the Owner Trustee or the Indenture
Trustee, respectively.
The Owner Trustee may resign at any time, in which event the Administrator
will be obligated to appoint a successor thereto acceptable to the Securities
Insurer. The Administrator may remove the Owner Trustee if it ceases to be
eligible to continue as such under the Owner Trust Agreement, or becomes legally
unable to act or becomes insolvent. In such circumstances, the Administrator
will be obligated to appoint a successor Owner Trustee acceptable to the
Securities Insurer. Any resignation or removal of the Owner Trustee and
appointment of a successor thereto will not become effective until acceptance of
the appointment by such successor.
The Indenture Trustee may resign at any time, in which event the Master
Servicer will be obligated to appoint a successor thereto acceptable to the
Securities Insurer. The holders of a majority in outstanding amount of the Notes
with the prior written consent of the Securities Insurer, may remove the
Indenture Trustee and may appoint a successor thereto acceptable to the
Securities Insurer. The Master Servicer, with the prior written consent of the
Securities Insurer, will be obligated to remove the Indenture Trustee if the
Indenture Trustee ceases to be eligible to continue as such under the Indenture
or becomes legally unable to act or becomes insolvent. In such circumstances,
the Master Servicer will be obligated to appoint a successor acceptable to the
Securities Insurer. Any such resignation or removal and appointment of a
successor will not become effective until acceptance of the appointment by such
successor and approval by the Securities Insurer.
The Owner Trust Agreement and Indenture will provide that the applicable
Trustee will be entitled to indemnification by the Transferor, and will be held
harmless against, any loss, liability or expense incurred by them not resulting
from its own willful misfeasance, bad faith or negligence (other than by reason
of a breach of any of its representations or warranties to be set forth in the
Owner Trust Agreement or Indenture, as the case may be).
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The Owner Trustee will make no representations as to the validity or
sufficiency of the Owner Trust Agreement, the Securities (other than the
execution and authentication thereof) or of any Loans or related documents, and
will not be accountable for the use or application by the Depositor or the
Servicer of any funds paid to the Depositor or the Servicer in respect of the
Notes or the Loans, or the investment of any monies by the Servicer before such
monies are deposited into the Accounts. So long as no Event of Default will have
occurred and be continuing, the Owner Trustee will be required to perform only
those duties specifically required of it under the Owner Trust Agreement.
Generally, those duties will be limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the Owner
Trustee under the Owner Trust Agreement, in which case they will only be
required to examine such certificates, reports or other instruments to determine
whether they conform to the requirements of the Owner Trust Agreement. The Owner
Trustee will not be charged with knowledge of a failure by the Servicer to
perform its duties under the Owner Trust Agreement or the Sale and Master
Servicing Agreement which failure constitutes a Servicer Event of Default,
unless the Owner Trustee obtains such actual knowledge of such failure as
specified in the Owner Trust Agreement.
The Owner Trustee will be under no obligation to exercise any of the rights
or powers vested in it by the Owner Trust 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 Residual Interest Certificates, unless such holders have offered
to the Owner Trustee reasonable security or indemnity against the costs,
expenses and liabilities that may be incurred therein or thereby. Subject to the
rights or consent of the holders of Notes, the Securities Insurer and the
Indenture Trustee, no holder of a Residual Interest Certificate will have any
right under the Owner Trust Agreement to institute any proceeding with respect
to the Owner Trust Agreement, unless such holder previously has given to the
Owner Trustee written notice of the occurrence of a Servicer Event of Default
and the Servicer Event of Default arises from the Servicer's failure to remit
payments when due.
The Indenture Trustee will make no representations as to the validity or
sufficiency of the Indenture, the Notes (other than the authentication thereof)
or of any Loans or related documents, and will not be accountable for the use or
application by the Depositor or the Servicer of any funds paid to the Depositor
or the Servicer in respect of the Notes or the Loans, or the investment of any
monies by the Servicer before such monies are deposited into the Accounts. So
long as no Event of Default under the Indenture will have occurred and be
continuing, the Indenture Trustee will be required to perform only those duties
specifically required of it under the Indenture. Generally, those duties will be
limited to the receipt of the various certificates, reports or other instruments
required to be furnished to the Indenture Trustee under the Indenture, in which
case it will only be required to examine them to determine whether they conform
to the requirements of the Indenture and to the making of monthly distributions
to the Security Owners and the filing of claims under the Guaranty Policy. The
Indenture Trustee will not be charged with knowledge of a failure by the
Servicer or the Master Servicer to perform its duties under the Transfer and
Sale Agreements which failure constitutes an Event of Default under the
Indenture, unless the Indenture Trustee obtains such actual knowledge of such
failure as specified in the Indenture.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Indenture 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 Notes, unless such holders have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. No holder of Notes will have any right
under the Indenture to institute any proceeding with respect to the Indenture,
unless such holder has obtained the prior written consent of the Securities
Insurer and such holder will previously have given to the Indenture Trustee
written notice of the occurrence of an Event of Default and (i) the Event of
Default arises from the Servicer's failure to remit payments when due or (ii)
holders of Notes representing more than 25% of the aggregate voting interests of
the Notes then outstanding have made written request upon the Indenture Trustee
to institute such proceeding in its own name as the Indenture Trustee thereunder
and have offered to the Indenture Trustee reasonable indemnity and the Indenture
Trustee has for 30 days neglected or refused to institute any such proceedings.
REPORTS TO NOTEHOLDERS
On each Payment Date, the Indenture Trustee is required to distribute,
based on information provided by the Servicer, a monthly statement (the
"DISTRIBUTION STATEMENT") to the Depositor, the holders of Notes[, the
Securities Insurer,] and the Rating Agencies, stating the date of original
issuance of the Notes and such other information, including the following:
(1) the Available Collection Amount and Available Payment Amount, the
Regular Payment Amount, the Insured Payment and the Excess Spread for the
related Payment Date;
(2) the Note Principal Balance, as applicable, of the Notes before and
after giving effect to payments made to the holders of such Notes on such
Payment Date, and the Pool Principal Balance as of the first and last day
of the related Due Period;
(3) the Note Factor with respect to the Notes then outstanding ("NOTE
FACTOR") means with respect to the Notes and any date of determination, the
then applicable Note Principal Balance divided by the Original Note
Principal Balance thereof;
(4) the amount of principal, if any, and interest to be paid to the
Notes on the related Payment Date;
(5) as of such Payment Date, the Overcollateralization Amount, the
Overcollateralization Target Amount and any Overcollateralization
Deficiency Amount, or any Overcollateralization Reduction Amount,] and any
such amount to be paid to the holders of the Notes or paid to the holders
of the Residual Interest Certificates on such Payment Date;
(6) the Servicing Compensation, the Master Servicer Compensation and
the Indenture Trustee Fee, if any, for such Payment Date and the Guaranty
Insurance Premium;
(7) the Overcollateralization Amount on such Payment Date and the
Overcollateralization Target Amount as of such Payment Date;]
(8) the weighted average maturity of the Loans and the weighted
average Loan Rate of the Loans;
(9) certain performance information with respect to the related Due
Period, including, without limitation, delinquency and foreclosure
information with respect to the Loans;
(10) the number of and aggregate Principal Balance of all Loans in
foreclosure proceedings and the percent of the aggregate Principal Balances
of such Loans to the aggregate Principal Balances of all Loans, all as of
the close of business on the last day of the related Due Period;
(11) the number of and the aggregate Principal Balance of the Loans in
bankruptcy proceedings and the percent of the aggregate Principal Balances
of such Loans to the aggregate Principal Balances of all Loans, all as of
the close of business on the last day of the related Due Period;
(12) the number of foreclosure properties, the aggregate Principal
Balance of the related Loans, the book value of such foreclosure properties
and the percent of the aggregate Principal Balances of such Loans to the
aggregate Principal Balances of all Loans, all as of the close of business
on the last day of the related Due Period;
(13) during the related Due Period (and cumulatively, from the Closing
Date through the most current Due Period), the number and aggregate
Principal Balance of Loans for each of the following: (a) that became
defaulted Loans, (b) that became Liquidated Loans, (c) that became Deleted
Loans as a result of such Deleted Loans being Defective Loans, and (d) that
became Deleted Loans as a result of such Deleted Loans being a Loan in
default or imminent default;
(14) the scheduled principal payments and the principal prepayments
received with respect to the Loans during the Due Period; and
(15) the number and aggregate Principal Balance of Loans that were 30,
60 or 90 days delinquent as of the close of business on the last day of the
related Due Period.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain United States federal income tax
considerations relevant to the beneficial owner of a Note that holds the Note as
a capital asset and, unless otherwise indicated below, is a United States person
(as defined in the accompanying prospectus). This summary does not address
special tax rules that may apply to certain types of investors (such as banks,
insurance companies and securities dealers), and investors that hold Notes as
part of an integrated investment. This summary supplements the discussion
contained in the accompanying prospectus under the heading "Certain Federal
Income Tax Consequences," and supersedes that discussion to the extent that it
is inconsistent therewith. The authorities on which this discussion is based are
subject to change or differing interpretations, and any such change or
interpretation could apply retroactively. This discussion reflects the
applicable provisions of the Code, as well as regulations promulgated by the
U.S. Department of the Treasury. Investors should consult their own tax advisors
in determining the federal, state, local and any other tax consequences to them
of the purchase, ownership and disposition of the Notes.
CLASSIFICATION OF INVESTMENT ARRANGEMENT
In the opinion of Cadwalader, Wickersham & Taft, special counsel to the
Depositor, the Issuer will not be treated as an association or a publicly traded
partnership taxable as a corporation or a taxable mortgage pool for federal
income tax purposes, but rather the Issuer will be ignored and treated as a mere
security device when there is a single beneficial owner of the Issuer, or will
be treated as a domestic partnership when there are two or more beneficial
owners of the Issuer.
TAXATION OF HOLDERS
Characterization of the Notes. There are no regulations, published rulings
or judicial decisions addressing the characterization for federal income tax
purposes of securities with terms that are substantially the same as those of
the Notes. A basic premise of United States federal income tax law is that the
economic substance of a transaction generally will determine the United States
federal income tax consequences of such transaction. The determination of
whether the economic substance of a loan secured by an interest in property is
instead a sale of a beneficial ownership interest in such property has been made
by the Internal Revenue Service and the courts on the basis of numerous factors
designed to determine whether the issuer has relinquished (and the investor has
obtained) substantial incidents of ownership in such property. Among those
factors, the primary factors examined are whether the investor has the
opportunity to gain if the property increases in value, and has the risk of loss
if the property decreases in value. Based on an assessment of these factors, in
the opinion of Cadwalader, Wickersham & Taft, special counsel to the Depositor,
the Notes will be treated as indebtedness for federal income tax purposes and
not as an ownership interest in the Loans or an equity interest in the Issuer.
Interest and Original Issue Discount. Interest on the Notes will be treated
as income to beneficial owners as such amounts are paid or accrue in accordance
with the holder's method of accounting. It is anticipated that the Notes will
not be issued with original issue discount for federal income tax purposes. Any
premium or de minimis original issue discount with respect to the Notes will be
determined in the same manner as described under "Certain Federal Income Tax
Consequences--REMICs--Taxation of Owners of Regular Securities--Premium" and
"--Original Issue Discount" in the accompanying prospectus. The prepayment
assumption that will be used for accruing original issue discount, for
determining if original issue discount is de minimis or for amortizing premium
for federal income tax purposes is 30% CPR.
Sale, Exchange, Retirement or Other Disposition. Upon the sale, exchange,
retirement or other disposition of a Note, a beneficial owner who holds the Note
as a capital asset generally will recognize capital gain or loss equal to the
difference, if any, between the amount realized (adjusted for accrued stated
interest) on the sale or other disposition of the owner's Note and the owner's
cost for such Note, increased by any original issue discount or accrued market
discount reported as income or decreased by any amortized bond premium.
Long-term capital gains of non-corporate investors (generally, gains on notes
held for more than one year) would be subject to a lower maximum tax rate than
ordinary income or short-term capital gains of such holders. Corporations are
subject to the same tax rate on ordinary income and capital gains.
Taxation of Certain Foreign Investors. Interest, including original issue
discount, payable to beneficial owners of Notes who are nonresident aliens,
foreign corporations, or other Non-U.S. Persons (i.e., any person who is not a
"U.S. Person," as defined below), will be considered "portfolio interest" and,
therefore, generally will not be subject to 30% United States withholding tax,
provided that such Non-U.S. Person (i) is not a "10-percent shareholder" within
the meaning of Code Section 871(h)(3)(B) or a controlled foreign corporation
described in Code Section 881(c)(3)(C) with respect to the Depositor or the
Issuer and (ii) provides the Owner Trustee, or the person who would otherwise be
required to withhold tax from such distributions under Code Section 1441 or
1442, with an appropriate statement, signed under penalties of perjury,
identifying the beneficial owner and stating, among other things, that the
beneficial owner of the Note is a Non-U.S. Person. If such statement, or any
other required statement, is not provided, 30% withholding will apply unless
reduced or eliminated pursuant to an applicable tax treaty or unless the
interest on the Note is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning an Offered
Certificate. The term "U.S. PERSON" means a citizen or resident of the United
States, a corporation or partnership (except to the extent provided in
applicable Treasury regulations) created or organized in or under the laws of
the United States, any state or the District of Columbia, including any entity
treated as a corporation or partnership for federal income tax purposes, an
estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more such
U.S. Persons have the authority to control all substantial decisions of the
trust (or, to the extent provided in applicable Treasury regulations, certain
trusts in existence on August 20, 1996 which are eligible to elect to be treated
as U.S. Persons).
The IRS recently issued final regulations (the "NEW REGULATIONS" which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations are effective
January 1, 2000, although valid withholding certificates that are held on
December 31, 1999, remain valid until the earlier of December 31, 2000 or the
due date of expiration of the certificate under the rules as currently in
effect. The New Regulations would require, in the case of Notes held by a
foreign partnership, that (x) the certification described above be provided by
the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. A look-through rule would apply in the case of tiered partnerships.
Non-U.S. Persons should consult their own tax advisors concerning the
application of the certification requirements in the New Regulations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments made on the Notes and proceeds from the sale of Notes to or
through certain brokers may be subject to a "backup" withholding tax of 31% of
"reportable payments" (including interest accruals, original issue discount,
and, under certain circumstances, payments in respect of principal amount)
unless, in general, the beneficial owner complies with certain procedures or is
an exempt recipient. Any amounts so withheld from payments on the Notes would be
refunded by the Internal Revenue Service or allowed as a credit against the
beneficial owner's federal income tax. The New Regulations change certain of the
rules relating to certain presumptions currently available relating to
information reporting and backup withholding. Non-U.S. Persons are urged to
contact their own tax advisors regarding the application to them of backup
withholding and information reporting.
Reports of interest, original issue discount and certain information needed
to compute accrued market discount will be made annually to the Internal Revenue
Service and to beneficial owners that are not excepted from the reporting
requirements.
See "Certain Federal Income Tax Consequences--Partnership Trust
Funds--Treatment of the Debt Securities as Indebtedness" in the accompanying
prospectus.
ERISA CONSIDERATIONS
GENERAL
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Internal Revenue Code of 1986, as amended
(the "CODE"), impose certain restrictions on retirement plans and other employee
benefits plans or arrangements subject thereto ("PLANS") and on persons who are
parties in interest or disqualified persons ("PARTIES IN INTEREST") with respect
to such Plans. Certain employee benefit plans, such as governmental plans and
church plans (if no election has been made under section 410(d) of the Code) are
not subject to the restrictions of ERISA, and assets of such plans may be
invested in the Notes without regard to the ERISA considerations described
below, subject to other applicable federal and state law. However, any such
governmental or church plan which is qualified under section 401(a) of the Code
and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code. Any Plan
fiduciary which proposes to cause a Plan to acquire any of the Notes should
consult with its counsel with respect to the potential consequences under ERISA
and the Code of the Plan's acquisition and ownership of the Notes. See "ERISA
Considerations" in the accompanying prospectus. Investments by Plans are also
subject to ERISA's general fiduciary requirements, including the requirement of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
PROHIBITED TRANSACTIONS
General. Section 406 of ERISA prohibits Parties in Interest with respect to
a Plan from engaging in certain transactions (including loans) involving a Plan
and its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
Parties in Interest which engage in non-exempt prohibited transactions.
Plan Asset Regulation. The United States Department of Labor (the "DOL")
has issued regulations concerning the definition of what constitutes the assets
of a Plan for purposes of ERISA and the prohibited transaction provisions of the
Code (the "PLAN ASSET REGULATION"). The Plan Asset Regulation describes the
circumstances under which the assets of an entity in which a Plan invests will
be considered to be "PLAN ASSETS" such that any person who exercises control
over such assets would be subject to ERISA's fiduciary standards. Under the Plan
Asset Regulation, generally when a Plan invests in another entity, the Plan's
assets do not include, solely by reason of such investment, any of the
underlying assets of the entity. However, the Plan Asset Regulation provides
that, if a Plan acquires an "equity interest" in an entity, the assets of the
entity will be treated as assets of the Plan investor unless certain exceptions
not applicable here apply.
Under the Plan Asset Regulation, the term "EQUITY INTEREST" is defined as
any interest in an entity other than an instrument that is treated as
indebtedness under "applicable local law" and which has no "substantial equity
features." If the Notes are not treated as equity interests in the Issuer for
purposes of the Plan Asset Regulation, a Plan's investment in such Notes would
not cause the assets of the Issuer to be deemed Plan assets. However, the
Depositor, the Servicer, the Indenture Trustee, and the Owner Trustee may be the
sponsor of or investment advisor with respect to one or more Plans. Because such
parties may receive certain benefits in connection with the sale of Notes, the
purchase of Notes using Plan assets over which any such parties has investment
authority might be deemed to be a violation of the prohibited transaction rules
of ERISA and the Code for which no exemption may be available. Accordingly,
Notes may not be purchased using the assets of any Plan if the Depositor, the
Servicer, the Indenture Trustee, or the Owner Trustee has investment authority
with respect to such assets.
In addition, certain affiliates of the Issuer might be considered or might
become Parties in Interest with respect to a Plan. Also, any holder of Residual
Interest Certificates, because of its activities or the activities of its
respective affiliates, may be deemed to be a Party in Interest with respect to
certain Plans, including but not limited to Plans sponsored by such holder. In
either case, the acquisition or holding of Notes by or on behalf of such a Plan
could be considered to give rise to an indirect prohibited transaction within
the meaning of ERISA and the Code, unless it is subject to one or more
exemptions such as Prohibited Transaction Class Exemption ("PTCE") 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager," PTCE 90-1, which exempts certain transactions
involving insurance company pooled separate accounts, PTCE 91-38, which exempts
certain transactions involving bank collective investment funds, PTCE 95-60,
which exempts certain transactions involving insurance company general accounts,
or PTCE 96-23, which exempts certain transactions effected on behalf of a Plan
by certain "in-house asset managers." Each purchaser or transferee of a Note
that is a Plan or is investing assets of a Plan shall be deemed to have
represented that the relevant conditions for exemptive relief under at least one
of the foregoing exemptions have been satisfied.
If the Notes are deemed to be equity interests in the Issuer, the Issuer
could be considered to hold Plan assets by reason of a Plan's investment in the
Notes. In such an event, the Servicer and other persons exercising management or
discretionary control over the assets of the Issuer may be deemed to be
fiduciaries with respect to investing Plans and thus subject to the fiduciary
responsibility provisions of Title I of ERISA, including the prohibited
transaction provisions of section 406 of ERISA, and section 4975 of the Code
with respect to transactions involving the Issuer's assets. There can be no
assurance that any statutory or administrative exemption will apply to all
prohibited transactions that might arise in connection with the purchase or
holding of an equity interest in the Issuer by a Plan.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Notes 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 and the availability of any prohibited transaction
exemptions. The sale of Notes to a Plan is in no respect a representation by the
Depositor or the Underwriter that this investment meets all relevant
requirements with respect to investments by Plans generally or any particular
Plan or that this investment is appropriate for Plans generally or any
particular Plan.
LEGAL INVESTMENT
The Notes will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA") for as
long as they are rated not lower than the second highest rating category by one
or more nationally recognized statistical rating organizations and, as such,
will be legal investments for certain entities to the extent provided in SMMEA
and applicable state laws.
Except as noted above, no representation is made as to the proper
characterization of the Notes for legal investment purposes, financial
institution regulatory purposes, or other purposes, or as to the ability of
particular investors to purchase the Notes under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
Notes. 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 own legal advisors in
determining whether and to what extent the Notes constitute a legal investment
or are subject to investment, capital or other restrictions. See "Legal
Investment" in the prospectus.
USE OF PROCEEDS
The Depositor intends to use the net proceeds to be received from the sale
of the Notes to acquire the Loans and to pay other expenses associated with the
pooling of the Loans and the issuance of the Notes.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and PaineWebber Incorporated, ____________________________
and _____________________(collectively), the "UNDERWRITERS"), the Depositor has
agreed to sell to the Underwriters, and the Underwriters have agreed to purchase
from the Depositor, the Notes. The Depositor has been advised by the
Underwriters that the Underwriters propose initially to offer the Notes to the
public at a price equal to ______% of the initial Note Principal Balance and to
certain dealers at such prices less a concession not in excess of ____%
(expressed as a percentage of the Note Principal Balance). The Underwriters may
allow and such dealers may allow a discount not in excess of ____%. The
Depositor estimates that its aggregate expenses in connection with the issuance
and offering of the Notes, excluding underwriting discounts and commissions,
will be approximately $__________. The Underwriters will receive an underwriting
discount equal to _____% of the initial principal amount of the Notes. In
connection with the sale of the Notes, the Underwriters will be deemed to have
received compensation from the Depositor in the form of underwriting discounts
equal to _____% of the initial Note Principal Balance.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
If the Underwriters create a short position in the Notes in connection with
the offering, i.e., if they sell more Notes than are set forth on the cover page
of this prospectus supplement, the Underwriters may reduce that short position
by purchasing Notes in the open market.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Depositor nor the Underwriters make any representation that the Underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
There is currently no secondary market for the Notes. There can be no
assurance that a secondary market for the Notes will develop or, if it does
develop, that it will continue.
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
In addition to the purchase of the Notes pursuant to the Underwriting
Agreement, the Underwriters and certain of their affiliates may have certain
financing relationships with the Transferor.
The Depositor is an affiliate of PaineWebber Incorporated. Any obligations
of PaineWebber Incorporated are the sole responsibility of PaineWebber
Incorporated and do not create any obligations on the part of any of its
affiliates.
EXPERTS
LEGAL MATTERS
The validity of the Notes and certain federal income tax matters will be
passed upon for the Depositor and for the Underwriters by Cadwalader, Wickersham
& Taft, New York, New York.
RATINGS
It is a condition to the issuance of the Notes that the Notes be rated
________________________________________________________________________________
_______________________ by _____________________________________________________
_____________________________________________ and ______________________________
_______________________ ___________________________ by _________________________
______________. The ratings on the Notes also address the structural, legal and
issuer-related aspects of the Notes, including the nature of the Loans. In
general, the ratings on the Notes address credit risk and not prepayment risk.
The ratings on the Notes do not represent any assessment of the likelihood that
principal prepayments of the Loans will be made by borrowers or the degree to
which the rate of such prepayments might differ from that originally
anticipated. As a result, the initial ratings assigned to the Notes do not
address the possibility that holders of the Notes might suffer a lower than
anticipated yield in the event of principal payments on the Notes resulting from
rapid prepayments of the Loans, the payment of any Noteholders' Interest
Carry-Forward Amount, or the application of Excess Spread as described in this
prospectus supplement, or if the Owner Trust is terminated before the final
Maturity Date of the Notes.
The Depositor has not solicited ratings on the Notes with any rating agency
other than the Rating Agencies. However, there can be no assurance as to whether
any other rating agency will rate the Notes or, if it does, what rating would be
assigned by any such other rating agency. Any rating on the Notes by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
Notes by the Rating Agencies.
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. If the ratings initially assigned to any of the Notes by
the Rating Agencies are subsequently lowered for any reason, no person or entity
is obligated to provide any additional support or credit enhancement with
respect to such Notes.
<PAGE>
INDEX OF DEFINED TERMS
PAGE
__________
____________ Guidelines
21-Day Late Notice
5-Day Notice
accepted servicing procedures
Accounts
Accrual Period
actuarial interest
Adjustable-Rate Loans
Available Collection Amount
Available Payment Amount
broker originations
Business Day
Call Option Date
Cedel
Certificate Distribution Account
Change Date
Closing Date
Code
Collection Account
Compensating Interest
CPR
Custodial Agreement
Custodian
Cut-Off Date
Cut-Off Date Pool Principal Balance
Debt-to-Income Ratio
Defaulted Loan
Defective Loan
Deleted Loan
Depositor
Determination Date
Distribution Statement
DOL
DTC
Due Period
equity interest
ERISA
Euroclear
Event of Default
Excess Spread
Exchange Act
Fixed-Rate Loans
Gross Margin
Guaranty Insurance Premium
Guaranty Policy
Indenture
Indenture Trustee
Indenture Trustee Fee
Indenture Trustee's Loan File
Insolvency Event
Insurance Agreement
Insurance Proceeds
Insured Payment
Interest Reduction Amount
Issuer
Issuer Fees and Expenses
LIBOR Determination Date
Lifetime Cap
Lifetime Floor
Liquidated Loan
Loan Rate
Loan Schedule
Loans
Loan-to-Value Ratio
Majority Residual Interest Certificateholders
Master Servicer
Master Servicer Compensation
Master Servicer Events of Default
Master Servicer Fee
Master Servicer Fee Rate
Maturity Date
Modeling Assumptions
Monthly Advance
Mortgage
Mortgaged Properties
Net Funds Cap
Net Interest Rate
Net Liquidation Proceeds
New Regulations
Note Factor
Note Interest Rate
Note Payment Account
Note Principal Balance
Noteholder Rights
Noteholders
Noteholders' Interest Carry-Forward Amount
Noteholders' Interest Payment Amount
Noteholders' Interest Shortfall Amount
Noteholders' Monthly Interest Payment Amount
Noteholders' Principal Deficiency Amount
Notes
Notice of Default
OC Trigger Increase Event
OC Trigger Reversal Event
One-Month LIBOR
Order
Original Note Principal Balance
Overcollateralization Amount
Overcollateralization Deficiency Amount
Overcollateralization Reduction Amount
Overcollateralization Target Amount
Owner Trust
Owner Trust Agreement
Owner Trustee
Parties in Interest
Paying Agent
Payment Accounts
Payment Date
Periodic Rate Cap
Plan Asset Regulation
plan assets
Plans
Pool
Pool Principal Balance
prepayment
Principal Balance
PTCE
Purchase Price
Qualified Substitute Loan
Rating Agencies
Receipt
Received
Record Date
Reference Banks
Regular Payment Amount
Regular Principal Payment Amount
Released Mortgaged Property Proceeds
Reserve Interest Rate
Sale and Master Servicing Agreement
Securities Insurer
Securities Insurer Default
Securities Insurer Reimbursement Amount
Security Owner Rights
Servicer
Servicer Event of Default
Servicer Extension Notice
Servicing Advance
Servicing Agreement
Servicing Compensation
Servicing Fee
Servicing Fee Rate
Six-Month LIBOR
SMMEA
Stepdown Date
Substitution Adjustment
Termination Price
Transfer and Servicing Agreements
Transferor
Trustees
U.S. Person
Underwriters
weighted average life
<PAGE>
================================================================================
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OF REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS AND
PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS
PROSPECTUS AND PROSPECTUS SUPPLEMENT DOES NOT OFFER FOR SALE ANY NOTES IN ANY
JURISDICTION WHERE IT WOULD BE UNLAWFUL TO DO SO. THE INFORMATION IN THIS
PROSPECTUS AND PROSPECTUS SUPPLEMENT IS CURRENT AS OF __________. 199_.
-------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary
Risk Factors
The Pool
Master Servicer
Servicer
Underwriting Criteria
Prepayment and Yield Considerations
The Owner Trust and Indenture
Description of the Notes
Description of Credit Enhancement
Description of the Transfer and Servicing Agreements
Federal Income Tax Consequences
ERISA Considerations
Legal Investment Matters
Use of Proceeds
Underwriting
Experts
Legal Matters
Ratings
Index of Defined Terms
PROSPECTUS
Available Information
Reports to Securityholders
Incorporation of Certain Information by Reference
Prespectus Supplement or Current Report on Form 8-K
Summary of Terms
Risk Factors
The Trust Funds
Use of Proceeds
Yield Considerations
Maturity and Prepayment Considerations
The Depositor
Residential Loan Program
Description of the Securities
Description of Primary Insurance Coverage
Description of Credit Support
Certain Legal Aspects of Residential Loans
Certain Federal Income Tax Consequences
State and Other Tax Consequences
ERISA Considerations
Legal Investment
Plans of Distribution
Legal Matters
Financial Information
Rating
Index of Defined Terms
UNTIL _______, 199_, ALL DEALERS THAT EFFECT TRANSACTIONS IN THE NOTES, WHETHER
OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS
AND PROSPECTUS SUPPLEMENT. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS AND PROSPECTUS SUPPLEMENT WHEN ACTING AS
UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
$___________
[COMPANY LOGO]
HOME LOAN ASSET
BACKED NOTES
SERIES 199_-_
-------------------------
HOME LOAN
OWNER TRUST 199_-_
Issuer
PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV
Depositor
_____________________
Transferor and Master Servicer
_____________________
Servicer
-------------------------
PROSPECTUS SUPPLEMENT
-------------------------
PAINEWEBBER INCORPORATED
-------------------------
___________, 199_
================================================================================
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until we deliver a final prospectus
supplement and prospectus. This prospectus supplement and prospectus are not an
offer to sell these securities and are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 25, 1999
PROSPECTUS
MAY [__], 1999
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Depositor
ASSET-BACKED CERTIFICATES
ASSET-BACKED NOTES
(Issuable in Series)
PaineWebber Mortgage Acceptance Corporation IV from time to time will offer
asset-backed pass-through certificates or asset-backed notes. We will offer the
certificates or notes through this prospectus and a separate prospectus
supplement for each series.
For each series we will establish a trust fund consisting primarily of
o 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 or beneficial interests in them; or
o pass-through or participation certificates issued or guaranteed by the
Government National Mortgage Association, the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation.-
The certificates of a series will evidence beneficial ownership interests
in the trust fund. The notes of a series will evidence indebtedness of the trust
fund. The certificates or notes of a series may be divided into two or more
classes which may have different interest rates and which may receive principal
payments in differing proportions and at different times. In addition, the
rights of certain holders of classes may be subordinate to the rights of holders
of other classes to receive principal and interest.
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 13 IN THIS
PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
The securities will not represent obligations of PaineWebber Mortgage
Acceptance Corporation IV or any of its affiliates. No governmental agency will
insure the certificates or the collateral securing the securities.
You should consult with your own advisors to determine if the offered
securities are appropriate investments for you and to determine the applicable
legal, tax, regulatory and accounting treatment of the offered securities.
- --------------------------------------------------------------------------------
---------------------------
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR NOTES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------------
No secondary market will exist for a series of certificates or notes prior
to its offering. We cannot assure you that a secondary market will develop for
the certificates or notes, as applicable, of any series, or, if it does develop,
that it will continue.
----------------------------
PAINEWEBBER INCORPORATED
<PAGE>
The certificates or notes, as applicable, may be offered through one or
more different methods, including offerings through underwriters, as more fully
described under "Plans of Distribution" in this prospectus and in the related
prospectus supplement. Our affiliates may from time to time act as agents or
underwriters in connection with the sale of the offered certificates or notes,
as applicable. We may retain or hold for sale, from time to time, one or more
classes of a series of certificates or notes, as applicable. Offerings of
certain classes of the certificates or notes, as applicable, if so specified in
the related prospectus supplement, may be made in one or more transactions
exempt from the registration requirements of the Securities Act of 1933, as
amended. Such offerings are not being made pursuant to this prospectus or the
related registration statement.
---------------------------
This prospectus may not be used to consummate sales of the offered
certificates or notes, as applicable, unless accompanied by a prospectus
supplement.
<PAGE>
TABLE OF CONTENTS
PAGE
IMPORTANT NOTICE about INFORMATION PRESENTED in this PROSPECTUS and
each ACCOMPANYING PROSPECTUS SUPPLEMENT
SUMMARY OF TERMS
RISK FACTORS
Limited Liquidity
Limited Assets
Credit Enhancement is Limited in Amount and Coverage
Yield is Sensitive to Rate of Principal Prepayment
Borrower May Be Unable to Make Balloon Payment
Nature of Mortgages Could Adversely Affect Value of Properties
Environmental Risks
Certain Other Legal Considerations Regarding Residential Loans
Rating of the Securities
Book-Entry System for Certain Classes May Decrease Liquidity and
Delay Payment
Certain Home Improvement Contracts May Experience Relatively
Higher Losses
Mortgage Loans Underwritten as Non-Conforming Credits May
Experience Relatively Higher Losses
Assets of the Trust Fund May Include Delinquent and Sub-
Performing Residential Loans
Other Considerations
Risks Associated With Year 2000 Compliance
THE TRUST FUNDS
Residential Loans
Agency Securities
Stripped Agency Securities
Additional Information Concerning the Trust Funds
USE OF PROCEEDS
YIELD CONSIDERATIONS
MATURITY AND PREPAYMENT CONSIDERATIONS
THE DEPOSITOR
RESIDENTIAL LOAN PROGRAM
Underwriting Standards
Representations by Unaffiliated Sellers; Repurchases
Sub-Servicing
DESCRIPTION OF THE SECURITIES
General
Assignment of Assets of the Trust Fund
Deposits to the Trust Account
Pre-Funding Account
Payments on Residential Loans
Payments on Agency Securities
Distributions
Principal and Interest on the Securities
Available Distribution Amount
Subordination
Advances
Statements to Holders of Securities
Book-Entry Registration of Securities
Collection and Other Servicing Procedures
Realization Upon Defaulted Residential Loans
Retained Interest, Administration Compensation and Payment of
Expenses
Evidence as to Compliance
Certain Matters Regarding the Master Servicer, the Depositor and
the Trustee
Deficiency Events
Events of Default
Amendment
Termination
Voting Rights
DESCRIPTION OF PRIMARY INSURANCE COVERAGE
Primary Credit Insurance Policies
FHA Insurance and VA Guarantees
Primary Hazard Insurance Policies
DESCRIPTION OF CREDIT SUPPORT
Pool Insurance Policies
Special Hazard Insurance Policies
Bankruptcy Bonds
Reserve Funds
Cross-Support Provisions
Letter of Credit
Insurance Policies and Surety Bonds
Excess Spread
Overcollateralization
CERTAIN LEGAL ASPECTS OF RESIDENTIAL LOANS
General
Mortgage Loans
Cooperative Loans
Tax Aspects of Cooperative Ownership
Manufactured Housing Contracts Other Than Land Contracts
Foreclosure on Mortgages
Foreclosure on Cooperative Shares
Repossession with respect to Manufactured Housing Contracts that
are not Land Contracts
Rights of Redemption with respect to Residential Properties
Notice of Sale; Redemption Rights with respect to Manufactured
Homes
Anti-Deficiency Legislation, Bankruptcy Laws and Other
Limitations on Lenders
Junior Mortgages
Consumer Protection Laws
Enforceability of Certain Provisions
Prepayment Charges and Prepayments
Subordinate Financing
Applicability of Usury Laws
Alternative Mortgage Instruments
Environmental Legislation
Soldiers' and Sailors' Civil Relief Act of 1940
FEDERAL INCOME TAX CONSEQUENCES
General
REMICS
Taxation of Owners of Regular Securities
Taxation of Owners of Residual Securities
Taxes That May Be Imposed on the REMIC Pool
Taxation of Certain Foreign Investors
Grantor Trust Funds
Standard Securities
Stripped Securities
Partnership Trust Funds
Taxation of Owners of Partnership Securities
STATE AND OTHER TAX CONSEQUENCES
ERISA CONSIDERATIONS
LEGAL INVESTMENT
PLANS OF DISTRIBUTION
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
LEGAL MATTERS
FINANCIAL INFORMATION
RATING
INDEX OF DEFINED TERMS
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND EACH ACCOMPANYING PROSPECTUS SUPPLEMENT
Information about the offered certificates or notes, as applicable, is
contained in two separate documents that progressively provide more detail: (a)
this prospectus, which provides general information, some of which may not apply
to the offered securities; and (b) the accompanying prospectus supplement for
each series, which describes the specific terms of the offered securities. IF
THE TERMS OF THE OFFERED SECURITIES VARY BETWEEN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT, YOU SHOULD RELY ON THE INFORMATION IN THE
PROSPECTUS SUPPLEMENT.
You should rely only on the information contained in this prospectus and
the accompanying prospectus supplement. We have not authorized anyone to provide
you with information that is different from that contained in this prospectus
and the related prospectus supplement. The information in this prospectus is
accurate only as of the date of this prospectus.
Certain capitalized terms are defined and used in this prospectus to assist
you in understanding the terms of the offered securities and this offering. The
capitalized terms used in this prospectus are defined on the pages indicated
under the caption "INDEX OF DEFINED TERMS" in this prospectus.
In this prospectus, the terms "Depositor," "we," "us" and "our" refer to
PaineWebber Mortgage Acceptance Corporation IV.
--------------------------------
If you require additional information, the mailing address of our
principal executive offices is PaineWebber Mortgage Acceptance Corporation IV,
1285 Avenue of the Americas, New York, NY 10019 and the telephone number is
(212) 713-2000. For other means of acquiring additional information about us or
a series of securities, see "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
in this prospectus.
--------------------------------
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES
NOT CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING AN
INVESTMENT DECISION. PLEASE READ THIS ENTIRE PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT AS WELL AS THE TERMS AND PROVISIONS OF THE RELATED POOLING
AND SERVICING AGREEMENT OR TRUST AGREEMENT CAREFULLY TO UNDERSTAND ALL OF THE
TERMS OF A SERIES OF SECURITIES.
RELEVANT PARTIES
Depositor..................PaineWebber Mortgage Acceptance Corporation IV,
the depositor (the "DEPOSITOR"), is a corporation
organized under the laws of the State of Delaware.
The Depositor is a wholly-owned limited purpose
finance subsidiary of PaineWebber Group Inc.
Master Servicer............The entity or entities named as master servicer in
the related prospectus supplement.
Trustees...................The trustee or indenture trustee named as trustee
in the related prospectus supplement. The owner
trustee named as owner trustee in the related
prospectus supplement.
Issuer of Notes............Each series of notes will be issued by a separate
trust (the "ISSUER") which will be the Depositor
or an owner trust established for the purpose of
issuing such series of notes. Each such owner
trust will be formed pursuant to a trust agreement
between the Depositor, acting as depositor, and
the owner trustee.
SECURITIES
Description of
Securities.................The Depositor will offer asset-backed pass-through
certificates ("CERTIFICATES") or asset-backed
notes ("Notes" and together with the Certificates,
"SECURITIES") from time to time. The Securities
will be offered in one or more series. Each series
of Securities will include one or more classes
representing either a beneficial ownership
interest in, or indebtedness secured by, a
segregated pool of residential loans or agency
securities, or beneficial interests in them, and
certain other assets described below (together,
all such assets and other assets with respect to a
series of Securities shall constitute a "TRUST
FUND").
A series of Securities may include one or more
classes of Securities that may be entitled to:
o principal distributions, with disproportionate,
nominal or no interest distributions;
o interest distributions, with disproportionate,
nominal or no principal distributions ("STRIP
SECURITIES");
o distributions only of prepayments of principal
throughout the lives of the Securities or during
specified periods;
o subordinated distributions of scheduled payments
of principal, prepayments of principal, interest
or any combination of such payments;
o distributions only after the occurrence of
events specified in the related prospectus
supplement;
o 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;
o interest at a fixed rate or a rate that is
subject to change from time to time;
o distributions allocable to interest only after
the occurrence of events specified in the
related prospectus supplement and may accrue
interest until such events occur.
These entitlements will be 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.
If so specified in the related prospectus
supplement, each class of Securities may
o have a stated principal amount (a "SECURITY
PRINCIPAL BALANCE"); and
o be entitled to distributions of interest on the
Security Principal Balance based on a specified
interest rate (the "SECURITY INTEREST RATE").
Interest...................Interest on each class of Securities for a series
other than certain classes of Strip Securities or
Securities as to which accrued interest will not
be distributed but rather will be added to the
Security Principal Balance ("ACCRUAL SECURITIES")
(prior to the time when accrued interest becomes
payable thereon) of each series
o will accrue at the applicable Security Interest
Rate on their outstanding Security Principal
Balances;
o will be distributed to holders of the Securities
as provided in the related prospectus supplement
(each of the specified dates on which
distributions are to be made, a "DISTRIBUTION
DATE"); and
o may be reduced to the extent of certain
delinquencies or other contingencies described
in this prospectus and in the related prospectus
supplement.
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 in this prospectus 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 of such Accrual Securities on each
Distribution Date.
See "Yield Considerations," "Maturity and
Prepayment Considerations" and "Description of the
Securities" in this prospectus.
Principal..................The Security Principal Balance of a Security
represents the maximum dollar amount (exclusive of
interest) which you are entitled to receive as
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 in the related prospectus supplement.
Distributions of principal will be payable on a
pro rata basis among all of the Securities of the
same class, in proportion to their respective
outstanding Security Principal Balances, or in
such other manner as may be specified in the
related prospectus supplement.
If a Strip Security does not have a Security
Principal Balance, it will not receive
distributions of principal. See "The Trust Funds,"
"Maturity and Prepayment Considerations" and
"Description of the Securities" in this
prospectus.
ASSETS
The Trust Funds............Each Trust Fund will consist of
o a segregated pool of Residential Loans, Agency
Securities and/or Mortgage Securities; and
o certain other assets as described in this
prospectus and in the related prospectus
supplement.
The Depositor will purchase all assets of the
Trust Fund, either directly or through an
affiliate, from unaffiliated sellers and will
deposit them into the related Trust Fund as of the
first day of the month in which the Securities
evidencing interests in the Trust Fund are
initially issued. See "Description of the
Securities-Pre-Funding Account" in this
Prospectus.
A. Residential
Loans...............The Residential Loans will consist of any
combination of
o 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");
o 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");
o 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
o a manufactured home, which may have a
subordinate lien on the related Mortgaged
Property, as described in the related prospectus
supplement;
o 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");
o 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
o manufactured housing conditional sales contracts
and installment loan agreements (the
"MANUFACTURED HOUSING CONTRACTS"), which may be
secured by either liens on
o new or used manufactured homes; or
o 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; and
o in certain cases, 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 as "LAND
CONTRACTS").
The Mortgaged Properties, Cooperative shares
(together with the right to occupy a particular
dwelling unit) and manufactured homes may be
located in any one of the fifty states, the
District of Columbia or the Commonwealth of Puerto
Rico. Each Trust Fund may contain any combination
of the following types of residential loans:
o fully amortizing loans with a fixed rate of
interest and level monthly payments to maturity;
o fully amortizing loans with a fixed interest
rate providing for level monthly payments, or
for payments of 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;
o fully amortizing loans with a fixed interest
rate providing for monthly payments during the
early years of the term that are calculated on
the basis of an interest rate below the interest
rate, followed by monthly payments of principal
and interest that increase annually by a
predetermined percentage over the monthly
payments payable in the previous year until the
loan is repaid or for a specified number of
years, followed by level monthly payments;
o 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;
o 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 borrower'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;
o 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;
o adjustable interest rate loans providing for an
election at the borrower'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
o 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 may be covered by
o primary mortgage insurance policies;
o insurance issued by the Federal Housing
Administration (the "FHA"); or
o partial guarantees of the Veterans
Administration (the "VA").
See "Description of Primary Insurance Coverage" in
this prospectus.
B. Agency
Securities..........The "AGENCY SECURITIES" may consist of any
combination of
o "fully modified pass-through" mortgage-backed
certificates guaranteed by the Government
National Mortgage Association;
o guaranteed mortgage pass-through securities
issued by the Federal National Mortgage
Association; and
o mortgage participation certificates issued by
the Federal Home Loan Mortgage Corporation.
C. Mortgage
Securities..........A Trust Fund may include previously issued
o asset-backed certificates;
o collateralized mortgage obligations; or
o participation certificates
(each, and collectively, "MORTGAGE SECURITIES")
evidencing interests in, or collateralized by,
Residential Loans or Agency Securities.
D. Trust Account.......Each Trust Fund will include one or more accounts
(collectively, the "TRUST ACCOUNT") established
and maintained on behalf of the holders of
Securities into which the master servicer or the
trustee will be required to, to the extent
described in this prospectus and in the related
prospectus supplement, deposit all payments and
collections received or advanced with respect to
assets of the related Trust Fund. A Trust Account
may be maintained as an interest bearing or a
non-interest bearing account, or funds held in the
Trust Account may be invested in certain
short-term high-quality obligations. See
"Description of the Securities -- Deposits to the
Trust Account" in this prospectus.
E. Credit Support......One or more classes of Securities within any
series may be covered by any combination of
o a surety bond;
o a guarantee;
o letter of credit;
o an insurance policy;
o a bankruptcy bond;
o a reserve fund;
o a cash account;
o reinvestment income;
o overcollateralization;
o 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;
o cross-support between Securities backed by
different asset groups within the same Trust
Fund; or
o another type of credit support to provide
partial or full coverage for certain defaults
and losses relating to the Residential Loans.
If the related prospectus supplement so provides,
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 by them and the application of
such coverage to the identified Trust Funds. See
"Description of Credit Support" and "Description
of the Securities -- Subordination" in this
prospectus.
PRE-FUNDING ACCOUNT...........If specified in the related prospectus supplement,
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.
SERVICING AND ADVANCES........The master servicer, directly or through
sub-servicers,
o will service and administer the Residential
Loans included in a Trust Fund; and
o if and to the extent the related prospectus
supplement so provides, will be obligated to
make certain cash advances with respect to
delinquent scheduled payments on the Residential
Loans (only to the extent that the master
servicer determines that such advances will be
recoverable).
Advances made by the master servicer will be
reimbursable to the extent described in this
prospectus and in the related prospectus
supplement. The prospectus supplement with respect
to any series may provide that the master servicer
will obtain a cash advance surety bond, or
maintain a cash advance reserve fund, to cover any
obligation of the master servicer to make
advances. The borrower 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 -- Advance." in
this prospectus.
OPTIONAL TERMINATION..........If so specified in the related prospectus
supplement, the assets in the related Trust Fund
may be sold, causing an early termination of a
series of Securities (any such termination, an
"OPTIONAL TERMINATION"), in the manner set forth
in the related prospectus supplement. See
"Description of the Securities -- Termination" in
this prospectus and the related section in the
related prospectus supplement.
TAX STATUS....................The treatment of the Securities for federal income
tax purposes will depend on:
o whether a REMIC election is made with respect to
a series of Certificates; and
o if a REMIC election is made, by whether the
Certificates are Regular Interest Securities
("REMIC REGULAR SECURITIES") or Residual
Interest Securities ("REMIC RESIDUAL
SECURITIES").
Notes will represent indebtedness of the related
Trust Fund. You are advised to consult your tax
advisors.
See "Federal Income Tax Consequences" in this
prospectus and in the related prospectus
supplement.
ERISA CONSIDERATIONS..........If you are a fiduciary of any employee benefit
plan subject to the fiduciary responsibility
provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), you
should carefully review with your own legal
advisors whether the purchase or holding of
Securities could give rise to a transaction
prohibited or otherwise impermissible under ERISA
or the Code.
See "ERISA Considerations" in this prospectus and
in the related prospectus supplement.
LEGAL INVESTMENT..............The applicable prospectus supplement will specify
whether the Securities offered will constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984,
as amended ("SMMEA"). If your investment
activities are subject to review by federal or
state authorities, you should consult with your
counsel or the applicable authorities to determine
whether and to what extent a class of Securities
constitutes a legal investment for you.
See "Legal Investment" in this prospectus and in
the related prospectus supplement.
USE OF PROCEEDS...............The Depositor will use the net proceeds from the
sale of each series for one or more of the
following purposes:
o to purchase the related assets of the Trust
Fund;
o to repay indebtedness which has been incurred to
obtain funds to acquire such assets of the Trust
Fund;
o to establish any Reserve Funds described in the
related prospectus supplement; and
o to pay costs of structuring, guaranteeing and
issuing such Securities.
See "Use of Proceeds" in this prospectus and in
the related prospectus supplement.
RATINGS.......................Securities will not be offered pursuant to this
prospectus and the related prospectus supplement
unless each offered class will be rated upon
issuance in one of the four highest applicable
rating categories of at least one nationally
recognized statistical rating organization (a
"RATING AGENCY"). The rating or ratings applicable
to the Securities of each series offered by this
prospectus and by the related prospectus
supplement will be set forth in the related
prospectus supplement.
o A security rating is not a recommendation to
buy, sell or hold the Securities of any series
and is subject to revision or withdrawal at any
time by the assigning rating agency.
o A security rating does not address the effect of
prepayments on the yield you may anticipate when
you purchase your Securities.
<PAGE>
RISK FACTORS
You should carefully consider the following risks and the risks described
under "RISK FACTORS" in the prospectus supplement for the applicable series of
securities before making an investment decision. In particular, distributions on
your securities will depend on payments received on and other recoveries with
respect to the loans. Therefore, you should carefully consider the risk factors
relating to the loans and the properties.
LIMITED LIQUIDITY
We cannot assure you that a secondary market for the Securities of any
series will develop or, if it does develop, that it will provide you with
liquidity of investment or will continue for the life of your Securities. The
market value of your Securities will fluctuate with changes in prevailing rates
of interest. Consequently, if you sell your security in any secondary market
that develops, you may sell it for less than par value or for less than your
purchase price. You will have no optional redemption rights, unless the related
prospectus supplement specifies otherwise. The prospectus supplement for any
series may indicate that an underwriter intends to establish a secondary market
in the Securities, but no underwriter will be obligated to do so.
LIMITED ASSETS
The Trust Fund for your series constitute the sole source of payment for
your Securities. The Trust Fund will consist of, among other things:
o payments with respect to the assets of the Trust Fund; and
o 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.
You will have no recourse to the Depositor or any other person if you do
not receive distributions on your Securities. Furthermore, certain assets of the
Trust Fund and/or any balance remaining in the Trust Account immediately after
making
o all payments due on the Securities of such series;
o adequate provision for future payments on certain classes of Securities;
and
o 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 to such amounts and
will no longer be available for making payments to you.
The Securities will not represent an interest in or obligation of the
Depositor, the master servicer or any of their respective affiliates.
CREDIT ENHANCEMENT IS LIMITED IN AMOUNT AND COVERAGE
Credit enhancement reduces your risk of delinquent payments or losses.
However, the amount of credit enhancement will be limited, as set forth in the
related prospectus supplement, and may decline and could be depleted under
certain circumstances before payment in full of your Securities. As a result,
you may suffer losses. Moreover, such credit enhancement may not cover all
potential losses or risks. For example, it may or may not cover, or may only
partially cover, fraud or negligence by a loan originator or other parties. See
"Description of Credit Support" in this prospectus.
YIELD IS SENSITIVE TO RATE OF PRINCIPAL PREPAYMENT
The yield on the Securities of each series will depend in part on the rate
of principal payment on the assets of the Trust Fund. In particular, including:
o the extent of prepayments of the Residential Loans and, in the case of
Agency Securities, the underlying loans, comprising the Trust Fund;
o the allocation of principal and/or payment among the classes of
Securities of a series as specified in the related prospectus supplement;
o the exercise of any right of optional termination; and
o the rate and timing of payment defaults and losses incurred with respect
to the assets of the Trust Fund.
Material breaches of representations and warranties by sellers not
affiliated with the Depositor (any such sellers of Residential Loans, the
"UNAFFILIATED SELLERS"), the originator, the Depositor or the master servicer
may result in repurchases of assets of the Trust Fund which may lead to
prepayments of principal. The rate of prepayment of the Residential Loans
comprising or underlying the assets of the Trust Fund may affect the yield to
maturity on your Securities. See "Yield Considerations" and "Maturity and
Prepayment Considerations" in this prospectus.
The rate of prepayments is influenced by a number of factors, including:
o prevailing mortgage market interest rates;
o local and national interest rates;
o homeowner mobility; and
o the ability of the borrower to obtain refinancing.
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. If interest accrues over a period ending two or more days
before a Distribution Date, your effective yield will be reduced from the yield
you would have obtained if interest payable on the Securities accrued through
the day immediately before each Distribution Date, and your effective yield (at
par) will be less than the indicated coupon rate. See "Description of the
Securities -- Distributions" and "-- Principal Interest on the Securities" in
this prospectus.
BORROWER MAY BE UNABLE TO MAKE BALLOON PAYMENT
Certain of the Residential Loans may not fully amortize over their terms to
maturity and, thus, may require principal payments (i.e., balloon payments) at
their stated maturity. Residential Loans with balloon payments involve greater
risk because a borrower's ability to make a balloon payment typically will
depend on its ability to:
o timely refinance the loan; or
o timely sell the related Residential Property.
A borrower's ability to accomplish either of these goals will be affected
by a number of factors, including:
o the level of available mortgage rates at the time of sale or refinancing;
o the borrower's equity in the related Residential Property;
o the financial condition of the borrower; and
o the tax laws.
NATURE OF MORTGAGES COULD ADVERSELY AFFECT VALUE OF PROPERTIES
Several factors 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 these are:
o an overall decline in the residential real estate market in the areas in
which the Residential Properties are located;
o a decline in the general condition of the Residential Properties as a
result of failure of borrowers to adequately maintain the Residential
Properties; or
o a decline in the general condition of the Residential Properties as a
result of natural disasters that are not necessarily covered by
insurance, such as earthquakes and floods.
A decline that affects Residential Loans secured by junior liens, 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 if the Residential Properties provide adequate security for the
Residential Loans, the master servicer could encounter substantial delays in
liquidating the defaulted Residential Loans leading to delays in receiving your
proceeds because:
o foreclosure 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; and
o in some states an action to obtain a deficiency judgment is not permitted
following a nonjudicial sale of a Residential Property.
Therefore, if a borrower defaults, the master servicer may be unable to
foreclose on or sell the Residential Property or 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 that 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 may 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 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
borrower is in default under such senior mortgage. 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.
If 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
o incur losses in jurisdictions in which a deficiency judgment against the
borrower is not available; and
o 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
o regulate interest rates and other charges;
o require certain disclosures; and
o 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. Violations of these laws, policies and
principles
o may limit the ability of the master servicer to collect all or part of
the principal of or interest on the Residential Loans;
o may entitle the borrower to a refund of amounts previously paid; and
o could subject the master servicer to damages and administrative
sanctions.
See "Certain Legal Aspects of Residential Loans" in this prospectus.
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 result in 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" in this prospectus.
CERTAIN OTHER LEGAL CONSIDERATIONS REGARDING RESIDENTIAL LOANS
The Residential Loans may also be subject to federal laws, including:
o the Federal Truth in Lending Act and Regulation Z promulgated under that
act, which require certain disclosures to the borrowers regarding the
terms of the Residential Loans;
o 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;
o the Fair Credit Reporting Act, which regulates the use and reporting of
information related to the borrower's credit experience; and
o 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
o 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;
o apply on a mandatory basis to all mortgage loans originated on or after
October 1, 1995;
o can impose specific statutory liabilities upon creditors who fail to
comply with their provisions; and
o 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. These laws
o protect the homeowner from defective craftsmanship or incomplete work by
a contractor;
o permit the obligated party to withhold payment if the work does not meet
the quality and durability standards agreed to by the homeowner and the
contractor; and
o subject any person to whom the seller assigns its consumer credit
transaction to all claims and defenses which the obligated party in a
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" in this prospectus.
RATING OF THE SECURITIES
Each class of Securities offered by this prospectus and the related
prospectus supplement must be rated upon issuance in one of the four highest
rating categories by one or more Rating Agencies. Such rating will be based on,
among other things:
o the adequacy of the value of the assets of the Trust Fund;
o any credit enhancement with respect to such class; and
o the likelihood that you will receive payments to which you are entitled
under the terms of your Securities.
Such rating will not be based on:
o the likelihood that principal prepayments on the related Residential
Loans will be made;
o the degree to which prepayments might differ from those originally
anticipated; or
o the likelihood of early optional termination of the series of Securities.
You should not interpret such rating as 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:
o the possibility that prepayment at higher or lower rates than you
anticipate may cause you to experience a lower than anticipated yield; or
o the possibility that if you purchase your Security at a significant
premium, then you might fail to recoup your initial investment under
certain prepayment scenarios.
We cannot assure you 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 a
Rating Agency in the future due to, among other reasons:
o if in the judgment of the Rating Agency, circumstances in the future so
warrant;
o any erosion in the adequacy of the value of the assets of the Trust Fund
or any credit enhancement with respect to a series; or
o 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.
Each Rating Agency rating such Securities will establish criteria to
determine the amount, type and nature of credit enhancement, if any, established
with respect to a class of Securities. Rating agencies often determine the
amount of credit enhancement required with respect to each class based upon an
actuarial analysis of the behavior of similar loans in a larger group. With
respect to such rating, we cannot assure you:
o that the historical data supporting any such actuarial analysis will
accurately reflect future experience;
o 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; or
o 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.
The residential real estate markets may experience an overall decline in
property values. Such a decline could lead to a number of adverse results:
o the outstanding principal balances of the Residential Loans in a
particular Trust Fund are equal to or greater than the value of the
Residential Properties;
o any secondary financing on the related Residential Properties are equal
to or greater than the value of the Residential Properties; and
o the rate of delinquencies, foreclosures and losses are 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 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 may be borne, at least in part, by you. See "Rating" in this prospectus.
BOOK-ENTRY SYSTEM FOR CERTAIN CLASSES MAY DECREASE LIQUIDITY AND DELAY PAYMENT
Since transactions in the classes of book-entry securities of any series
generally can be effected only through Depository Trust Company ("DTC"),
participating organizations ("PARTICIPANTS"), Financial Intermediaries and
certain banks:
o the liquidity of book-entry securities in secondary trading market that
may develop may be limited because investors may be unwilling to purchase
securities for which they cannot obtain physical securities;
o your ability to pledge a Security 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 security
representing the Securities; and
o you may experience some delay in receiving distributions of interest and
principal on your Securities because distributions will be made by the
trustee to DTC and DTC will then be required to credit such distributions
to the accounts of Participants and only then will they be credited to
your account either directly or indirectly through Financial
Intermediaries.
See "Description of the Securities -- Book-Entry Registration of
Securities" in this prospectus.
CERTAIN HOME IMPROVEMENT CONTRACTS MAY EXPERIENCE RELATIVELY HIGHER LOSSES
Contracts Unsecured. A borrower's obligations under an unsecured Home
Improvement Contract will not be secured by an interest in the related real
estate or otherwise. As a result,
o the related Trust Fund, as the owner of such unsecured Home Improvement
Contract, will be a general unsecured creditor as to such obligations;
o in the event of a default under an unsecured Home Improvement Contract,
the related Trust Fund will have recourse only against the borrower's
assets generally, along with all other general unsecured creditors of the
borrower;
o in a bankruptcy or insolvency proceeding relating to a borrower on an
unsecured Home Improvement Contract, the borrower's obligations under
such unsecured Home Improvement Contract may be discharged in their
entirety, even if the portion of such borrower's assets made available to
pay the amount due and owing to the related Trust Fund as a general
unsecured creditor are sufficient to pay such amounts in whole or part;
and
o since the borrower's obligations are unsecured, the borrower may not
demonstrate the same degree of concern over performance of the borrower's
obligations as if such obligations were secured by the real estate owned
by such borrower.
MORTGAGE LOANS UNDERWRITTEN AS NON-CONFORMING CREDITS MAY EXPERIENCE RELATIVELY
HIGHER LOSSES
The single family Mortgage Loans assigned and transferred to a 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
o 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;
o made to a borrower whose creditworthiness and repayment ability do not
satisfy such FNMA or FHLMC underwriting guidelines; or
o made to 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.
Mortgage Loans made to borrowers who are characterized as "non-conforming
credit" may experience greater delinquency and foreclosure rates than loans
originated in accordance with the FNMA or FHLMC underwriting guidelines, since
the borrowers are less creditworthy than borrowers who meet the FNMA or FHLMC
underwriting guidelines. As a result, if the values of the Mortgaged Properties
decline, then the rates of loss on Mortgage Loans made to "non-conforming
credit" are more likely to increase than the rates of loss on Mortgage Loans
made in accordance with the FNMA or FHLMC guidelines and such increase may be
substantial. See "Residential Loan Program -- Underwriting Standards" in this
prospectus.
ASSETS OF THE TRUST FUND MAY INCLUDE DELINQUENT AND SUB-PERFORMING RESIDENTIAL
LOANS
The assets of the Trust Fund in the related Trust Fund may include
Residential Loans that are delinquent or sub-performing. The credit enhancement
provided with respect to your series of Securities may not cover all losses
related to such delinquent or sub-performing Residential Loans. You should
consider the risk that including such Residential Loans in the Trust Fund for a
series may cause:
o the rate of defaults and prepayments on the Residential Loans to
increase; and
o in turn, losses may exceed the available credit enhancement for such
series and affect the yield on your Securities.
See "The Trust Funds -- Residential Loans" in this prospectus.
OTHER CONSIDERATIONS
We cannot assure you that the market value of the assets of the Trust Fund
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. In the event the assets in the Trust Fund have to
be sold for any reason--for example, upon an event of default under the
agreement for a series leading to a sale of the assets in the Trust Fund--the
net proceeds from such sale, after paying expenses of sale and unpaid fees and
other amounts owing to the master servicer and the trustee, may be insufficient
to pay in full the principal of and interest on your Securities.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
The Depositor is aware of the issues associated with the programming code
in existing computer systems as the millennium (year 2000) approaches, the "year
2000 problem" is pervasive and complex; virtually every computer operation will
be affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. You could be adversely affected if the computer systems of the master
servicer or any Special Servicer are not fully year 2000 compliant and such
non-compliance disrupts the collection or distribution of receipts on the
related Mortgage Loans.
With respect to the year 2000 problem, DTC has informed members of the
financial community that it has developed and is implementing a program so that
its systems, as they relate to the timely payment of distributions, including
principal and interest payments, to holders of Securities, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately on and after January 1, 2000. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, its participating
organizations, through which you will hold your Certificates, as well as the
computer systems of third party service providers. DTC has informed the
financial community that it is contacting and will continue to contact third
party vendors from whom DTC acquires services to:
o impress upon them the importance of such services being year 2000
compliant; and
o determine the extent of their efforts for year 2000 remediation, and, as
appropriate, testing, of their services.
In addition, DTC has stated that it is in the process of developing such
contingency plans as it deems appropriate.
If problems associated with the year 2000 problem were to occur with
respect to DTC and the services described above, you could experience delays or
shortfalls in the payments due on your Securities.
THE TRUST FUNDS
The Depositor will select each asset of the Trust Fund to include in a
Trust Fund from among those purchased, either directly or through affiliates,
from Unaffiliated Sellers, or, if provided in the related prospectus supplement,
from sellers affiliated with the Depositor.
RESIDENTIAL LOANS
The Residential Loans may consist of any combination of:
o Mortgage Loans secured by first or junior liens on one- to four-family
residential properties (each, a "MORTGAGED PROPERTY," collectively,
"MORTGAGED PROPERTIES");
o 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);
o 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;
o 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");
o 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
o manufactured housing conditional sales contracts and installment loan
agreements (the "MANUFACTURED HOUSING CONTRACTS"), which may be secured
by either liens on
o new or used manufactured homes; or
o the real property and any improvements thereon 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
o 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 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. Each
Trust Fund may contain (and any participation interest in any of the foregoing
will relate to) any combination of the following types of Residential Loans:
(1) Fully amortizing loans with a fixed rate of interest and level
monthly payments to maturity;
(2) Fully amortizing loans with a fixed interest rate providing for
level monthly payments, or for payments of interest only during the early
years of the term, followed by monthly payments of principal and interest
that increase annually at a predetermined rate until the loan is repaid or
for a specified number of years, after which level monthly payments resume;
(3) Fully amortizing loans with a fixed interest rate providing for
monthly payments during the early years of the term that are calculated on
the basis of an interest rate below the interest rate, followed by monthly
payments of principal and interest that increase annually by a
predetermined percentage over the monthly payments payable in the previous
year until the loan is repaid or for a specified number of years, followed
by level monthly payments;
(4) Fixed interest rate loans providing for level payments of
principal and interest on the basis of an assumed amortization schedule and
a balloon payment of principal at the end of a specified term;
(5) Fully amortizing loans with an interest rate adjusted periodically
("ARM Loans") (with corresponding adjustments in the amount of monthly
payments), to equal the sum (which may be rounded) of a fixed margin and an
index as described in the related prospectus supplement, which may provide
for an election, at the borrower'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 borrower'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"). Such Mortgage Securities may:
o evidence interests in, or be collateralized by, Residential Loans or
Agency Securities as described in this prospectus and in the related
prospectus supplement; or
o have been issued previously by:
o the Depositor or an affiliate thereof;
o a financial institution; or
o 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.
If the Mortgage Securities have been issued by an entity other than the
Depositor or its affiliates, such Mortgage Securities will have been:
o acquired in bona fide secondary market transactions from persons other
than the issuer thereof or its affiliates; and
o offered and distributed to the public pursuant to an effective
registration statement or purchased in a transaction not involving any
public offering from a person who is not an affiliate of the issuer of
such securities at the time of sale (nor an affiliate thereof at any time
during the preceding three months); provided, a period of two years
elapsed since the later of the date the securities were acquired from
such issuer or from an affiliate of the issuer.
Except as otherwise set forth in the related prospectus supplement, such
Mortgage Securities will be generally similar to Securities offered by this
prospectus. As to any such series of Securities, the related prospectus
supplement will include a description of:
o the Mortgage Securities;
o any related credit enhancement;
o the Residential Loans underlying such Mortgage Securities; and
o any other Residential Loans included in the Trust Fund relating to such
series.
"RESIDENTIAL LOANS" includes the Residential Loans underlying such Mortgage
Securities.
References to advances to be made and other actions to be taken by the master
servicer in connection with the Residential Loans may include such advances made
and other actions taken pursuant to the terms of such Mortgage Securities.
If so specified in the related prospectus supplement, certain Residential
Loans may contain provisions prohibiting prepayments for a specified period
after their origination date (a "LOCKOUT PERIOD"), prohibiting prepayments
entirely or requiring the payment of a prepayment penalty upon prepayment in
full or in part.
If so specified in the related prospectus supplement, the assets of the
Trust Fund in the related Trust Fund may include Residential Loans that are
delinquent or sub-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
Securities 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:
o detached and attached dwellings;
o townhouses;
o rowhouses;
o individual condominium units;
o individual units in planned-unit developments; and
o individual units in de minimus 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"
in this prospectus.
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. Such a possibility could arise under any of a number of
different circumstances:
o 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:
o first, to the payment of court costs and fees in connection with the
foreclosure;
o second, to real estate taxes; and
o 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.
o If the master servicer were to foreclose on any Mortgage Loan, it would
do so subject to any related Senior Liens.
o 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.
o 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
o the risk of delay in distributions while a deficiency judgment
against the borrower is obtained;
o the risk of loss if the deficiency judgment is not realized
upon; and
o the risk that deficiency judgments may not be available in
certain jurisdictions.
o In addition, a junior mortgagee may not foreclose on the property
securing a junior mortgage unless it forecloses subject to the senior
mortgages.
Liquidation expenses with respect to defaulted junior mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted junior mortgage loan having a small remaining principal balance
as it would in the case of a defaulted junior mortgage loan having a large
remaining principal balance, the amount realized after expenses of liquidation
would be smaller as a percentage of the outstanding principal balance of the
small junior mortgage loan than would be the case with the defaulted junior
mortgage loan having a large remaining principal balance. Because the average
outstanding principal balance of the Mortgage Loans is smaller relative to the
size of the average outstanding principal balance of the loans in a typical pool
of conventional first priority mortgage loans, liquidation proceeds may also be
smaller as a percentage of the principal balance of a Mortgage Loan than would
be the case in a typical pool of conventional first priority mortgage loans.
Multifamily Loans. The Multifamily Loans will be evidenced by Mortgage
Notes secured by Mortgages creating first or junior liens on rental apartment
buildings or projects containing five or more dwelling units. Unless otherwise
specified in the related prospectus supplement, Multifamily Loans will have had
original terms to stated maturity of not more than 30 years. If so provided in
the related prospectus supplement, the Multifamily Loans will be FHA Loans.
Mortgaged Properties which secure Multifamily Loans may include high-rise,
mid-rise and garden apartments. See "The Trust Funds -- Residential Loans -- FHA
Loans and VA Loans" anD "Description of Primary Insurance Coverage -- FHA
Insurance and VA Guarantees" in this prospectus.
If so provided in the related prospectus supplement, the Multifamily Loans
may contain provisions
o containing a Lockout Period;
o prohibiting prepayments entirely; or
o requiring the payment of a prepayment penalty upon prepayment in full or
in part.
In the event that you 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. 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. The Home
Improvement Contracts may be fully amortizing or may have substantial balloon
payments due at maturity. They may also have fixed or adjustable rates of
interest and may provide for other payment characteristics. 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" in this prospectus.
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 in such manufactured home; 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" in this prospectus.
Buydown Loans. If provided in the related prospectus supplement, certain of
the Residential Loans may be subject to temporary buydown plans ("BUYDOWN
LOANS"). 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 will be recovered from:
o an amount contributed by the borrower, the seller of the Residential
Property or another source and placed in a custodial account; and
o if so specified in the related prospectus supplement, investment earnings
on the buydown funds.
Generally, the borrower under each Buydown Loan will be eligible for 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" in this
prospectus.
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" in this prospectus.
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 Loans:
o 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%.
o 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" in this
prospectus.
Loan-to-Value Ratio. The prospectus supplement for a series backed by
Residential Loans will describe the Loan-to-Value Ratios of such loans. The
"LOAN-TO-VALUE RATIO" of a Residential Loan for any series is generally at any
given time 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:
o the appraised value determined in an appraisal obtained by the originator
at origination of such loan; and
o 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.
"COLLATERAL VALUE" of the Residential Property securing a Refinance Loan is
generally the appraised value of the Residential Property determined in an
appraisal obtained at the time of origination of the Refinance Loan.
o Generally, 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.
o Generally, 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.
We cannot assure you 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 in this prospectus and in the related
prospectus supplement, such losses will be borne, at least in part, by you. See
"Description of the Securities" and "Description of Credit Support" in this
prospectus.
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. Government National Mortgage Association ("GNMA") is a wholly-owned
corporate instrumentality of the United States within the Department of Housing
and Urban Development. Section 306(g) of Title III of the 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
o the GNMA guaranty program;
o the characteristics of the pool underlying such GNMA Certificates;
o the servicing of the related pool;
o the payment of principal and interest on GNMA Certificates to the extent
not described in this prospectus; and
o other relevant matters with respect to the GNMA Certificates.
Generally, 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. Generally, such payment shall be in
an amount of monthly payments of principal and interest equal to the holder's
proportionate interest in the aggregate amount of the monthly principal and
interest payments on each related FHA Loan or VA Loan, less servicing and
guaranty fees aggregating the excess of the interest on such FHA Loan or VA Loan
over the GNMA Certificates pass-through rate. In addition, each payment to a
holder of a GNMA Certificate will include proportionate pass-through payments to
such holder of any prepayments of principal of the FHA Loans or VA Loans
underlying the GNMA Certificate and the holder's proportionate interest in the
remaining principal balance in the event of a foreclosure or other disposition
of any such FHA Loan or VA Loan.
The GNMA Certificates do not constitute a liability of, or evidence any
recourse against, the issuer of the GNMA Certificates, the Depositor or any
affiliates thereof. 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:
o collecting payments from borrowers and remitting such collections to the
registered holder;
o maintaining escrow and impoundment accounts of borrowers for payments of
taxes, insurance and other items required to be paid by the borrower;
o maintaining primary hazard insurance;
o 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 on such loans.
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. The Federal National Mortgage Association ("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, thus expanding the total amount of funds available for housing.
Operating nationwide, FNMA helps to redistribute mortgage funds from
capital-surplus to capital-short areas. In addition, FNMA issues mortgage-backed
securities primarily in exchange for pools of mortgage loans from lenders. FNMA
receives fees for its guaranty of timely payment of principal and interest on
its mortgage-backed securities.
FNMA Certificates. FNMA Certificates are guaranteed mortgage pass-through
certificates typically issued pursuant to a prospectus which is periodically
revised by FNMA. FNMA Certificates represent fractional undivided interests in a
pool of mortgage loans formed by FNMA. Each mortgage loan:
o must meet the applicable standards of the FNMA purchase program;
o is either provided by FNMA from its own portfolio or purchased pursuant
to the criteria of the FNMA purchase program; and
o is either a conventional mortgage loan, an FHA Loan or a VA Loan.
The prospectus supplement for Securities of each series evidencing interests in
a Trust Fund including FNMA Certificates will set forth additional information
regarding:
o the FNMA program;
o the characteristics of the pool underlying such FNMA Certificates;
o the servicing of the related pool;
o payment of principal and interest on the FNMA Certificates to the extent
not described in this prospectus; and
o 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. In
addition, FNMA will distribute 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. The Federal Home Loan Mortgage Corporation ("FHLMC") is a corporate
instrumentality of the United States created pursuant to Title III of the
Emergency Home Finance Act of 1970, as amended (the "FHLMC ACT"). FHLMC 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 purchasing first lien,
conventional residential mortgage loans or participation interests in such
mortgage loans and reselling the mortgage loans so purchased in the form of
mortgage securities, primarily FHLMC Certificates. FHLMC is confined to
purchasing, so far as practicable, mortgage loans and participation interests in
such mortgage loans 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:
o the FHLMC guaranty program;
o the characteristics of the pool underlying such FHLMC Certificate;
o the servicing of the related pool;
o payment of principal and interest on the FHLMC Certificate to the extent
not described in this prospectus; and
o other relevant matters with respect to the FHLMC Certificates.
Except as described below with respect to Stripped Agency Securities:
o 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.
o 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, but does not, except if and to the extent specified in
the related prospectus supplement, guarantee the timely payment of
scheduled principal.
o 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:
o foreclosure sale;
o payment of the claim by any mortgage insurer; and
o the expiration of any right of redemption; but
o in any event no later than one year after demand has been made upon
the borrower 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 borrower, and FHLMC has not adopted servicing standards
that require that the demand be made within any specified period.
FHLMC Certificates are not guaranteed by the United States or by any
Federal Home Loan Bank and do not constitute debts or obligations of the United
States or any Federal Home Loan Bank. The obligations of FHLMC under its
guarantee are obligations solely of FHLMC and are not backed by, nor entitled
to, the full faith and credit of the United States. If FHLMC were unable to
satisfy such obligations, distributions to holders of FHLMC Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of FHLMC Certificates would
be affected by delinquent payments and defaults on such Mortgage Loans.
The FHLMC Certificates included in a Trust Fund may have other
characteristics and terms, different from those described above, so long as such
FHLMC Certificates and underlying mortgage loans meet the criteria of the Rating
Agency or Rating Agencies rating the 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
o 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
o 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:
o the aggregate outstanding principal balance and the average outstanding
principal balance of the assets of the Trust Fund as of the applicable
Cut-Off Date;
o 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);
o the original terms to maturity;
o the outstanding principal balances;
o the years in which the loans were originated;
o with respect to Multifamily Loans, the Lockout Periods and prepayment
penalties
o the loan-to-value ratios or, with respect to Residential Loans secured by
a junior lien, the combined loan-to-value ratios at origination;
o the interest rates or range of interest rates borne by the Residential
Loans or residential loans underlying the Agency Securities;
o the geographical distribution of the Residential Properties on a
state-by-state basis;
o 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
o information as to the payment characteristics of the Residential Loans.
If specific information respecting the assets of the Trust Fund 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.
The Depositor will cause the Residential Loans comprising each Trust Fund
(or Mortgage Securities evidencing interests in such Residential Loans) to be
assigned to the trustee for the benefit of the holders of the Securities 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 , the trustee and such other
parties specified in the related prospectus supplement, and will receive a fee
for such services. See "Residential Loan Program" and "Description of the
Securities" in this prospectus. 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, unless the related prospectus
supplement provides otherwise.
The Depositor will assign the Residential Loans to the related trustee on a
non-recourse basis. The obligations of the Depositor with respect to the
Residential Loans will be limited to certain representations and warranties made
by it, unless the related prospectus supplement provides that another party will
make such representations and warranties. See "Description of the Securities --
Assignment of Assets of the Trust Fund" in this prospectus. 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 in this prospectus under "Residential Loan Program -- Representations
by Unaffiliated Sellers; Repurchases"; "-- Sub-Servicing" and "Description of
the Securities -- Assignment of Assets of the Trust Fund") 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 in this prospectus under "Description
of the Securities -- 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 in this prospectus 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. The Depositor will
register the Agency Securities in accordance with the procedures established by
the issuer or guarantor for registration of such securities 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 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 services. The Agency Securities and any
moneys attributable to distributions on such Agency Securities will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of the trustee or any person claiming through it. The trustee will not
have the power or authority to assign, transfer, pledge or otherwise dispose of
any assets of any Trust Fund to any person, except to a successor trustee, to
the Depositor or the holders of the Securities to the extent they are entitled
to such assets of the Trust Fund 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 certain permitted instruments 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:
o to purchase the related assets of the Trust Fund;
o to repay indebtedness which has been incurred to obtain funds to acquire
such assets of the Trust Fund;
o to establish any Reserve Funds or other funds described in the related
prospectus supplement; and
o to pay costs of structuring, guaranteeing and issuing such Securities,
including the costs of obtaining credit support, if any.
The purchase of the assets of the Trust Fund for a series may be effected by an
exchange of Securities with the seller of such assets of the Trust Fund.
YIELD CONSIDERATIONS
Unless otherwise specified in the related prospectus supplement, each
monthly or other periodic interest payment on an asset of the Trust Fund 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 holders of the
Securities (other than holders of Strip Securities) with respect to each asset
of the Trust Fund will be similarly calculated for the applicable period, based
on the applicable Security Interest Rate, unless the prospectus supplement
indicates otherwise. 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 holders of the Securities 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
asset of the Trust Fund 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.
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 holders of
the Securities. 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 holders of the Securities 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" in this prospectus.
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 holders of the Securities could occur. An action
to foreclose on a Mortgaged Property securing a Mortgaged Loan is regulated by
state statutes and rules and is subject to many of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
several years to complete. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a property.
In the event of a default by a borrower, these restrictions among other things,
may impede the ability of the master servicer to foreclose on or sell the
Mortgaged Property or to obtain liquidation proceeds sufficient to repay all
amounts due on the related Mortgaged Loan. In addition, the master servicer will
be entitled to deduct from related liquidation proceeds all expenses reasonably
incurred in attempting to recover amounts due on defaulted Mortgaged Loans and
not yet reimbursed, including payments to senior lienholders, legal fees and
costs of legal action, real estate taxes and maintenance and preservation
expenses.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the remaining principal balance of the small mortgage
loan than would be the case with the other defaulted mortgage loan having a
large remaining principal balance.
Applicable state laws generally regulate interest rates and other charges,
require certain disclosures, and require licensing of certain originators and
servicers of Residential Loans. In addition, most have other laws, public policy
and general principles of equity relating to the protection of consumers, unfair
and deceptive practices and practices which may apply to the origination,
servicing and collection of the Residential Loans. Depending on the provisions
of the applicable law and the specific facts and circumstances involved,
violations of these laws, policies and principles may limit the ability of the
master servicer to collect all or part of the principal of or interest on the
Residential Loans, may entitle the borrower to a refund of amounts previously
paid and, in addition, could subject the trustee or master servicer to damages
and administrative sanctions which could reduce the amount of distributions
available to holders of the Securities.
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 assets of the Trust Fund in a given
Trust Fund may vary depending upon the type of Residential Loans or the
residential loans underlying the Agency Securities included in the Trust Fund.
Each prospectus supplement will contain information with respect to the type and
maturities of the assets of the Trust Fund 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 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 assets of the Trust Fund 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:
o homeowner mobility;
o economic conditions;
o enforceability of due-on-sale clauses;
o market interest rates and the availability of funds;
o the existence of lockout provisions and prepayment penalties;
o the inclusion of delinquent or sub-performing Residential Loans in the
assets of the Trust Fund;
o the relative tax benefits associated with the ownership of property; and
o 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 assets of the Trust Fund,
such assets of the Trust Fund are likely to be the subject of higher principal
prepayments than if prevailing rates remain at or above the interest rates borne
by such assets of the Trust Fund.
Other factors that might be expected to affect the prepayment rate of
Securities backed by junior lien mortgage loans or Home Improvement Contracts
include:
o the amounts of the underlying senior mortgage loans;
o the interest rates on the underlying senior mortgage loans;
o the use of first mortgage loans as long-term financing for home purchase;
and
o the use of subordinate mortgage loans as shorter-term financing for a
variety of purposes, including:
o home improvement;
o education expenses; and
o 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 master servicer generally is required to 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. However, the master
servicer will generally be prohibited from taking 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" in this
prospectus 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" in this prospectus 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 Assets of the Trust Fund" in this prospectus 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. We do not expect that the Depositor will have any business
operations other than acquiring and pooling residential loans and agency
securities, offering Securities 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
The Residential Loans will have been purchased by the Depositor, either
directly or through affiliates, from loan 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
Underwriting standards are applied by or on behalf of a lender to evaluate:
o the borrower's credit standing;
o repayment ability; and
o 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.
A verification of the borrower's income will generally 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. An
employment verification is generally obtained from an independent source
(typically the borrower's employer) which verification reports:
o the length of employment with that organization;
o the current salary; and
o 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:
o inspect the property;
o issue a report on its condition; and
o if applicable, verify that construction, if new, has been completed.
The appraisal is based on:
o the market value of comparable homes;
o the estimated rental income (if considered applicable by the appraiser);
and
o 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:
o 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
o to meet monthly housing expenses and other financial obligations and
monthly living expenses.
The underwriting standards applied by sellers, particularly with respect to the
level of loan documentation and the borrower'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:
o a loan made to a borrower whose creditworthiness and repayment ability do
not satisfy such FNMA or FHLMC underwriting guidelines; or
o a loan made to a borrower who may have a record of major derogatory
credit items such as:
o default on a prior mortgage loan;
o credit write-offs;
o outstanding judgments; and
o 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.
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. If specified
in the related prospectus supplement, such representations and warranties may
include, among other things:
o 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 may forgive certain indebtedness of a borrower;
o 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);
o if the Trust Fund includes Manufactured Housing Contracts, each
Manufactured Housing Contract creates a valid, subsisting and enforceable
first priority security interest in the manufactured home covered
thereby;
o that the Residential Property was free from damage and was in good
repair;
o that there were no delinquent tax or assessment liens against the
Residential Property;
o that each Residential Loan was current as to all required payments; and
o 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 master servicer or the trustee will be required to 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 holders of the Securities in such Residential Loan.
If such Unaffiliated Seller cannot cure such breach, then such Unaffiliated
Seller will be obligated to repurchase such Residential Loan from the trustee 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:
o the unpaid principal balance of such Residential Loans;
o unpaid accrued interest on the unpaid 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; and
o 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.
An Unaffiliated Seller, rather than repurchase a Residential Loan as to
which a breach has occurred, may have the option, within a specified period
after initial issuance of the related series of Securities, to cause the removal
of such Residential Loan from the Trust Fund and substitute in its place one or
more other Residential Loans, in accordance with the standards described in the
related prospectus supplement. Unless otherwise specified in the related
prospectus supplement, this repurchase or substitution obligation will
constitute the sole remedy available to holders of Securities or the trustee for
a breach of representation by an Unaffiliated Seller.
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 we cannot assure you that Unaffiliated Sellers will carry out such
obligations with respect to Residential Loans. 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 holders of the Securities, 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, 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.
<PAGE>
DESCRIPTION OF THE SECURITIES
GENERAL
The Certificates of each series evidencing interests in a Trust Fund will
be issued pursuant to a separate pooling and servicing agreement or trust
agreement. Each series of Notes (or, in certain instances, two or more series of
Notes) will be issued pursuant to an indenture, and the Issuer of the Notes will
be a trust established by the Depositor pursuant to an owner trust agreement or
such other entity as may be specified in the related prospectus supplement. 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 in the related
prospectus supplement, will not be offered by such prospectus supplement.
Forms of each of the agreements referred to above 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 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.
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:
o 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;
o 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
holders of the Securities;
o with respect to Trust Funds that include Residential Loans,
o property acquired by foreclosure or deed in lieu of foreclosure of
Mortgage Loans on behalf of the holders of the Securities, or, in
the case of Manufactured Housing Contracts that are not Land
Contracts, by repossession;
o any Primary Credit Insurance Policies and Primary Hazard Insurance
Policies (as defined under "Description of Primary Insurance
Coverage" in this prospectus);
o 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" in this prospectus);
and
o the rights of the trustee to any cash advance reserve fund or surety
bond as described under "Advances" in this prospectus;
o if specified in the related prospectus supplement, the Reserve Fund; and
o 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 Security Register ("SECURITY REGISTER") maintained by the
Security Registrar ("SECURITY Registrar"), but the Depositor or the trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge.
Each series of Securities may consist of any combination of:
o one or more classes of Securities, one or more classes of which ("SENIOR
SECURITIES") will be senior in 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");
o one or more classes of Securities which will be entitled to
o principal distributions, with disproportionate, nominal or no
interest distributions; or
o interest distributions, with disproportionate, nominal or no
principal distributions ("STRIP SECURITIES");
o 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
o other types of classes of Securities, as described in the related
prospectus supplement.
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 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. 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" will generally be 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").
ASSIGNMENT OF ASSETS OF THE TRUST FUND
At the time of issuance of each series of Securities, the Depositor will
cause the assets comprising the related Trust Fund or Mortgage Securities
included in the related Trust Fund to be assigned to the trustee. The
Residential Loan or Agency Security documents described below will be delivered
to the trustee (or to the custodian). The trustee will, concurrently with such
assignment, deliver the Securities to the Depositor in exchange for the assets
of the Trust Fund. Each asset of the Trust Fund will be identified in a schedule
appearing as an exhibit to the related agreement. Such schedule will include,
among other things:
o information as to the outstanding principal balance of each Trust Fund
asset after application of payments due on or before the Cut-Off Date;
o the maturity of the Mortgage Note, Cooperative Note, Manufactured Housing
Contract or Agency Securities;
o any Retained Interest, with respect to a series of Securities evidencing
interests in a Trust Fund including Agency Securities;
o the pass-through rate on the Agency Securities;
o and with respect to a series of Securities evidencing interests in
Residential Loans, for each such loan;
o information respecting its interest rate;
o its current scheduled payment of principal and interest;
o its Loan-to-Value Ratio; and
o certain other information.
Mortgage Loans and Multifamily Loans. The Depositor will be required, as to
each Mortgage Loan (other than Mortgage Loans underlying any Mortgage
Securities) and Multifamily Loan, to 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:
o the Mortgage Note endorsed without recourse to the order of the trustee;
o the Mortgage with evidence of recording indicated (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
o an assignment in recordable form of the Mortgage to the trustee.
Unless otherwise provided in the related prospectus supplement, the Depositor or
another party will be required to 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, 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 Home Improvement Contracts, an assignment in recordable form of the
Mortgage to the trustee.
Unless otherwise provided in the related prospectus supplement, the
Depositor or another party will be required to 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 will
cause to be transferred physical possession of the Home Improvement Contracts to
the trustee or a designated custodian or, if applicable, the Unaffiliated Seller
may retain possession of the Home Improvement Contracts as custodian for the
trustee. In addition, the Depositor will be required to 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 or security interest in 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):
o the related Cooperative Note;
o the original security agreement;
o the proprietary lease or occupancy agreement;
o the related stock certificate and related stock powers endorsed in blank;
and
o a copy of the original filed financing statement together with an
assignment thereof to the trustee in a form sufficient for filing.
The Depositor or another party will 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 be required, as to each Manufactured
Housing Contract, to deliver or cause to be delivered to the trustee (or to the
custodian):
o the original Manufactured Housing Contract endorsed to the order of the
trustee; and
o if applicable, copies of documents and instruments related to each
Manufactured Housing Contract and the security interest in the
manufactured home securing each Manufactured Housing Contract.
Unless otherwise provided in the related prospectus supplement, in order to give
notice of the right, title and interest of the holders of Securities to the
Manufactured Housing Contracts, the Depositor will be required to cause to be
executed and delivered to the trustee a UCC-1 financing statement identifying
the trustee as the secured party and identifying all Manufactured Housing
Contracts as collateral of the Trust Fund.
Agency Securities. Agency Securities will be registered in the name of the
trustee or its nominee on the books of the issuer or guarantor or its agent or,
in the case of Agency Securities issued only in book-entry form, through the
Federal Reserve System, in accordance with the procedures established by the
issuer or guarantor for registration of such securities 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 after receipt, and the trustee (or such custodian)
will hold such documents in trust for the benefit of the holders of Securities.
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, the Unaffiliated Seller will be obligated to repurchase the related
Residential Loan from the trustee at the purchase price specified under
"Residential Loan Program--Representations by Unaffiliated Sellers;
Repurchases", or, in certain cases, substitute for such Residential Loan. We
cannot assure you 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, will constitute the sole remedy
available to the holders of Securities 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.
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 assets of the
Trust Fund, which must be 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
in such Trust Account.
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 in such Trust Account
may be invested pending the distribution on each succeeding Distribution Date in
Permitted Instruments. Unless otherwise specified in the related prospectus
supplement, the trustee or the master servicer may be entitled to receive any
such interest or other income earned on funds in the Trust Account as additional
compensation for administration of the assets of the Trust Fund. In respect of
any series of Securities having Distribution Dates occurring less frequently
than monthly, the master servicer may obtain from an entity 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.
PRE-FUNDING ACCOUNT
If so provided in the related prospectus supplement, the master servicer or
the trustee will establish and maintain a pre-funding account, in the name of
the related trustee on behalf of the related holders of the securities, 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
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 holders of Securities 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 be required to deposit or cause to be deposited in
a Trust Account for each Trust Fund including Residential Loans (or, in the case
of advances on or before the applicable Distribution Date), unless otherwise
provided in the related agreement, the following payments and collections
received or made by or on behalf of the master servicer subsequent to the
Cut-Off Date (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
o 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),
o any Primary Credit Insurance Policy, any FHA Insurance, VA
Guarantee, any Bankruptcy Bond and any Pool Insurance Policy
(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
o 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 holders of Securities 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 any Unaffiliated Seller as described under
"Residential Loan Program -- Representations by Unaffiliated Sellers;
Repurchases," 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) any 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" in this prospectus;
(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; and
(x) any distributions received on any Mortgage Securities included in
the related Trust Fund.
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 on such Agency Securities 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 related
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 holder of Securities at a bank or other entity having
appropriate facilities for such transfer, if such holder of Securities 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 to such check as it appears on the
Security Register. However, 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
holders of Securities of such final distribution. Unless otherwise specified in
the related 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 holders of Securities of record on the related Record Date
(other than in respect of the final distribution), based on the aggregate
Percentage Interest represented by their respective Securities.
Final Distribution Date. If specified in the prospectus supplement for 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
assets of the Trust Fund. 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 assets of the Trust
Fund, the actual last Distribution Date for any class of Securities could occur
significantly earlier than its Final Distribution Date. The rate of payments on
the assets of the Trust Fund 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 assets of the Trust Fund. See
"Maturity and Prepayment Considerations" in this prospectus. In addition,
substantial losses on the assets of the Trust Fund in a given period, even
though within the limits of the protection afforded by the instruments described
under "Description of Credit Support," in this prospectus 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
o out of, and to the extent of, the amount available for such distributions
in the related Trust Account,
o on the day specified in the related prospectus supplement,
o in the amount described below if, as a result of substantial payments of
principal on the assets of the Trust Fund, low rates then available for
reinvestment of payments on such assets of the Trust Fund, substantial
Realized Losses or some combination of the foregoing, 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 Security 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.
Some classes of Securities will not be entitled to interest payments.
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 on such Securities absent such reductions and absent any
delinquencies or losses. 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.
See "Yield Considerations" and "Maturity and Prepayment Considerations" in this
prospectus.
Distributions of Accrued Security Interest that would otherwise be payable
on any class of Accrual Securities of a series will be added to the Security
Principal Balance of the Accrual Securities on each Distribution Date until the
time specified in the related prospectus supplement on and after which payments
of interest on the Accrual Securities will be made. See "--Distributions--Final
Distribution Date" in this prospectus.
Some Securities 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 assets of the Trust Fund
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, 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 to such Securities.
Some Securities will not have a Security Principal Balance and will not be
entitled to principal payments. The initial aggregate Security Principal Balance
of a series and each class of such series will be specified in the related
prospectus supplement. The initial aggregate Security Principal Balance of all
classes of Securities of a Series may be based on the aggregate principal
balance of the assets in the related Trust Fund. Alternatively, the initial
Security Principal Balance for a series of Securities may equal the initial
aggregate "CASH FLOW VALUE" of the related assets of the Trust Fund as of the
applicable Cut-Off Date. The aggregate Cash Flow Value of the assets of the
Trust Fund will be the Security Principal Balance of the Securities of such
series which, based on certain assumptions (including the assumption that no
defaults occur on the assets of the Trust Fund), can be supported by either:
o the future scheduled payments on the assets of the Trust Fund (with the
interest on such assets adjusted to the Net Interest Rate); or
o the proceeds of the prepayment of such assets of the Trust Fund, together
with reinvestment earnings on such assets of the Trust Fund, if any, at
the applicable Assumed Reinvestment Rate; and
o amounts available to be withdrawn from any Reserve Fund for such series,
as further or as otherwise specified in the related prospectus supplement
relating to a series of Securities.
The "ASSUMED REINVESTMENT RATE" for a series of Securities 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
related 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 assets of the Trust Fund included in the Trust Fund for a series of
Securities 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 assets of the
Trust Fund, the amount of principal distributed for such series on each
Distribution Date will generally be calculated on the basis of:
o the decline in the aggregate Cash Flow Values of the assets of the Trust
Fund during the related Due Period, calculated in the manner prescribed
in the related agreement; minus
o 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" in this prospectus, the portion of the Cash Flow Value of
the assets of the Trust Fund 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 to distributions of principal 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
As more specifically set forth in the related prospectus supplement, all
distributions on the Securities of each series on each Distribution Date will
generally 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 a determination date specified in the related prospectus
supplement, exclusive of certain amounts payable on future Distribution
Dates and certain amounts payable to the master servicer, any applicable
sub-servicer, the trustee or another person as expenses of the Trust Fund;
(ii) any principal and/or interest advances made with respect to such
Distribution Date, if applicable;
(iii) any principal and/or interest payments made by the master
servicer out of its servicing fee in respect of interest shortfalls
resulting from principal prepayments, if applicable; and
(iv) all net income received in connection with the operation of any
Residential Property acquired on behalf of the holders of Securities
through deed in lieu of foreclosure or repossession, if applicable.
On each Distribution Date for a series of Securities, the trustee or the
master servicer will be required to 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 holders of Securities in the
manner set forth in this prospectus and in the related prospectus supplement.
SUBORDINATION
A Senior/Subordinate Series will consist of one or more classes of
Securities ("SENIOR SECURITIES") senior in right of payment to one or more
classes of Securities ("SUBORDINATE SECURITIES"), as specified in the related
prospectus supplement. 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 Securities
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 holders of certain classes of
Subordinate Securities to receive distributions with respect to the Residential
Loans will be subordinate to the rights of the holders of certain classes of
Senior Securities. 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 holders of Securities by deed
in lieu of foreclosure, repossession, or otherwise, the amount of loss realized,
if any (a "REALIZED LOSS"), will generally 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 Securities of the
related series as described in the related prospectus supplement, until the
Security Principal Balance of the Subordinate Securities has been reduced to
zero. Any additional Realized Losses will be allocated to the Senior Securities
(or, if such series includes more than one class of Senior Securities, either on
a pro rata basis among all of the Senior Securities in proportion to their
respective outstanding "SECURITY 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
Securities 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" in this
prospectus. If so, any Special Hazard Losses in excess of the Special Hazard
Subordination Amount may be allocated among all outstanding classes of
Securities of the related series, either on a pro rata basis in proportion to
their outstanding Security Principal Balances, regardless of whether any
Subordinate Securities remain outstanding, or as otherwise provided in the
related prospectus supplement.
As set forth above, the rights of holders of the various classes of
Securities 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 Security will be reduced by all amounts
previously distributed on such Security in respect of principal, and by any
Realized Losses allocated to such Security. However, to the extent so provided
in the related prospectus supplement, holders of Senior Securities 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 Securities and
increasing the respective percentage interest evidenced by the Subordinate
Securities in the related Trust Fund (with a corresponding decrease in the
percentage interest evidenced by the Senior Securities), as well as preserving
the availability of the subordination provided by the Subordinate Securities. In
addition, as set forth above, Realized Losses will be first allocated to
Subordinate Securities by reduction of their Security Principal Balance, which
will have the effect of increasing the respective ownership interest evidenced
by the Senior Securities 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 Securities 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 holders of Subordinate Securities to receive
distributions of principal and interest with respect to the Residential Loans
will be subordinate to the rights of the holders of Senior Securities. 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
holders of Senior Securities that, but for the subordination provisions, would
otherwise have been payable to the holders of Subordinate Securities. The
Available Subordination Amount will decrease whenever amounts otherwise payable
to the holders of Subordinate Securities are paid to the holders of Senior
Securities (including amounts withdrawn from the Reserve Fund and paid to the
holders of Senior Securities), and will increase whenever there is distributed
to the holders of Subordinate Securities amounts in respect of which
subordination payments have previously been paid to the Senior Securities (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 related prospectus supplement.
The protection afforded to the holders of Senior Securities from the
subordination provisions may be effected both by the preferential right of the
holders of Senior Securities to receive current distributions from the Trust
Fund (subject to the limitations described in this prospectus) and by the
establishment and maintenance of any 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, if any, (other than earnings on such Reserve
Funds) will be withdrawn for distribution to holders of Senior Securities 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 holders of Senior Securities on such date,
the amount of the Reserve Fund exceeds the amount required to be held in such
Reserve Fund (the "SPECIFIED RESERVE FUND BALANCE"), such excess will be
withdrawn and distributed in the manner specified in the related prospectus
supplement.
In the event any Reserve Fund is depleted before the Available
Subordination Amount is reduced to zero, the holders of Senior Securities 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
holders of Senior Securities could suffer shortfalls of amounts due to them. The
holders of Senior Securities will bear their proportionate share of any losses
realized on the Trust Fund in excess of the Available Subordination Amount.
Amounts remaining in any Reserve Fund after the Available Subordination
Amount is reduced to zero will no longer be subject to any claims or rights of
the holders of Senior Securities of such series.
Funds in any Reserve Fund may be invested in Permitted Instruments. The
earnings or losses on such investments will be applied in the manner described
in the related prospectus supplement.
The time necessary for any 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 holders of Senior Securities 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 generally 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 generally the period commencing on the day following the determination
date immediately preceding the related determination date and ending on the
related determination date or as otherwise described in the related prospectus
supplement.
Because the Cash Flow Value of a Residential Loan will never exceed the
outstanding principal balance of such Residential Loan, 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
If and to the extent specified in the related Prospectus Supplement, with
respect to any series of Securities evidencing interests in a Trust Fund that
includes Residential Loans, 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, in an amount equal to the
aggregate of payments of principal and/or interest (adjusted to the applicable
Net Interest Rate) on the Residential Loans that were due during the related Due
Period and that were delinquent (and not advanced by any sub-servicer) on the
applicable 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 holders of Securities 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" in this prospectus.
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.
Advances are intended to maintain a regular flow of scheduled interest and
principal payments to holders of Securities, 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 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 borrower
of, any such surety bond, will be set forth in the related prospectus
supplement.
STATEMENTS TO HOLDERS OF SECURITIES
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 holder of Securities of the related series and to the
Depositor a statement which may include 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
holders of Securities to prepare their tax returns or which a holder of
Securities 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 unpaid principal balance of the Mortgage Loans at
the close of business on such Distribution Date;
(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 Security 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 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;
(xiv) 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" in this prospectus) included
in such Insurance Instrument 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 holders of Senior Securities by the subordination
provisions and information regarding any shortfalls in payments to the
holder of Senior Securities which remain outstanding; and
(xv) 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 related prospectus supplement, if not issued in fully
registered form, each class of Securities will be registered as book-entry
securities (the "BOOK-ENTRY SECURITIES"). Persons acquiring beneficial ownership
interests in the Securities ("SECURITY OWNERS") will hold their Securities
through the Depository Trust Company ("DTC") in the United States, or Cedelbank
("CEDEL") or The Euroclear System ("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. 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
"holders" 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
Securities, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Securities 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.
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 Securities
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 Securities by or through a CEDEL Participant or Euroclear
Participant 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.
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 "Federal Income
Tax Consequences" in this prospectus. 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.
It is our 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 terms of the Securities only at the direction of
one or more Financial Intermediaries to whose DTC accounts the Book-Entry
Securities 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 holder of Securities under the terms of the
Securities 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.
Definitive Securities will be delivered to beneficial owners of Securities
(or their nominees) only if (i) DTC is no longer willing or able properly to
discharge its responsibilities as depository with respect to the Securities, and
the Depositor is unable to locate a qualified successor, (ii) the Depositor or
trustee, at its sole option, elects to terminate the book-entry system through
DTC, or (iii) after the occurrence of an Event of Default under the pooling and
servicing agreement, Security owners representing a majority in principal amount
of the Securities of any class then outstanding advise DTC through a Participant
of DTC in writing that the continuation of a book-entry system through DTC (or a
successor thereto) is no longer in the best interest of such Security owners.
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 holders of
Securities 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 Securities held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. WE CANNOT INSURE YOU
THAT CEDE & CO., DTC OR ANY FINANCIAL INTERMEDIARY WILL PROVIDE INFORMATION TO
YOU OR ACT IN ACCORDANCE WITH THEIR RESPECTIVE RULES, REGULATIONS, AND
PROCEDURES.
COLLECTION AND OTHER SERVICING PROCEDURES
Residential Loans. The master servicer, directly or through sub-servicers,
will be required to make reasonable efforts to collect all required payments
under the Residential Loans and will be required to 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 any
insurance policy, bond or other instrument described under "Description of
Primary Insurance Coverage" or "Description of Credit Support" in this
prospectus (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 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 applicable due-on-sale or due-on-encumbrance clause, 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 will also be 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
("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 may
be retained by or on behalf of the master servicer as additional compensation
for administering of the assets of the Trust Fund. See "Certain Legal Aspects of
Residential Loans -- Enforceability of Certain Provisions" and "-- Prepayment
Charges and Prepayments" in this prospectus. The master servicer will be
required to notify the trustee and any custodian that any such assumption or
substitution agreement has been completed.
Agency Securities. The trustee will be required, 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 (or such other date as
may be specified in the related prospectus supplement) 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 with such Agency Securities. 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 to holders of Securities 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 holders of Securities, will present claims to the
insurer under each Insurance Instrument, to the extent specified in the related
prospectus supplement, and will be required to take such reasonable steps as are
necessary to receive payment or to permit recovery under such Insurance
Instrument 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
may 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 will
not be required to expend its own funds to restore the damaged property unless
it determines:
(i) that such restoration will increase the proceeds to holders of
Securities 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:
o 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);
o the amount of any liens senior thereto plus interest accrued thereon at
the Net Interest Rate; plus
o 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
any excess proceeds. See "Description of Primary Insurance Coverage" and
"Description of Credit Support" in this prospectus.
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
Cooperative Shares" in this prospectus. 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 relating to a series of Securities will specify
whether there will be any Retained Interest in any of the assets of the Trust
Fund. If so, the Retained Interest may 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 an asset of the
Trust Fund 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.
As 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 generally 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 on the asset 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 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. Any
sub-servicer may 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 assets of the Trust Fund amortize.
As additional compensation in connection with a series of Securities
relating to Residential Loans, the master servicer or the sub-servicers, if any,
may be entitled to retain all assumption fees and late payment charges, if any,
to the extent collected from borrowers, and 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 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 its regular
expenses incurred in connection with its servicing of the Residential Loans,
other than expenses relating to foreclosures and disposition of property
acquired upon foreclosure.
We anticipate 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 holders of
Securities to receive any related Liquidation Proceeds. The master servicer may
also be entitled to reimbursement from the Trust Account for advances, if
applicable. With respect to a series of Securities relating to Agency
Securities, the trustee will be required to pay all of its anticipated recurring
expenses.
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, or, in the case of a pool of Agency
Securities or Mortgage Securities, the trustee, at its expense shall cause a
firm of independent public accountants (who may also render other services to
the master servicer, or the trustee or any affiliate) which is a member of the
American Institute of Certified Public Accountants to furnish a statement 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 applicable servicing agreement or trust agreement will also provide
for delivery to the trustee, on or before a specified date in each year, of an
annual statement signed by an officer of the master servicer, in the case of a
pool of Agency Securities or Mortgage Securities, or of the trustee, in the case
of a trust agreement, to the effect that, to the best of such officer's
knowledge, the master servicer or the trustee, as the case may be, has fulfilled
its obligations under such agreement throughout the preceding year.
CERTAIN MATTERS REGARDING THE MASTER SERVICER, THE DEPOSITOR AND THE TRUSTEE
The Master Servicer. The master servicer under each servicing agreement
will be identified in the related prospectus supplement. Each such servicing
agreement will generally provide that:
o 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
o shall resign upon a determination that its duties thereunder are no
longer permissible under applicable law; and
o such resignation will not 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 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 holders of Securities
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
o against any liability for any breach of warranties or representations
made in the servicing agreement; or
o against any specific liability imposed on the master servicer
o by the terms of the servicing agreement; or
o by reason of willful misfeasance, bad faith or gross negligence in
the performance of duties under the agreement; or
o by reason of reckless disregard of obligations and duties
thereunder.
The master servicer and any director, officer, employee or agent of the master
servicer will be entitled to 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 may
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 under
the agreement 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
be permitted, 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 to the servicing agreement and the interests of
the holders of Securities under the servicing agreement. In such event, the
legal expenses and costs of such action and any liability resulting from taking
such actions 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 holders of
Securities 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 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 related prospectus supplement so provides, the master servicer's
duties may be terminated upon payment of a termination fee, and the master
servicer may be replaced with a successor meeting the qualifications specified
in the related prospectus supplement.
The Depositor. Each applicable 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 holders of Securities 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 will 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 will be entitled to 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:
o the agreement or the Securities;
o any Pool Insurance Policy;
o any special hazard insurance policy and the Bankruptcy Bond; or
o any Agency Securities,
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.
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 be permitted, 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 to such agreement and the interests of the holders of Securities under
such agreement. In such event, the legal expenses and costs of such action and
any liability resulting from taking such actions 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 holders of Securities 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.
The Trustees. Each trustee for any series of Securities will be required to
be an entity 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 or the trustee may 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 (or the
other party specified in the related agreements) will be obligated to appoint a
successor trustee. The Depositor (or the other party specified in the related
agreements) 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 (or the other party
specified in the related agreements) will be obligated to appoint a successor
trustee. The holders of Securities evidencing not less than a majority of the
voting rights allocated to the 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 asset of the Trust
Fund or related document other than the certificate of authentication on the
forms of Securities, and will not assume any responsibility for their
correctness. The trustee under any agreement will not be 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 assets of the Trust Fund, 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 has
occurred and is continuing, the trustee will be 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 will be 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 holders of Securities for any action
taken or for refraining from the taking of any action in good faith pursuant to
the agreement, or for errors in judgment; provided, however, that neither the
trustee nor any such person shall be protected against specific liability
imposed on the trustee by the terms of the agreement or by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties under
such agreement 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 under such agreement or by
reason of reckless disregard of obligations and duties under any such agreement.
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 may apply if 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 on such Securities
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.
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 Securities 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 allocated to the Securities 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:
o any failure by the master servicer to distribute or cause to be
distributed to holders of the Certificates of the related series, or if
the trustee is required to make such distributions, the failure of the
master servicer to remit funds to the trustee for such distribution, any
required payment which continues unremedied for five days or other period
as described in the servicing agreement after the giving of written
notice of such failure in accordance with the procedures described in the
agreement;
o 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 or such period as
specified in the pooling and servicing agreement after the giving of
written notice of such failure in accordance with the procedures
described in the agreement;
o 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; and
o any other Event of Default specified in the pooling and servicing
agreement.
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 50% of the voting rights
allocated to the Certificates (or such other percentage as may be specified in
the pooling and servicing agreement) 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 of such Residential Loans. The trustee or another successor
servicer will then succeed to all responsibilities, duties and liabilities of
the master servicer 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 to act as master servicer, it may (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, or such other amount as may be specified in the related
agreement, 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 holder of the Certificate will have the right under any pooling and
servicing agreement to institute any proceeding with respect to its Certificates
unless permitted in the related agreement and:
o 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 of such Event of Default;
o the holders of Certificates evidencing not less than 25% of the voting
rights allocated to the Certificates (or such other percentages specified
in such agreement) have made written request upon the trustee to
institute such proceeding in its own name as trustee and have offered to
the trustee reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred by instituting such proceedings;
and
o 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 generally 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 holders of the Certificates have offered to the
trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred in such undertaking.
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:
o any failure by the master servicer to pay or cause to be paid to holders
of the Notes of the related series, or if the trustee is required to make
such payments, the failure of the master servicer to remit funds to the
trustee for such payment, any required payment which continues unremedied
for five days or other period as described in the servicing agreement
after the giving of written notice of such failure in accordance with the
procedures described in the agreement;
o 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 or such period as
specified in the pooling and servicing agreement after the giving of
written notice of such failure in accordance with the procedures
described in the agreement;
o 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; and
o any other Servicing Default specified 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 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). The trustee or another successor servicer will then succeed
to all responsibilities, duties and liabilities of the master servicer 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, or such other amount as may be specified in the related
agreement, to act as successor to the master servicer under 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:
o a default for five days or more (or other period of time described in the
related indenture) in the payment of any principal of or interest on any
Note of such series;
o failure to perform any other covenant of the Issuer or the Trust Fund in
the indenture which continues for a period of thirty days, or such other
period as set forth in the related indenture, after notice of such Event
of Default is given in accordance with the procedures described in the
related indenture;
o any representation or warranty made by the Issuer or the Trust Fund in
the indenture or in any certificate or other writing delivered pursuant
to the indenture or in connection with the indenture 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, or such
other period as set forth in the related indenture, after notice of such
breach is given in accordance with the procedures described in the
related indenture;
o certain events of bankruptcy, insolvency, receivership or liquidation of
the Issuer or the Trust Fund; and
o 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 voting rights allocable to the Notes (or such other percentage specified
in the indenture) may declare the principal amount 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
o the holders of 100% of the voting rights allocated to the Notes of such
series consent to such sale,
o the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the outstanding
Notes of such series at the date of such sale, or
o 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, or
o the trustee satisfies such other requirements as may be set forth in the
related indenture.
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 will not be permitted to 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 of such Note less the amount of such discount that is
unamortized.
No Noteholder generally will have any right under an indenture to institute
any proceeding with respect to such agreement unless permitted by the indenture
and
o such holder previously has given to the trustee written notice of default
and the continuance of such default;
o the holders of Notes or Equity Certificates of any class evidencing not
less than 25% of the voting rights allocated to the Notes (or such other
percentage specified in the indenture):
o have made written request upon the trustee to institute such
proceeding in its own name as trustee; and
o have offered to the trustee reasonable indemnity;
o the trustee has neglected or refused to institute any such proceeding for
60 days after receipt of such request and indemnity; and
o 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 generally be under no obligation to exercise any of
the trusts or powers vested in it by the indenture or to institute, conduct or
defend any litigation under the indenture or in relation to the indenture at the
request, order or direction of any of the holders of Notes 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
in such undertaking.
AMENDMENT
With respect to each series of Securities, each agreement governing the
rights of the holders of the Securities may generally be amended by the parties
to such agreement:
(i) to cure any ambiguity;
(ii) to correct or supplement any provision in any such agreement which
may be inconsistent with any other provision in any such agreement;
(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 holders of Securities of the related
series, provided that such action (other than an amendment described in clause
(iv) above) will not adversely affect in any material respect the interests of
any holder of the Securities covered by the agreement. Each agreement may also
be amended, subject to certain restrictions to continue favorable tax treatment
of the entity by the parties to such agreement, with the consent of the holders
of Securities evidencing not less than 51% of the voting rights allocated to the
Securities (or such other percentage specified in the indenture) 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 assets of the Trust
Fund which are required to be distributed on any Security without the consent of
the holder of such Security; or (b) reduce the aforesaid percentage of voting
rights required for the consent to any such amendment without the consent of the
holders of all Securities of the related series then outstanding, or as
otherwise provided in the related agreement.
TERMINATION
The obligations created by the agreement for each series of Securities will
generally terminate upon payment to the holders of Securities of that series of
all amounts held in the Trust Account and required to be paid to the holders of
Securities 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 holder of Securities, 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.
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
Voting rights allocated to Securities of a series will generally be based
on Security Principal Balances. Any other method of allocation will be specified
in the related prospectus supplement. If so provided in the prospectus
supplement, 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 may
be covered by a Primary Hazard Insurance Policy 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 Securities -- Realization Upon Defaulted Residential Loans"
in this prospectus, the master servicer will be required to maintain or cause to
be maintained in accordance with the underwriting standards adopted by the
Depositor a Primary Credit Insurance Policy ("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 be required to cause to be paid the premium for
each Primary Credit Insurance Policy to be paid on a timely basis. The master
servicer, or the related sub-servicer, if any, will be required to exercise its
best reasonable efforts to be named the insured or a loss payee under any
Primary Credit Insurance Policy. The ability to assure that insurance proceeds
are appropriately applied may be dependent upon its being so named, or upon the
extent to which information in this regard is furnished by borrowers. All
amounts collected by the master servicer under any such policy will be required
to be deposited in the Trust Account. The master servicer will not be permitted
to 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 or notes 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:
o advance or discharge
o hazard insurance premiums; and
o as necessary and approved in advance by the insurer, real estate
taxes (if applicable), protection and preservation expenses and
foreclosure and related costs;
o 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
o 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 ("FHA INSURANCE") 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 relating to 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 sub-servicer 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 will be 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 borrower'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 borrower. Such plans may involve the reduction or
suspension of regular mortgage payments for a specified period, with such
payments to be made upon or before the maturity date of the mortgage, or the
recasting of payments due under the mortgage up to or, other than Residential
Loans originated under the Title I Program of the FHA, beyond the maturity date.
In addition, when a default caused by such circumstances is accompanied by
certain other criteria, HUD may provide relief by making payments to the master
servicer or any sub-servicer in partial or full satisfaction of amounts due
under the Residential Loan (which payments are to be repaid by the borrower 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 borrower 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. The master servicer or any sub-servicer of each
FHA-insured single family Loan will generally 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 sub-servicer will be compensated for no more than two-thirds of its
foreclosure costs, and will be 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 will
include 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 ("VA INSURANCE") 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 relating to 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.
With respect to a defaulted VA guaranteed Residential Loan, the master
servicer or sub-servicer will be, 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 will be 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 generally 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 related 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 be required to 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 generally be required to deposit in the Trust
Account all sums which would have been deposited in such Trust Account but for
such clause. The master servicer will also generally be required to maintain a
fidelity bond and errors and omissions policy with respect to its officers and
employees that provides coverage against losses that may be sustained as a
result of an officer's or employee's misappropriation of funds or errors and
omissions in failing to maintain insurance, subject to certain limitations as to
amount of coverage, deductible amounts, conditions, exclusions and exceptions.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the Residential Loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals, theft,
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive.
When a Residential Property is located at origination in a federally
designated flood area, each servicing agreement may require 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 related agreement will generally 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 be required
to 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 generally required to present
claims to insurers under hazard insurance policies maintained on the Residential
Properties. The master servicer, on behalf of the trustee and holders of
Securities, 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,
holders of Securities may not suffer loss by reason of delinquencies or
foreclosures following hazard losses, whether or not subject to co-insurance
claims.
DESCRIPTION OF CREDIT SUPPORT
If so provided in the related prospectus supplement, the Trust Fund that
includes Residential Loans for a series of 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 by such credit
support or a specified dollar amount:
o a Pool Insurance Policy;
o a special hazard insurance policy;
o a Bankruptcy Bond;
o a reserve fund;
o or a similar credit support instrument.
Alternatively, if so specified in the prospectus supplement relating to a series
of Securities, credit support may be provided by subordination of one or more
classes of Securities or by overcollateralization, in combination with or in
lieu of any one or more of the instruments set forth above. See "Description of
the Securities -- Subordination" and "Description of Credit
Support--Overcollateralization" in this prospectus. 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 borrowers 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 by such credit
support.
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 ("POOL INSURANCE
POLICY") in full force and effect, unless coverage under such Pool Insurance
Policy 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
be required to 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 be required to present or
cause to be presented claims under each Pool Insurance Policy to the Pool
Insurer on behalf of itself, the trustee and the holders of Securities. 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 under such Pool Insurance Policies with respect to a residential loan
unless
o 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%;
o premiums on the Primary Hazard Insurance Policy have been paid by the
insured and real estate taxes (if applicable) and foreclosure, protection
and preservation expenses have been advanced by or on behalf of the
insured, as approved by the Pool Insurer;
o 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
o 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 its 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 its
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
generally 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 under such Primary Credit
Insurance Policy, 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 will generally include 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, holders of Securities 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 will be
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, holders of Securities 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 holders of Securities, and such expenditures
will not be covered by payments made under the related Pool Insurance Policy.
See "Certain Legal Aspects of Residential Loans -- Foreclosure on Mortgages" and
"-- Repossession with respect to Manufactured Housing Contracts" in this
prospectus. 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 holders of
Securities 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 be required to 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. However, 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 be
required to 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 be required to 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 under such policy will be limited in amount. Certain hazard risks
will, as a result, be uninsured and will therefore be borne by you.
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the prospectus supplement with respect to a series of
Securities, the master servicer will be required to 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 under such policy 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 related prospectus supplement (expected
to be not greater than 1%) of the aggregate principal balance as of
the Cut-Off Date of the Residential Loans comprising the related
Trust Fund;
(ii) twice the unpaid principal balance as of the Cut-Off Date of the
largest Residential Loan in the Trust Fund; or
(iii) the greatest aggregate principal balance of Residential Loans secured
by Residential Properties located in any one California postal zip
code area, whichever is the greatest (the "SPECIAL HAZARD AMOUNT").
As more specifically provided in the related prospectus supplement, each
special hazard insurance policy will, subject to limitations of the kind
described below, typically protect holders of Securities of the related series
from
o 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
o 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 holders of Securities, but will affect the relative amounts of
coverage remaining under any special hazard insurance policy and any Pool
Insurance Policy.
The sale of a Residential Property must typically be approved by the
Special Hazard Insurer under any special hazard insurance policy and funds
received by the insured in excess of the unpaid principal balance of the
Residential Loan plus interest thereon to the date of sale plus certain expenses
incurred by or on behalf of the master servicer with respect to the property
(not to exceed the amount actually paid by the Special Hazard Insurer) must be
refunded to such Special Hazard Insurer and, to that extent, coverage under the
special hazard insurance policy will be restored. If aggregate claim payments
under a special hazard insurance policy reach the policy limit, coverage
thereunder will be exhausted and any further losses will be borne by the holders
of Securities.
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 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 or as otherwise provided in the related
prospectus supplement.
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 generally 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 be required to obtain a Bankruptcy Bond
("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 be required to 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 be required to pay or cause to be paid the
premiums for each Bankruptcy Bond on a timely basis, unless, as described in the
related 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 generally 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 United States Bankruptcy Code, 11 U.S.C. Sections 101 et
seq. (the "BANKRUPTCY CODE"). See "Certain Legal Aspects of Residential Loans --
Foreclosure on Mortgages" and "-- Repossession with respect to Manufactured
Housing Contracts" in this prospectus.
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 holders of Securities, 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 relating to a
series that includes a cross-support provision will describe the manner and
conditions for applying such provisions.
The coverage provided by one or more forms of credit support may apply
concurrently to two or more related Trust Funds. If applicable, the related
prospectus supplement will identify the Trust Funds to which such credit support
relates and the manner of determining the amount of the coverage provided
thereby and of the application of such coverage to the identified Trust Funds.
LETTER OF CREDIT
If so provided in the prospectus supplement relating to a series of
Securities, the Residential Loans in the related Trust Fund may 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. Any such 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
under such letter of credit.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the prospectus supplement relating to a series of
Securities, 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 relating to a series of
Securities, a portion of the interest payments on Residential Loans 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 Residential Loans.
OVERCOLLATERALIZATION
Unless otherwise provided in the related prospectus supplement, the
subordination provisions of a Trust Fund may be used to accelerate to a limited
extent the amortization of one or more classes of Securities relative to the
amortization of the related assets of the Trust Fund. The accelerated
amortization is achieved by the application of certain excess interest to the
payment of principal of one or more classes of Securities. This acceleration
feature creates, with respect to the assets of the Trust Fund,
overcollateralization which results from the excess of the aggregate principal
balance of the related assets of the Trust Fund, over the principal balance of
the related class or classes of Securities. Such acceleration may continue for
the life of the related Security, or may be limited. In the case of limited
acceleration, once the required level of overcollateralization is reached, and
subject to certain provisions specified in the related prospectus supplement,
such limited acceleration feature may cease, unless necessary to maintain the
required level of overcollateralization.
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" in this prospectus.
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 or may be
unsecured;
(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
o the obligation of the borrower to repay the loan evidenced thereby;
and
o the grant of a security interest in the related manufactured home
or with respect to Land Contracts, a lien on the real estate 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 related 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 instrument, if any, 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 generally 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 in such real
property sufficient to permit it to own the building and all separate dwelling
units in such building. The Cooperative is directly responsible for property
management and, in most cases, payment of real estate taxes, other governmental
impositions and hazard and liability insurance. If there is a blanket mortgage
on the cooperative apartment building and/or underlying land, as is generally
the case, or an underlying lease of the land, as is the case in some instances,
the Cooperative, as mortgagor, or lessee, as the case may be, is also
responsible for meeting these blanket mortgage or rental obligations. A blanket
mortgage is ordinarily incurred by the Cooperative in connection with either the
construction or purchase of the Cooperative's apartment building or the
obtaining of capital by the Cooperative. The interests of the occupants under
proprietary leases or occupancy agreements as to which the Cooperative is the
landlord are generally subordinate to the interests of the holder of the blanket
mortgage and to the interest of the holder of a land lease.
If the Cooperative is unable to meet the payment obligations
(i) arising under its blanket mortgage, the mortgagee holding the blanket
mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements; or
(ii) arising under its land lease, the holder of the landlord's interest
under the land lease could terminate it and all subordinate
proprietary leases and occupancy agreements.
Also, a blanket mortgage on a Cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at final maturity. The inability of the
Cooperative to refinance such a mortgage and its consequent inability to make
such final payment could lead to foreclosure by the mortgagee. Similarly, a land
lease has an expiration date and the inability of the Cooperative to extend its
term or, in the alternative, to purchase the land could lead to termination of
the Cooperative's interest in the property and termination of all proprietary
leases and occupancy agreements. In either event, foreclosure by the holder of
the blanket mortgage or the termination of the underlying lease could eliminate
or significantly diminish the value of any collateral held by the lender that
financed the purchase by an individual tenant-stockholder of Cooperative shares
or, in the case of the Trust Fund, the collateral securing the Cooperative
Loans.
The Cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a Cooperative must make a monthly
payment to the Cooperative representing such tenant-stockholder's pro rata share
of the Cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a Cooperative and accompanying occupancy rights is financed through
a Cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related Cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the Cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Subject to the limitations discussed below, upon default of the
tenant-stockholder, the lender may sue for judgment on the promissory note,
dispose of the collateral at a public or private sale or otherwise proceed
against the collateral or tenant-stockholder as an individual as provided in the
security agreement covering the assignment of the proprietary lease or occupancy
agreement and the pledge of Cooperative shares. See "Foreclosure on Cooperative
Shares" below.
TAX ASPECTS OF COOPERATIVE OWNERSHIP
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Section 216(a) of the Code to the
corporation under Sections 163 and 164 of the Code. In order for a corporation
to qualify under Section 216(b)(1) of the Code for its taxable year in which
such items are allowable as a deduction to the corporation, such section
requires, among other things, that at least 80% of the gross income of the
corporation be derived from its tenant-stockholders. By virtue of this
requirement, the status of a corporation for purposes of Section 216(b)(1) of
the Code must be determined on a year-to-year basis. Consequently, there can be
no assurance that cooperatives relating to the Cooperative Loans will qualify
under such section for any particular year. In the event that such a cooperative
fails to qualify for one or more years, the value of the collateral securing any
related Cooperative Loans could be significantly impaired because no deduction
would be allowable to tenant-stockholders under Section 216(a) of the Code with
respect to those years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
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 the perfection of security interests
in 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. 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 to obtain possession of the
certificate of title, but, unless otherwise specified in the related prospectus
supplement, will not be required to effect such notation or delivery of the
required documents and fees. The failure to effect such notation or delivery, or
the taking of action under the wrong law (for example, under a motor vehicle
title statute rather than under the UCC), is likely to cause the trustee not to
have a perfected 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, including a trustee in bankruptcy claiming an interest in the
home under applicable state real estate law, notwithstanding compliance with the
requirements described above. 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 borrower from permanently attaching the manufactured home to its
site. So long as the borrower does not violate this agreement, a security
interest in the manufactured home will be governed by the certificate of title
laws or the UCC, and the notation of the security interest on the certificate of
title or the filing of a UCC financing statement will be effective to perfect
the security interest in the manufactured home. If, however, a manufactured home
is permanently attached to its site, other parties, including a trustee in
bankruptcy, 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 holders of Securities.
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 holders of Securities, 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, therefore,
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 (and continuation
statements before the end of each five year period) 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, holders of perfected
security interests, and a trustee in bankruptcy. There also exists a risk in not
identifying the trustee, on behalf of the holders of Securities 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, if the Depositor holds the
certificate of title to such manufactured home, it must surrender possession of
such certificate. 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 could 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 a borrower 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. 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, statutory liens, such as liens for repairs
performed on a manufactured home and liens for personal property taxes take
priority even over a perfected security interest. In addition, certain liens
arising as a matter of federal law, such as federal tax liens, also take
priority 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 holders of Securities 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 borrower 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 borrower of a default
and deny the mortgagee foreclosure on proof that the borrower'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 borrower 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 borrower was insolvent and within one year (or
within the state statute of limitations if the trustee in bankruptcy elects to
proceed under state fraudulent conveyance law) of the filing of bankruptcy.
Similarly, a suit against the debtor on the mortgage note may take several years
and, generally, is a remedy alternative to foreclosure, the mortgagee being
precluded from pursuing both at the same time. In some states, mortgages may
also be foreclosed by advertisement pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by nonjudicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust which authorizes
the trustee to sell the property upon default by the borrower under the terms of
the note or deed of trust. In some states, prior to such sale, the trustee must
record a notice of default and send a copy to the borrower-trustor 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 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 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." The Supreme Court decision, however,
may not be controlling as to whether a non-collusive, regularly conducted
foreclosure can be avoided as a fraudulent conveyance under applicable state
law, if a court determines that the sale was for less than "fair consideration"
under applicable state law. For these reasons, it is common for the lender to
purchase the property from the trustee or referee for an amount equal to the
principal amount of the mortgage or deed of trust plus accrued and unpaid
interest and the expenses of foreclosure.
Generally, state law controls the amount of foreclosure costs and expenses,
including attorneys' and trustee's fees, which may be recovered by a lender. In
some states there is a statutory minimum purchase price which the lender may
offer for the property. Thereafter, subject to the right of the borrower in some
states to remain in possession during the redemption period, the lender will
assume ownership of the mortgaged property and, therefore, the burdens of
ownership, including obtaining casualty insurance, paying taxes and making such
repairs at its own expense as are necessary to render the property suitable for
sale. Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss may be
reduced by the receipt of any mortgage insurance proceeds, if any.
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 borrower is
in default under such senior mortgage, 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 borrower 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. The courts have taken a number of different approaches:
o 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;
o 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;
o 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; and, for the most part, these cases have upheld the notice
provisions as being reasonable or have found that the sale by a trustee
under a deed of trust, or under a mortgage having a power of sale, does
not involve sufficient state action to afford constitutional protections
to the borrower.
In addition, certain states impose a statutory lien for associated costs on
property that is the subject of a cleanup action by the state on account of
hazardous wastes or hazardous substances released or disposed of on the
property. Such a lien may have priority over all subsequent liens on the
property and, in certain of these states, will have priority over prior recorded
liens, including the lien of a mortgage. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party that takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale may be liable for the costs of cleaning up a
contaminated site. Although such costs could be substantial, it is unclear
whether they would be imposed on a secured lender on residential properties. In
the event that title to a Residential Property was acquired on behalf of holders
of Securities and cleanup costs were incurred in respect of the Residential
Property, such holders of Securities 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 on such Cooperative Loan.
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 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 similar parties
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. 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 borrower
will generally be governed by the UCC. 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 few states where the debtor must receive notice of
his right to cure his default (typically 30 days to bring the account
current), 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.
(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, upon notice to the debtor,
and the method, manner, time, place and terms of the sale must be
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 deficiency 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.
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 borrower, and all persons who have an interest
in the property which is subordinate to the foreclosing mortgagee, from
exercising 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, parties
having an interest which is subordinate to that of the foreclosing mortgagee 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. Parties 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.
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 borrower 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, including the notice requirements, of the UCC.
ANTI-DEFICIENCY LEGISLATION, BANKRUPTCY LAWS AND OTHER LIMITATIONS ON LENDERS
States have taken a number of approaches to anti-deficiency and related
legislation:
o Certain states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a
mortgage.
o 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.
o 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.
o In certain other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting such
security; however in some of these states, the lender, following judgment
on such personal action, may be deemed to have elected a remedy and may
be precluded from exercising remedies with respect to the security.
Consequently, the practical effect of the election requirement, in those
states permitting such election, is that lenders will usually proceed
against the security first rather than bringing a personal action against
the borrower.
o 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 anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the Bankruptcy Code and state
laws affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to obtain payment of a mortgage loan, to realize upon
collateral and/or enforce a deficiency judgment. For example, under the
Bankruptcy Code, virtually all actions (including foreclosure actions and
deficiency judgment proceedings) are automatically stayed upon the filing of a
bankruptcy petition, and, usually, no interest or principal payments are made
during the course of the bankruptcy case. Foreclosure of an interest in real
property of a debtor in a case under the Bankruptcy Code can typically occur
only if the bankruptcy court vacates the stay; an action the bankruptcy court
may be reluctant to take, particularly if the debtor has the prospect of
restructuring his or her debts and the mortgage collateral is not deteriorating
in value. The delay and the consequences thereof caused by such automatic stay
can be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor (a subordinate lender secured by a
mortgage on the property) may stay the senior lender from taking action to
foreclose out such junior lien.
A homeowner may file for relief under the Bankruptcy Code under any of
three different chapters of the Bankruptcy Code. Under Chapter 7, the assets of
the debtor are liquidated and a lender secured by a lien may "bid in" (i.e., bid
up to the amount of the debt) at the sale of the asset. See "-- Foreclosure on
Mortgages" above. A homeowner may also file for relief under Chapter 11 of the
Bankruptcy Code and reorganize his or her debts through his or her
reorganization plan. Alternatively, a homeowner may file for relief under
Chapter 13 of the Bankruptcy Code and address his or her debts in a
rehabilitation plan. (Chapter 13 is often referred to as the "wage earner
chapter" or "consumer chapter" because most individuals seeking to restructure
their debts file for relief under Chapter 13 rather than under Chapter 11.)
A reorganization plan under Chapter 11 and a rehabilitation plan under
Chapter 13 of the Bankruptcy Code may each allow a debtor to cure a default with
respect to a mortgage loan on such debtor's residence by paying arrearages
within a reasonable time period and to deaccelerate and reinstate the original
mortgage loan payment schedule, even though the lender accelerated the loan and
a final judgment of foreclosure had been entered in state court (provided no
sale of the property had yet occurred) prior to the filing of the debtor's
petition under the Bankruptcy Code. Courts have approved Chapter 11 plans that
have allowed curing of defaults over a number of years. In certain
circumstances, defaults may be cured over a number of years even if the full
amount due under the original loan is never repaid, notwithstanding objection by
the mortgagee. Under a Chapter 13 plan, curing of defaults must be accomplished
within the five year maximum term permitted for repayment plans.
Generally, a repayment plan filed in a case under Chapter 13 may not modify
the claim of a mortgage lender if the borrower elects to retain the property,
the property is the borrower's principal residence and the property is the
lender's only collateral. Notwithstanding the forgoing restrictions, if the last
payment on the original payment schedule of a mortgage loan secured only by the
debtor's principal residence is due before the final date for payment under such
debtor's Chapter 13 plan (which date could be up to five years after the debtor
emerges from bankruptcy), under a case recently decided by an intermediate
appellate court, the debtor's rehabilitation plan could modify the terms of the
loan by bifurcating an undersecured lender's claim into a secured and an
unsecured component in the same manner as if the debtor were a debtor in a case
under Chapter 11 (see the following paragraph). While this decision is contrary
to a prior decision of a more senior appellate court in another jurisdiction, it
is possible that the intermediate court's decision will become the accepted
interpretation in view of the language of the applicable statutory provision. If
this interpretation is adopted by a court considering the treatment in a Chapter
13 repayment plan of a home equity loan, the home equity loan could be
restructured as if the bankruptcy case were under Chapter 11 if the final
payment is due within five years of the debtor's emergence from bankruptcy.
In a case under Chapter 11, provided certain substantive and procedural
safeguards are met, the amount and terms of a mortgage loan secured by property
of the debtor, including the debtor's principal residence, may be modified.
Under the Bankruptcy Code, the outstanding amount of a loan secured by the real
property may be reduced to the then-current value of the property as determined
by the court (with a corresponding partial reduction of the amount of the
lender's security interest) if the value is less than the amount due on the
loan, leaving the lender a general unsecured creditor for the difference between
such value of the collateral and the outstanding balance of the loan. A
borrower's unsecured indebtedness will typically be discharged in full upon
payment of a substantially reduced amount. Other modifications may include a
reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest and/or the alteration of the repayment
schedule (with or without affecting the unpaid principal balance of the loan),
and/or an extension (or reduction) of the final maturity date. State statutes
and general principles of equity may also provide a borrower with means to halt
a foreclosure proceeding or sale and to force a restructuring of a mortgage loan
on terms a lender would not otherwise accept. Because many of the Mortgage Loans
will have loan-to-value ratios in excess of 100% at origination (or such
loan-to-value ratios otherwise may exceed 100% in cases where the market value
declined subsequent to origination), a potentially significant portion of the
unpaid principal amount of the related Mortgage Loan would likely be treated as
unsecured indebtedness in a case under Chapter 11.
In a bankruptcy or similar proceeding of a borrower, action may be taken
seeking the recovery, as a preferential transfer or on other grounds, of any
payments made by the borrower under the related mortgage loan. Payments on
long-term debt may be protected from recovery as preferences if they are
payments in the ordinary course of business made on debts incurred in the
ordinary course of business or if the value of the collateral exceeds the debt
at the time of payment. Whether any particular payment would be protected
depends upon the facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, subject to the court's
approval, a debtor in a case under Chapter 11 of the Bankruptcy Code may have
the power to grant liens senior to the lien of a mortgage. Moreover, the laws of
certain states also give priority to certain tax and mechanics liens over the
lien of a mortgage. Under the Bankruptcy Code, if the court finds that actions
of the mortgagee have been unreasonable and inequitable, the lien of the related
mortgage may be subordinated to the claims of unsecured creditors.
Various proposals to amend the Bankruptcy Code in ways that could adversely
affect the value of the Mortgage Loans have been considered by Congress, and
more such proposed legislation may be considered in the future. No assurance can
be given that any particular proposal will or will not be enacted into law, or
that any provision so enacted will not differ materially from the proposals
described above.
The Code provides priority to certain tax liens over the lien of the
mortgage. 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, (and Regulation Z), Real Estate Settlement Procedures Act (and Regulation
X), Equal Credit Opportunity Act (and Regulation B), Fair Credit Billing Act,
Fair Credit Reporting Act, Fair Housing Act, Housing and Community Development
Act, Home Mortgage Disclosure Act, Federal Trade Commission Act, Fair Debt
Collection Practices Act, Uniform Consumer Credit Code, Consumer Credit
Protection Act, Riegle 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.
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 holders of Securities 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 borrower, 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" in this
prospectus.
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 borrower 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
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 (and Regulation Z), Real Estate Settlement
Procedures Act (and Regulation X), Equal Credit Opportunity Act (and Regulation
B), Fair Credit Billing Act, Fair Credit Reporting Act, Fair Housing Act,
Housing and Community Development Act, Home Mortgage Disclosure Act, Federal
Trade Commission Act, Fair Debt Collection Practices Act, Uniform Consumer
Credit Code, Consumer Credit Protection Act, Riegle Act, and related statutes
and regulations. These laws can impose specific statutory liabilities upon
creditors who fail to comply with their provisions and may affect the
enforceability of a Residential Loan.
Residential Loans often contain provisions obligating the borrower 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 holders of Securities.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called "Holder-in-Due-Course" Rules of the Federal Trade Commission
(the "FTC RULE") has the effect (subject to any applicable limitations imposed
by the Riegle Act) of subjecting a seller (and certain related creditors and
their assignees (to the extent the liability of such parties is not limited by
the provisions of the Riegle Act)) 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 Residential Loan, and
the holder of the Residential Loan may also be unable to collect amounts still
due thereunder.
If a Residential Loan is subject to the requirements of the FTC Rule, the
trustee will be subject to any claims or defenses that the debtor may assert
against the seller.
ENFORCEABILITY OF CERTAIN PROVISIONS
Unless the related 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 three "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 nine
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, the creation of
a junior encumbrance and other instances where regulations promulgated by the
Director of the Office of Thrift Supervision (successor to the Federal Home Loan
Bank Board) prohibit such enforcement. To date no such regulations have been
issued. Regulations promulgated under the Garn-St. Germain Act 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 borrower
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 borrower. Some state statutory provisions
may also treat certain prepayment fees as usurious if in excess of statutory
limits.
SUBORDINATE FINANCING
When the borrower encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the borrower (as junior loans often do) and the
senior loan does not, a borrower 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
borrower 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 borrower is
additionally burdened. Third, if the borrower 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.
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.
ENVIRONMENTAL LEGISLATION
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 protection to lenders by defining certain activities in
which a lender can engage and still have the benefit of the secured creditor
exemption. A lender will be deemed to have participated in the management of a
mortgaged property, and will lose the secured creditor exemption, if it actually
participates 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
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 may 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
Securities. 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 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 (the "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 Securities -- Realization Upon Defaulted
Mortgage Loans" in this prospectus.
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 borrower who enters military service
after the origination of such borrower's Mortgage Loan or Contract (including a
borrower 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 borrower's
active duty status, unless a court orders otherwise upon application of the
lender. The Relief Act applies to borrowers 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 borrowers who enter military service (including reservists
who are called to active duty) after origination of the related Mortgage Loan,
no information can be provided as to the number of loans that may be affected by
the Relief Act. Application of the Relief Act would adversely affect, for an
indeterminate period of time, the ability of the master servicer to collect full
amounts of interest on certain of the Mortgage Loans. Any shortfalls in interest
collections resulting from the application of the Relief Act would result in a
reduction of the amounts distributable to the holders of the related series of
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 borrower's period of
active duty status, and, under certain circumstances, during an additional three
month period after such period. Thus, in the event that such a Mortgage Loan or
Contract goes into default, there may be delays and losses occasioned as a
result.
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 holders of
Securities that hold the Securities as capital assets within the meaning of
Section 1221 of the Internal Revenue Code of 1986, as amended (the "CODE"), and
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. In addition to the federal income tax consequences
described in this prospectus, 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" in this prospectus.
holders of Securities 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 Securities offered hereunder.
The following discussion addresses securities of four general types: (i)
securities ("REMIC SECURITIES") representing interests in a Trust Fund, or a
portion thereof, that the trustee will elect to have treated as a "real estate
mortgage investment conduit" (the "REMIC") under Sections 860A through 860G (the
"REMIC PROVISIONS") of the Code, (ii) securities ("GRANTOR TRUST SECURITIES")
representing interests in a Trust Fund ("GRANTOR TRUST FUND") as to which no
such election will be made, (iii) securities ("PARTNERSHIP SECURITIES")
representing interests in a Trust Fund ("PARTNERSHIP TRUST FUND") which is
treated as a partnership or, if owned by a single beneficial owner, ignored for
federal income tax purposes, and (iv) securities ("DEBT SECURITIES")
representing indebtedness of a Partnership Trust Fund for federal income tax
purposes. The prospectus supplement relating to each series of Securities will
indicate which of the foregoing treatments will apply to such series and, if a
REMIC election (or elections) will be made for the related Trust Fund, will
identify all "regular interests" and "residual interests" in the REMIC. For
purposes of this tax discussion, (i) references to a "holder of Securities" or a
"holder" are to the beneficial owner of a Security, (ii) references to "REMIC
POOL" are to an entity or portion thereof as to which a REMIC election will be
made and (iii) unless indicated otherwise in the related prospectus supplement,
references to "MORTGAGE LOANS" include Agency Securities and Private
Mortgage-Backed Securities.
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 Securities.
REMICS
Classification of REMICS. Upon the issuance of each series of REMIC
Securities, Cadwalader, Wickersham & Taft, special 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
Securities offered with respect thereto will be considered to evidence ownership
of "regular interests" ("REGULAR SECURITIES") or "residual interests" ("RESIDUAL
SECURITIES") in that REMIC within the meaning of the REMIC Provisions.
In order for the REMIC Pool to qualify as a REMIC, there must be ongoing
compliance on the part of the REMIC Pool with the requirements set forth in the
Code. The REMIC Pool must fulfill an asset test, which requires that no more
than a de minimis portion of the assets of the REMIC Pool, as of the close of
the third calendar month beginning after the "STARTUP DAY" (which for purposes
of this discussion is the date of issuance of the REMIC Securities) and at all
times thereafter, may consist of assets other than "qualified mortgages" and
"permitted investments." The REMIC Regulations provide a safe harbor pursuant to
which the de minimis requirement will be met if at all times the aggregate
adjusted basis of the nonqualified assets is less than 1% of the aggregate
adjusted basis of all the REMIC Pool's assets. An entity that fails to meet the
safe harbor may nevertheless demonstrate that it holds no more than a de minimis
amount of nonqualified assets. A REMIC Pool also must provide "reasonable
arrangements" to prevent its residual interests from being held by "disqualified
organizations" or agents thereof and must furnish applicable tax information to
transferors or agents that violate this requirement. The pooling and servicing
agreement with respect to each series of REMIC Certificates will contain
provisions meeting these requirements. See "Taxation of Owners of Residual
Securities -- Tax-Related Restrictions on Transfer of Residual Securities --
Disqualified Organizations" in this prospectus.
A qualified mortgage is any obligation that is principally secured by an
interest in real property and that is either transferred to the REMIC Pool on
the Startup Day or is purchased by the REMIC Pool within a three-month period
thereafter pursuant to a fixed price contact in effect on the Startup Day.
Qualified mortgages include whole mortgage loans, such as the Mortgage Loans,
and, generally, certificates of beneficial interest in a grantor trust that
holds mortgage loans and regular interests in another REMIC, such as lower-tier
regular interests in a tiered REMIC. The REMIC Regulations specify that loans
secured by timeshare interests and shares held by a tenant stockholder in a
cooperative housing corporation can be qualified mortgages. A qualified mortgage
includes a qualified replacement mortgage, which is any property that would have
been treated as a qualified mortgage if it were transferred to the REMIC Pool on
the Startup Day and that is received either (i) in exchange for any qualified
mortgage within a three-month period thereafter; or (ii) in exchange for a
"defective obligation" within a two-year period thereafter. A "defective
obligation" includes (i) a mortgage in default or as to which default is
reasonably foreseeable; (ii) a mortgage as to which a customary representation
or warranty made at the time of transfer to the REMIC Pool has been breached;
(iii) a mortgage that was fraudulently procured by the borrower; and (iv) a
mortgage that was not in fact principally secured by real property (but only if
such mortgage is disposed of within 90 days of discovery). A Mortgage Loan that
is "defective" as described in clause (iv) that is not sold or, if within two
years of the Startup Day, exchanged, within 90 days of discovery, ceases to be a
qualified mortgage after such 90-day period.
Permitted investments include cash flow investments, qualified reserve
assets, and foreclosure property. A cash flow investment is an investment,
earning a return in the nature of interest, of amounts received on or with
respect to qualified mortgages for a temporary period, not exceeding 13 months,
until the next scheduled distribution to holders of interests in the REMIC Pool.
A qualified reserve asset is any intangible property held for investment that is
part of any reasonably required reserve maintained by the REMIC Pool to provide
for payments of expenses of the REMIC Pool or amounts due on the regular or
residual interests in the event of defaults (including delinquencies) on the
qualified mortgages, lower than expected reinvestment returns, prepayment
interest shortfalls and certain other contingencies. The reserve fund will be
disqualified if more than 30% of the gross income from the assets in such fund
for the year is derived from the sale or other disposition of property held for
less than three months, unless required to prevent a default on the regular
interests caused by a default on one or more qualified mortgages. A reserve fund
must be reduced "promptly and appropriately" as payments on the Mortgage Loans
are received. Foreclosure property is real property acquired by the REMIC Pool
in connection with the default or imminent default of a qualified mortgage and
generally not held beyond the close of the third calendar year following the
year of acquisition, with one extension available from the Internal Revenue
Service.
In addition to the foregoing requirements, the various interests in a REMIC
Pool also must meet certain requirements. All of the interests in a REMIC Pool
must be either of the following: (i) one or more classes of regular interests or
(ii) a single class of residual interests on which distributions, if any, are
made pro rata. A regular interest is an interest in a REMIC Pool that is issued
on the Startup Day with fixed terms, is designated as a regular interest, and
unconditionally entitles the holder to receive a specified principal amount (or
other similar amount), and provides that interest payments (or other similar
amounts), if any, at or before maturity either are payable based on a fixed rate
or a qualified variable rate, or consist of a specified, nonvarying portion of
the interest payments on qualified mortgages. Such a specified portion may
consist of a fixed number of basis points, a fixed percentage of the total
interest, or a qualified variable rate, inverse variable rate or difference
between two fixed or qualified variable rates on some or all of the qualified
mortgages. The specified principal amount of a regular interest that provides
for interest payments consisting of a specified, nonvarying portion of interest
payments on qualified mortgages may be zero. A residual interest is an interest
in a REMIC Pool other than a regular interest that is issued on the Startup Day
and that is designated as a residual interest. An interest in a REMIC Pool may
be treated as a regular interest even if payments of principal with respect to
such interest are subordinated to payments on other regular interests or the
residual interest in the REMIC Pool, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
than reasonably expected returns on permitted investments, unanticipated
expenses incurred by the REMIC Pool or prepayment interest shortfalls.
Accordingly, the Regular Securities of a series will constitute one or more
classes of regular interests, and the Residual Securities with respect to that
series will constitute a single class of residual interests with respect to each
REMIC Pool.
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 Securities 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
agreement pursuant to which each REMIC Pool is formed will include provisions
designed to maintain the Trust Fund's status as a REMIC under the REMIC
Provisions. We do not anticipate that the status of any Trust Fund as a REMIC
will be terminated.
Characterization of Investments in REMIC Securities. In general, the REMIC
Securities will be treated as "real estate assets" within the meaning of Section
856(c)(4)(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 Pool underlying such
Securities would be so treated. Moreover, if 95% or more of the assets of the
REMIC Pool qualify for either of the foregoing treatments at all times during a
calendar year, the REMIC Securities will qualify for the corresponding status in
their entirety for that calendar year. If the assets of the REMIC Pool include
Buydown Loans, it is possible that the percentage of such assets constituting
"loans . . . secured by an interest in real property which is . . . residential
real property" for purposes of Code Section 7701(a)(19)(C)(v) may be required to
be reduced by the amount of the related funds paid thereon (THE "BUYDOWN
FUNDS"). Interest (including original issue discount) on the Regular Securities
and income allocated to the class of Residual Securities will be interest
described in Section 856(c)(3)(B) of the Code to the extent that such Securities
are treated as "real estate assets" within the meaning of Section 856(c)(4)(A)
of the Code. In addition, the Regular Securities will be "qualified mortgages"
within the meaning of Section 860G(a)(3) of the Code if transferred to another
REMIC on its Startup Day in exchange for regular or residual interests in such
REMIC, and will be "permitted assets" within the meaning of Section 860L(c) for
a financial asset securitization investment trust. The determination as to the
percentage of the REMIC Pool'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 Pool during such calendar quarter. The REMIC will report those
determinations to holders of Securities in the manner and at the times required
by applicable Treasury regulations. The Small Business Job Protection Act of
1996 (the "SBJPA OF 1996") repealed the reserve method of bad debts of domestic
building and loan associations and mutual savings banks, and thus has eliminated
the asset category of "qualifying real property loans" in former Code Section
593(d) for taxable years beginning after December 31, 1995. The requirements in
the SBJPA of 1996 that such institutions must "recapture" a portion of their
existing bad debt reserves is suspended if a certain portion of their assets are
maintained in "residential loans" under Code Section 7701(a)(19)(C)(v), but only
if such loans were made to acquire, construct or improve the related real
property and not for the purpose of refinancing. However, no effort will be made
to identify the portion of the Mortgage Loans of any series meeting this
requirement, and no representation is made in this regard.
The assets of the REMIC Pool will include, in addition to Mortgage Loans,
payments on Mortgage Loans held pending distribution on the REMIC Securities and
property acquired by foreclosure held pending sale, and may include amounts in
reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale and amounts in reserve accounts would be considered to be part of
the Mortgage 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 Mortgage Loans for purposes of all of the foregoing sections. The REMIC
Regulations do provide, however, that payments on Mortgage Loans held pending
distribution are considered part of the Mortgage Loans for purposes of Section
856(c)(4)(A) of the Code. Furthermore, foreclosure property will qualify as
"real estate assets" under Section 856(c)(4)(A) of the Code.
Tiered REMIC Structures. For certain series of REMIC Securities, 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 Securities, Cadwalader, Wickersham & Taft
will deliver its opinion generally to the effect that, assuming compliance with
all provisions of the related agreement governing the REMIC Securities, the
Tiered REMICs will each qualify as a REMIC and the REMIC Securities issued by
the Tiered REMICs, respectively, will be considered to evidence ownership of
Regular Securities or Residual Securities in the related REMIC within the
meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Securities will be
"real estate assets" within the meaning of Section 856(c)(4)(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 Securities 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 REGULAR SECURITIES
General. In general, interest, original issue discount, and market discount
on a Regular Security will be treated as ordinary income to a holder of the
Regular Security (the "REGULAR SECURITYHOLDER"), and principal payments on a
Regular Security will be treated as a return of capital to the extent of the
Regular Securityholder's basis in the Regular Security allocable thereto.
Regular Securityholders must use the accrual method of accounting with regard to
Regular Securities, regardless of the method of accounting otherwise used by
such Regular Securityholder.
Original Issue Discount. Regular Securities may be issued with "original
issue discount" within the meaning of Code Section 1273(a). Holders of any class
or subclass of Regular Securities having original issue discount generally must
include original issue discount in ordinary income for federal income tax
purpose as it accrues, in accordance with a constant yield method that takes
into account the compounding of interest, in advance of the receipt of the cash
attributable to such income. The following discussion is based in part on
temporary and final Treasury regulations issued on February 2, 1994, as amended
on June 14, 1996, (the "OID REGULATIONS") under Code Section 1271 through 1273
and 1275 and in part on the provisions of the 1986 Act. Regular Securityholders
should be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the Regular
Securities. To the extent such issues are not addressed in such regulations, it
is anticipated that the trustee will apply the methodology described in the
Conference Committee Report to the 1986 Act. No assurance can be provided that
the Internal Revenue Service will not take a different position as to those
matters not currently addressed by the OID Regulations. Moreover, the OID
Regulations include an anti-abuse rule allowing the Internal Revenue Service to
apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory provisions.
A tax result will not be considered unreasonable under the anti-abuse rule in
the absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion in the OID Regulations and the appropriate method for reporting
interest and original issue discount with respect to the Regular Securities.
Each Regular Security (except to the extent described below with respect to
a Regular Security on which principal is distributed in a single installment or
by lots of specified principal amounts upon the request of a holder of
Securities or by random lot (a "NON-PRO RATA SECURITY")) will be treated as a
single installment obligation for purposes of determining the original issue
discount includible in a Regular Securityholder's income. The total amount of
original issue discount on a Regular Security is the excess of the "stated
redemption price at maturity" of the Regular Security over its "issue price."
The issue price of a class of Regular Securities offered pursuant to this
prospectus generally is the first price at which a substantial amount of such
class is sold to the public (excluding bond houses, brokers and underwriters).
Although unclear under the OID Regulations, it is anticipated that the trustee
will treat the issue price of a class as to which there is no substantial sale
as of the issue date or that is retained by the Depositor as the fair market
value of the class as of the issue date. The issue price of a Regular Security
also includes any amount paid by an initial Regular Securityholder for accrued
interest that relates to a period prior to the issue date of the Regular
Security, unless the Regular Securityholder elects on its federal income tax
return to exclude such amount from the issue price and to recover it on the
first Distribution Date. The stated redemption price at maturity of a Regular
Security always includes the original principal amount of the Regular Security,
but generally will not include distributions of interest if such distributions
constitute "qualified stated interest." Under the OID Regulations, qualified
stated interest generally means interest payable at a single fixed rate or a
qualified variable rate (as described below) provided that such interest
payments are unconditionally payable at intervals of one year or less during the
entire term of the Regular Security. Because there is no penalty or default
remedy in the case of nonpayment of interest with respect to a Regular Security,
it is possible that no interest on any class of Regular Securities will be
treated as qualified stated interest. However, except as provided in the
following three sentences or in the related prospectus supplement, because the
underlying Mortgage Loans provide for remedies in the event of default, it is
anticipated that the trustee will treat interest with respect to the Regular
Securities as qualified stated interest. Distributions of interest on Regular
Securities with respect to which deferred interest will accrue, will not
constitute qualified stated interest, in which case the stated redemption price
at maturity of such Regular Securities includes all distributions of interest as
well as principal thereon. Likewise, it is anticipated that the trustee will
treat an interest-only class or a class on which interest is substantially
disproportionate to its principal amount (a so-called "super-premium" class) as
having no qualified stated interest. Where the interval between the issue date
and the first Distribution Date on a Regular Security is shorter than the
interval between subsequent Distribution Dates, the interest attributable to the
additional days will be included in the stated redemption price at maturity.
Under a de minimis rule, original issue discount on a Regular Security will
be considered to be zero if such original issue discount is less than 0.25% of
the stated redemption price at maturity of the Regular Security multiplied by
the weighted average maturity of the Regular Security. For this purpose, the
weighted average maturity of the Regular Security is computed as the sum of the
amounts determined by multiplying the number of full years (i.e., rounding down
partial years) from the issue date until each distribution in reduction of
stated redemption price at maturity is scheduled to be made by a fraction, the
numerator of which is the amount of each distribution included in the stated
redemption price at maturity of the Regular Security and the denominator of
which is the stated redemption price at maturity of the Regular Security. The
Conference Committee Report to the 1986 Act provides that the schedule of such
distributions should be determined in accordance with the assumed rate of
prepayment of the Mortgage Loans (the "PREPAYMENT ASSUMPTION") and the
anticipated reinvestment rate, if any, relating to the Regular Securities. The
Prepayment Assumption with respect to a series of Regular Securities will be set
forth in the related prospectus supplement. Holders generally must report de
minimis original issue discount pro rata as principal payments are received, and
such income will be capital gain if the Regular Security is held as a capital
asset. Under the OID Regulations, however, Regular Securityholders may elect to
accrue all de minimis original issue discount as well as market discount and
market premium, under the constant yield method. See "--Election to Treat All
Interest Under the Constant Yield Method" below.
A Regular Securityholder generally must include in gross income for any
taxable year the sum of the "daily portions", as defined below, of the original
issue discount on the Regular Security accrued during an accrual period for each
day on which it holds the Regular Security, including the date of purchase but
excluding the date of disposition. The trustee will treat the monthly period
ending on the day before each Distribution Date as the accrual period. With
respect to each Regular Security, a calculation will be made of the original
issue discount that accrues during each successive full accrual period (or
shorter period from the date of original issue) that ends on the day before the
related Distribution Date on the Regular Security. The Conference Committee
Report to the 1986 Act states that the rate of accrual of original issue
discount is intended to be based on the Prepayment Assumption. The original
issue discount accruing in a full accrual period would be the excess, if any, of
(i) the sum of (a) the present value of all of the remaining distributions to be
made on the Regular Security as of the end of that accrual period, and (b) the
distributions made on the Regular Security during the accrual period that are
included in the Regular Security's stated redemption price at maturity, over
(ii) the adjusted issue price of the Regular Security at the beginning of the
accrual period. The present value of the remaining distributions referred to in
the preceding sentence is calculated based on (i) the yield to maturity of the
Regular Security at the issue date, (ii) events (including actual prepayments)
that have occurred prior to the end of the accrual period, and (iii) the
Prepayment Assumption. For these purposes, the adjusted issue price of a Regular
Security at the beginning of any accrual period equals the issue price of the
Regular Security, increased by the aggregate amount of original issue discount
with respect to the Regular Security that accrued in all prior accrual periods
and reduced by the amount of distributions included in the Regular Security's
stated redemption price at maturity that were made on the Regular Security in
such prior periods. The original issue discount accruing during any accrual
period (as determined in this paragraph) will then be divided by the number of
days in the period to determine the daily portion of original issue discount for
each day in the period. With respect to an initial accrual period shorter than a
full accrual period, the daily portions of original issue discount must be
determined according to an appropriate allocation under any reasonable method.
Under the method described above, the daily portions of original issue
discount required to be included in income by a Regular Securityholder generally
will increase to take into account prepayments on the Regular Securities as a
result of prepayments on the Mortgage Loans that exceed the Prepayment
Assumption, and generally will decrease (but not below zero for any period) if
the prepayments are slower than the Prepayment Assumption. As increase in
prepayments on the Mortgage Loans with respect to a series of Regular Securities
can result in both a change in the priority of principal payments with respect
to certain classes of Regular Securities and either an increase or decrease in
the daily portions of original issue discount with respect to such Regular
Securities.
In the case of a Non-Pro Rata Security, it is anticipated that the trustee
will determine the yield to maturity of such Security based upon the anticipated
payment characteristics of the class as a whole under the Prepayment Assumption.
In general, the original issue discount accruing on each Non-Pro Rata Security
in a full accrual period would be its allocable share of the original issue
discount with respect to the entire class, as determined in accordance with the
preceding paragraph. However, in the case of a distribution in retirement of the
entire unpaid principal balance of any Non-Pro Rata Security (or portion of such
unpaid principal balance), (a) the remaining unaccrued original issue discount
allocable to such Security (or to such portion) will accrue at the time of such
distribution, and (b) the accrual of original issue discount allocable to each
remaining Security of such class (or the received) will be adjusted by reducing
the present value of the remaining payments on such class and the adjusted issue
price of such class to the extent attributable to the portion of the unpaid
principal balance thereof that was distributed. The Depositor believes that the
foregoing treatment is consistent with the "pro rata prepayment" rules of the
OID Regulations, but with the rate of accrual of original issue discount
determined based on the Prepayment Assumption for the class as a whole.
Investors are advised to consult their tax advisors as to this treatment.
Acquisition Premium. A purchaser of a Regular Security at a price greater
than its adjusted issue price but less than its stated redemption price at
maturity will be required to include in gross income the daily portions of the
original issue discount on the Regular Security reduced pro rata by a fraction,
the numerator of which is the excess of its purchase price over such adjusted
issue price and the denominator of which is the excess of the remaining stated
redemption price at maturity over the adjusted issue price. Alternatively, such
a subsequent purchaser may elect to treat all such acquisition premium under the
constant yield method, as described below under the heading "--Election to Treat
All Interest Under the Constant Yield Method".
Variable Rate Regular Securities. Regular Securities may provide for
interest based on a variable rate. Under the OID Regulations, interest is
treated as payable at a variable rate if, generally, (i) the issue price does
not exceed the original principal balance by more than a specified amount and
(ii) the interest compounds or is payable at least annually at current values of
(a) one or more "qualified floating rates", (b) a single fixed rate and one or
more qualified floating rates, (c) a single "objective rate", or (d) a single
fixed rate and a single objective rate that is a "qualified inverse floating
rate." A floating rate is a qualified floating rate if variations can reasonably
be expected to measure contemporaneous variations in the cost of newly borrowed
funds, where such rate is subject to a fixed multiple that is greater that 0.65
but not more than 1.35. Such rate may also be increased or decreased by a fixed
spread or subject to a fixed cap or floor, or a cap or floor that is not
reasonably expected as of the issue date to affect the yield of the instrument
significantly. An objective rate is any rate (other than a qualified floating
rate) that is determined using a single fixed formula and that is based on
objective financial or economic information, provided that such information is
not (i) within the control of the issuer or a related party or (ii) unique to
the circumstances of the issuer or a related party. A qualified inverse floating
rate is a rate equal to a fixed rate minus a qualified floating rate that
inversely reflects contemporaneous variations in the cost of newly borrowed
funds; an inverse floating rate that is not a qualified inverse floating rate
may nevertheless be an objective rate. A class of Regular Securities may be
issued under this prospectus that does not have a variable rate under the
foregoing rules, for example, a class that bears different rates at different
times during the period it is outstanding such that it is considered
significantly "front-loaded" or "back-loaded" within the meaning of the OID
Regulations. It is possible that such a class may be considered to bear
"contingent interest" within the meaning of the OID Regulations. The OID
Regulations, as they relate to the treatment of contingent interest, are by
their terms not applicable to Regular Securities. However, if final regulations
dealing with contingent interest with respect to Regular Securities apply the
same principles as the OID Regulations, such regulations may lead to different
timing of income inclusion that would be the case under the OID Regulations.
Furthermore, application of such principles could lead to the characterization
of gain on the sale of contingent interest Regular Securities as ordinary
income. Investors should consult their tax advisors regarding the appropriate
treatment of any Regular Security that does not pay interest at a fixed rate or
variable rate as described in this paragraph.
Under the REMIC Regulations, a Regular Security (i) bearing a rate that
qualifies as a variable rate under the OID Regulations that is tied to current
values of a variable rate (or the highest, lowest or average of two or more
variable rates, including a rate based on the average cost of funds of one or
more financial institutions), or a positive or negative multiple of such a rate
(plus or minus a specified number of basis points), or that represents a
weighted average of rates on some or all of the Mortgage Loans, including such a
rate that is subject to one or more caps or floors, or (ii) bearing one or more
such variable rates for one or more periods, or one or more fixed rates for one
or more periods, and a different variable rate or fixed rate for other periods,
qualifies as a regular interest in a REMIC. Accordingly, unless otherwise
indicated in the related prospectus supplement, it is anticipated that the
trustee will treat Regular Securities that qualify as regular interests under
this rule in the same manner as obligations bearing a variable rate for original
issue discount reporting purposes.
The amount of original issue discount with respect to a Regular Security
bearing a variable rate of interest will accrue in the manner described above
under "--Original Issue Discount", with the yield to maturity and future
payments on such Regular Security generally to be determined by assuming that
interest will be payable for the life of the Regular Security based on the
initial rate (or, if different, the value of the applicable variable rate as of
the pricing date) for the relevant class. Unless required otherwise by
applicable final regulations, it is anticipated that the trustee will treat such
variable interest as qualified stated interest, other than variable interest on
an interest-only or super-premium class, which will be treated as non-qualified
stated interest includible in the stated redemption price at maturity. Ordinary
income reportable for any period will be adjusted based on subsequent changes in
the applicable interest rate index.
Although unclear under the OID Regulations, unless required otherwise by
applicable final regulations, it is anticipated that the trustee will treat
Regular Securities bearing an interest rate that is a weighted average of the
net interest rates on Mortgage Loans as having qualified stated interest, except
to the extent that initial "teaser" rates cause sufficiently "back-loaded"
interest to create more than de minimis original issue discount. The yield on
such Regular Securities for purposes of accruing original issue discount will be
a hypothetical fixed rate based on the fixed rates, in the case of fixed rate
Mortgage Loans, and initial "teaser rates" followed by fully indexed rates, in
the case of adjustable rate Mortgage Loans. In the case of adjustable rate
Mortgage Loans, the applicable index used to compute interest on the Mortgage
Loans in effect on the pricing date (or possibly the issue date) will be deemed
to be in effect beginning with the period in which the first weighted average
adjustment date occurring after the issue date occurs. Adjustments will be made
in each accrual period either increasing or decreasing the amount of ordinary
income reportable to reflect the actual Pass-Through Rate on the Regular
Securities.
Market Discount. A purchaser of a Regular Security also may be subject to
the market discount rules of Code Sections 1276 through 1278. Under these
sections and the principles applied by the OID Regulations in the context of
original issue discount, "market discount" is the amount by which the
purchaser's original basis in the Regular Security (i) is exceeded by the
then-current principal amount of the Regular Security, or (ii) in the case of a
Regular Security having original issue discount, is exceeded by the adjusted
issue price of such Regular Security at the time of purchase. Such purchaser
generally will be required to recognize ordinary income to the extent of accrued
market discount on such Regular Security as distributions includible in the
stated redemption price at maturity thereof are received, in an amount not
exceeding any such distribution. Such market discount would accrue in a manner
to be provided in Treasury regulations and should take into account the
Prepayment Assumption. The Conference Committee Report to the 1986 Act provides
that until such regulations are issued, such market discount would accrue either
(i) on the basis of a constant interest rate, or (ii) in the ratio of stated
interest allocable to the relevant period to the sum of the interest for such
period plus the remaining interest as of the end of such period, or in the case
of a Regular Security issued with original issue discount, in the ratio of
original issue discount accrued for the relevant period to the sum of the
original issue discount accrued for such period plus the remaining original
issue as of the end of such period. Such purchaser also generally will be
required to treat a portion of any gain on a sale or exchange of the Regular
Security as ordinary income to the extent of the market discount accrued to the
date of disposition under one of the foregoing methods, less any accrued market
discount previously reported as ordinary income as partial distributions in
reduction of the stated redemption price at maturity were received. Such
purchaser will be required to defer deduction of a portion of the excess of the
interest paid or accrued on indebtedness incurred to purchase or carry a Regular
Security over the interest distributable thereon. The deferred portion of such
interest expense in any taxable year generally will not exceed the accrued
market discount on the Regular Security for such year. Any such deferred
interest expense is, in general, allowed as a deduction not later than the year
in which the related market discount income is recognized or the Regular
Security is disposed of. As an alternative to the inclusion of market discount
in income on the foregoing basis, the Regular Securityholder may elect to
include market discount in income currently as it accrues on all market discount
instruments acquired by such Regular Securityholder in that taxable year or
thereafter, in which case the interest deferral rule will not apply. See
"Election to Treat All Interest Under the Constant Yield Method" below regarding
an alternative manner in which such election may be deemed to be made.
By analogy to the OID Regulations, market discount with respect to a
Regular Security will be considered to be zero if such market discount is less
than 0.25% of the remaining stated redemption price at maturity of such Regular
Security multiplied by the weighted average maturity of the Regular Security
(determined as described above in the third paragraph under "--Original Issue
Discount") remaining after the date of purchase. It appears that de minimis
market discount would be reported in a manner similar to de minimis original
issue discount. See "--Original Issue Discount" above. Treasury regulations
implementing the market discount rules have not yet been issued, and therefore
investors should consult their own tax advisors regarding the application of
these rules. Investors should also consult Revenue Procedure 92-67 concerning
the elections to include market discount in income currently and to accrue
market discount on the basis of the constant yield method.
Premium. A Regular Security purchased at a cost greater than its remaining
stated redemption price at maturity generally is considered to be purchased at a
premium. If the Regular Securityholder holds such Regular Security as a "capital
asset" within the meaning of Code Section 1221, the Regular Securityholder may
elect under Code Section 171 to amortize such premium under the constant yield
method. Such election will apply to all debt obligations acquired by the Regular
Securityholder at a premium held in that taxable year or thereafter, unless
revoked with the permission of the Internal Revenue Service. Final Treasury
regulations with respect to amortization of bond premiums do not by their terms
apply to obligations, such as the Regular Securities, which are prepayable as
described in Code Section 1272(a)(6). However, the Conference Committee Report
to the 1986 Act indicates a Congressional intent that the same rules that apply
to the accrual of market discount on installment obligations will also apply to
amortizing bond premium under Code Section 171 on installment obligations such
as the Regular Securities, although it is unclear whether the alternatives to
the constant interest method described above under "--Market Discount" are
available. Amortizable bond premium will be treated as an offset to interest
income on a Regular Security, rather than as a separate deductible item. See
"--Election to Treat All Interest Under the Constant Yield MethoD" below
regarding an alternative manner in which the Code Section 171 election may be
deemed to be made.
Election to Treat All Interest Under the Constant Yield Method. A holder of
a debt instrument such as a Regular Security may elect to treat all interest
that accrues on the instrument using the constant yield method, with none of the
interest being treated as qualified stated interest. For purposes of applying
the constant yield method to a debt instrument subject to such an election, (i)
"interest" includes stated interest, original issue discount, de minimis
original issue discount, market discount and de minimis market discount, as
adjusted by any amortizable bond premium or acquisition premium and (ii) the
debt instrument is treated as if the instrument were issued on the holder's
acquisition date in the amount of the holder's adjusted basis immediately after
acquisition. It is unclear whether, for this purpose, the initial Prepayment
Assumption would continue to apply or if a new prepayment assumption as of the
date of the holder's acquisition would apply. A holder generally may make such
an election on an instrument by instrument basis or for a class or group of debt
instruments. However, if the holder makes such an election with respect to a
debt instrument with amortizable bond premium or with market discount, the
holder is deemed to have made elections to amortize bond premium or to report
market discount income currently as it accrues under the constant yield method,
respectively, for all premium bonds held or market discount bonds acquired by
the holder in the same taxable year or thereafter. The election is made on the
holder's federal income tax return for the year in which the debt instrument is
acquired and is irrevocable except with the approval of the Internal Revenue
Service. Investors should consult their own tax advisors regarding the
advisability of making such an election.
Treatment of Losses. Regular Securityholders will be required to report
income with respect to Regular Securities on the accrual method of accounting,
without giving effect to delays or reductions in distributions attributable to
defaults or delinquencies on the Mortgage Loans, except to the extent it can be
established that such losses are uncollectible. Accordingly, the holder of a
Regular Security, particularly a Subordinate Security, may have income, or may
incur a diminution in cash flow as a result of a default or delinquency, but may
not be able to take a deduction (subject to the discussion below) for the
corresponding loss until a subsequent taxable year. In this regard, investors
are cautioned that while they may generally cease to accrue interest income if
it reasonably appears that the interest will be uncollectible, the Internal
Revenue Service may take the position that original issue discount must continue
to be accrued in spite of its uncollectibility until the debt instrument is
disposed of in a taxable transaction or becomes worthless in accordance with the
rules of Code Section 166. To the extent the rules of Code Section 166 regarding
bad debts are applicable, it appears that Regular Securityholders that are
corporations or that otherwise hold the Regular Securities in connection with a
trade or business should in general be allowed to deduct as an ordinary loss
such loss with respect to principal sustained during the taxable year on account
of any such Regular Securities becoming wholly or partially worthless, and that,
in general, Regular Securityholders that are not corporations and do not hold
the Regular Securities in connection with a trade or business should be allowed
to deduct as a short-term capital loss any loss sustained during the taxable
year on account of a portion of any such Regular Securities becoming wholly
worthless. Although the matter is not free from doubt, such non-corporate
Regular Securityholders should be allowed a bad debt deduction at such time as
the principal balance of such Regular Securities is reduced to reflect losses
resulting from any liquidated Mortgage Loans. The Internal Revenue Service,
however, could take the position that non-corporate holders will be allowed a
bad debt deduction to reflect such losses only after all the Mortgage Loans
remaining in the Trust Estate have been liquidated or the applicable class of
Regular Securities has been otherwise retired. The Internal Revenue Service
could also assert that losses on the Regular Securities are deductible based on
some other method that may defer such deductions for all holders, such as
reducing future cashflow for purposes of computing original issue discount. This
may have the effect of creating "negative" original issue discount which would
be deductible only against future positive original issue discount or otherwise
upon termination of the class. Regular Securityholders are urged to consult
their own tax advisors regarding the appropriate timing, amount and character of
any loss sustained with respect to such Regular Securities. While losses
attributable to interest previously reported as income should be deductible as
ordinary losses by both corporate and non-corporate holders, the Internal
Revenue Service may take the position that losses attributable to accrued
original issue discount may only be deducted as capital losses in the case of
non-corporate holders who do not hold the Regular Securities in connection with
a trade or business. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
Regular Securities.
Sale or Exchange of Regular Securities. If a Regular Securityholder sells
or exchanges a Regular Security, the Regular Securityholder will recognize gain
or loss equal to the difference, if any, between the amount received and its
adjusted basis in the Regular Security. The adjusted basis of a Regular Security
generally will equal the cost of the Regular Security to the seller, increased
by any original issue discount or market discount previously included in the
seller's gross income with respect to the Regular Security and reduced by
amounts included in the stated redemption price at maturity of the Regular
Security that were previously received by the seller, by any amortized premium
and by any recognized losses.
Except as described above with respect to market discount, and except as
provided in this paragraph, any gain or loss on the sale or exchange of a
Regular Security realized by an investor who holds the Regular Security as a
capital asset will be capital gain or loss and will be long-term or short-term
depending on whether the Regular Security has been held for the applicable
holding period (described below). Such gain will be treated as ordinary income
(i) if a Regular Security is held as part of a "conversion transaction" as
defined in Code Section 1258(c), up to the amount of interest that would have
accrued on the Regular Securityholder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate under Code
Section 1274(d) in effect at the time the taxpayer entered into the transaction
minus any amount previously treated as ordinary income with respect to any prior
disposition of property that was held as part of such transaction, (ii) in the
case of a non-corporate taxpayer, to the extent such taxpayer has made an
election under Code Section 163(d)(4) to have net capital gains taxed as
investment income at ordinary income rates, or (iii) to the extent that such
gain does not exceed the excess, if any, of (a) the amount that would have been
includible in the gross income of the holder if its yield on such Regular
Security were 110% of the applicable Federal rate as of the date of purchase,
over (b) the amount of income actually includible in the gross income of such
holder with respect to such Regular Security. In addition, gain or loss
recognized from the sale of a Regular Security by certain banks or thrift
institutions will be treated as ordinary income or loss pursuant to Code Section
582(c). Capital gains of non-corporate taxpayers generally are subject to a
lower maximum tax rate (20%) than ordinary income of such taxpayers (39.6%) for
capital assets held for more than one year. The maximum tax rate for
corporations is the same with respect to both ordinary income and capital gains.
TAXATION OF OWNERS OF RESIDUAL SECURITIES
Taxation of REMIC Income. Generally, the "daily portions" of REMIC taxable
income or net loss will be includible as ordinary income or loss in determining
the federal taxable income of holders of Residual Securities ("RESIDUAL
HOLDERS"), and will not be taxed separately to the REMIC Pool. The daily
portions of REMIC taxable income or net loss of a Residual Holder are determined
by allocating the REMIC Pool's taxable income or net loss for each calendar
quarter ratably to each day in such quarter and by allocating such daily portion
among the Residual Holders in proportion to their respective holdings of
Residual Securities in the REMIC Pool on such day. REMIC taxable income is
generally determined in the same manner as the taxable income of an individual
using the accrual method of accounting, except that (i) the limitations on
deductibility of investment interest expense and expenses for the production of
income do not apply, (ii)all bad loans will be deductible as business bad debts,
and (iii) the limitation on the deductibility of interest and expenses related
to tax-exempt income will apply. The REMIC Pool's gross income includes
interest, original issue discount income and market discount income, if any, on
the Mortgage Loans, reduced by amortization of any premium on the Mortgage
Loans, plus income from amortization of issue premium, if any, on the Regular
Securities, plus income on reinvestment of cash flows and reserve assets, plus
any cancellation of indebtedness income upon allocation of realized losses to
the Regular Securities. The REMIC Pool's deductions include interest and
original issue discount expense on the Regular Securities, servicing fees on the
Mortgage Loans, other administrative expenses of the REMIC Pool and realized
losses on the Mortgage Loans. The requirement that Residual Holders report their
PRO RATA share of taxable income or net loss of the REMIC Pool will continue
until there are no Securities of any class of the related series outstanding.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest, original issue discount or market discount income or
amortization of premium with respect to the Mortgage Loans, on the one hand, and
the timing of deductions for interest (including original issue discount) or
income from amortization of issue premium on the Regular Securities, on the
other hand. In the event that an interest in the Mortgage Loans is acquired by
the REMIC Pool at a discount, and one or more of such Mortgage Loans is prepaid,
the prepayment may be used in whole or in part to make distributions in
reduction of principal on the Regular Securities, and (ii) the discount on the
Mortgage Loans which is includible in income may exceed the deduction allowed
upon such distributions on those Regular Securities on account of any unaccrued
original issue discount relating to those Regular Securities. When there is more
than one class of Regular Securities that distribute principal sequentially,
this mismatching of income and deductions is particularly likely to occur in the
early years following issuance of the Regular Securities when distributions in
reduction of principal are being made in respect of earlier classes of Regular
Securities to the extent that such classes are not issued with substantial
discount or are issued at a premium. If taxable income attributable to such a
mismatching is realized, in general, losses would be allowed in later years as
distributions on the later maturing classes of Regular Securities are made.
Taxable income may also be greater in earlier years than in later years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of such a series of Regular Securities, may
increase over time as distributions in reduction of principal are made on the
lower yielding classes of Regular Securities, whereas, to the extent the REMIC
Pool consists of fixed rate Mortgage Loans, interest income with respect to any
given Mortgage Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan. Consequently, Residual Holders must
have sufficient other sources of cash to pay any federal, state, or local income
taxes due as a result of such mismatching or unrelated deductions against which
to offset such income, subject to the discussion of "excess inclusions" below
under "-- Limitations on Offset or Exemption of REMIC Income." The timing of
such mismatching of income and deductions described in this paragraph, if
present with respect to a series of Securities, may have a significant adverse
effect upon a Residual Holder's after-tax rate of return. In addition, a
Residual Holder's taxable income during certain periods may exceed the income
reflected by such Residual Holders for such periods in accordance with generally
accepted accounting principles. Investors should consult their own accountants
concerning the accounting treatment of their investment in Residual Securities.
Basis and Losses. The amount of any net loss of the REMIC Pool that may be
taken into account by the Residual Holder is limited to the adjusted basis of
the Residual Security as of the close of the quarter (or time of disposition of
the Residual Security, if earlier), determined without taking into account the
net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Security is the amount paid for such Residual Security. Such adjusted
basis will be increased by the amount of taxable income of the REMIC Pool
reportable by the Residual Holder and will be decreased (but not below zero),
first, by a cash distribution from the REMIC Pool and, second, by the amount of
loss of the REMIC Pool reportable by the Residual Holder. Any loss that is
disallowed on account of this limitation may be carried over indefinitely with
respect to the Residual Holder as to whom such loss was disallowed and may be
used by such Residual Holder only to offset any income generated by the same
REMIC Pool.
A Residual Holder will not be permitted to amortize directly the cost of
its Residual Security as an offset to its share of the taxable income of the
related REMIC Pool. However, the taxable income will not include cash received
by the REMIC Pool that represents a recovery of the REMIC Pool's basis in its
assets. Such recovery of basis by the REMIC Pool will have the effect of
amortization of the issue price of the Residual Securities over their life.
However, in view of the possible acceleration of the income of Residual Holders
described above under "--Taxation of REMIC Income", the period of time over
which such issue price is effectively amortized may be longer than the economic
life of the Residual Securities.
A Residual Security may have a negative value if the net present value of
anticipated tax liabilities exceeds the present value of anticipated cash flows.
The REMIC Regulations appear to treat the issue price of such a residual
interest as zero rather than such negative amount for purposes of determining
the REMIC Pool's basis in its assets. The preamble to the REMIC Regulations
states that the Internal Revenue Service may provide future guidance on the
proper tax treatment of payments made by a transferor of such a residual
interest to induce the transferee to acquire the interest, and Residual Holders
should consult their own tax advisors in this regard.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Security is greater than the
corresponding portion of the REMIC Pool's basis in the Mortgage Loans, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC Pool unless future Treasury regulations provide for periodic
adjustments to the REMIC income otherwise reportable by such holder. The REMIC
Regulations currently in effect do not so provide. See "-- Treatment of Certain
Items of REMIC Income and Expense -- Market Discount" below regarding the basis
of Mortgage Loans to the REMIC Pool and "--Sale or Exchange of a Residual
Security" below regarding possible treatment of a loss upon termination of the
REMIC Pool as a capital loss.
Treatment of Certain Items of REMIC Income and Expense. Although it is
anticipated that the trustee will compute REMIC income and expense in accordance
with the Code and applicable regulations, the authorities regarding the
determination of specific items of income and expense are subject to differing
interpretations. The Depositor makes no representation as to the specific method
that will be used for reporting income with respect to the Mortgage Loans and
expenses with respect to the Regular Securities, and different methods could
result in different timing or reporting of taxable income or net loss to
Residual Holders or differences in capital gain versus ordinary income.
Original Issue Discount and Premium. Generally, the REMIC Pool's deductions
for original issue discount and income from amortization of issue premium will
be determined in the same manner as original issue discount income on Regular
Securities as described above under "--Taxation of Owners of Regular Securities
- -- Original Issue Discount" and "-- Variable Rate Regular Securities", without
regard to the de minimis rule described in this prospectus, and "-- Premium,"
below.
Market Discount. The REMIC Pool will have market discount income in respect
of Mortgage Loans if, in general, the basis of the REMIC Pool in such Mortgage
Loans is exceeded by their unpaid principal balances. The REMIC Pool's basis in
such Mortgage Loans is generally the fair market value of the Mortgage Loans
immediately after the transfer thereof to the REMIC Pool. The REMIC Regulations
provide that such basis is equal in the aggregate to the issue prices of all
regular and residual interests in the REMIC Pool. The accrued portion of such
market discount would be recognized currently as an item of ordinary income in a
manner similar to original issue discount. Market discount income generally
should accrue in the manner described above under "--Taxation of Owners of
Regular Securities -- Market Discount."
Premium. Generally, if the basis of the REMIC Pool in the Mortgage Loans
exceeds the unpaid principal balances thereof, the REMIC Pool will be considered
to have acquired such Mortgage Loans at a premium equal to the amount of such
excess. As stated above, the REMIC Pool's basis in Mortgage Loans is the fair
market value of the Mortgage Loans, based on the aggregate of the issue prices
of the regular and residual interests in the REMIC Pool immediately after the
transfer thereof to the REMIC Pool. In a manner analogous to the discussion
above under "-- Taxation of Owners of Regular Securities -- Premium," a person
that holds a Mortgage Loan as a capital asset under Code Section 1221 may elect
under Code Section 171 to amortize premium on Mortgage Loans originated after
September 27, 1985 under the constant yield method. Amortizable bond premium
will be treated as an offset to interest income on the Mortgage Loans, rather
than as a separate deduction item. Because substantially all of the borrowers on
the Mortgage Loans are expected to be individuals, Code Section 171 will not be
available for premium on Mortgage Loans originated on or prior to September 27,
1985. Premium with respect to such Mortgage Loans may be deductible in
accordance with a reasonable method regularly employed by the holder thereof.
The allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Internal Revenue Service may argue
that such premium should be allocated in a different manner, such as allocating
such premium entirely to the final payment of principal.
Limitations on Offset or Exemption of REMIC Income. A portion (or all) of
the REMIC taxable income includible in determining the federal income tax
liability of a Residual Holder will be subject to special treatment. That
portion, referred to as the "excess inclusion," is equal to the excess of REMIC
taxable income for the calendar quarter allocable to a Residual Security over
the daily accruals for such quarterly period of (i) 120% of the long-term
applicable Federal rate that would have applied to the Residual Security (if it
were a debt instrument) on the Startup Day under Code Section 1274(d),
multiplied by (ii) the adjusted issue price of such Residual Security at the
beginning of such quarterly period. For this purpose, the adjusted issue price
of a Residual Security at the beginning of a quarter is the issue price of the
Residual Security, plus the amount of such daily accruals of REMIC income
described in this paragraph for all prior quarters, decreased by any
distributions made with respect to such Residual Security prior to the beginning
of such quarterly period. Accordingly, the portion of the REMIC Pool's taxable
income that will be treated as excess inclusions will be a larger portion of
such income as the adjusted issue price of the Residual Securities diminishes.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions, including net
operating loss carryforwards, on such Residual Holder's return. However, net
operating loss carryovers are determined without regard to excess inclusion
income. Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Code Section 511, the Residual Holder's
excess inclusions will be treated as unrelated business taxable income of such
Residual Holder for purposes of Code Section 511. In addition, REMIC taxable
income is subject to 30% withholding tax with respect to certain persons who are
not U.S. Persons (as defined below under "--Tax-Related Restrictions on Transfer
of Residual Securities -- Foreign Investors"), and the portion thereof
attributable to excess inclusions is not eligible for any reduction in the rate
of withholding tax (by treaty or otherwise). See "--Taxation of Certain Foreign
Investors -- Residual Securities" below. Finally, if a real estate investment
trust or a regulated investment company owns a Residual Security, a portion
(allocated under Treasury regulations yet to be issued) of dividends paid by the
real estate investment trust or regulated investment company could not be offset
by net operating losses of its shareholders, would constitute unrelated business
taxable income for tax-exempt shareholders, and would be ineligible for
reduction of withholding to certain persons who are not U.S. Persons. The SBJPA
of 1996 has eliminated the special rule permitting Section 593 institutions
("thrift institutions") to use net operating losses and other allowable
deductions to offset their excess inclusion income from Residual Securities that
have "significant value" within the meaning of the REMIC Regulations, effective
for taxable years beginning after December 31, 1995, except with respect to
Residual Securities continuously held by a thrift institution since November 1,
1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Holder. First, alternative minimum taxable income for a Residual Holder
is determined without regard to the special rule, discussed above, that taxable
income cannot be less than excess inclusions. Second, a Residual Holder's
alternative minimum taxable income for a taxable year cannot be less than the
excess inclusions for the year. Third, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions. These rules are effective for taxable years beginning after December
31, 1986, unless a Residual Holder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
Tax-Related Restrictions on Transfer of Residual Securities. Disqualified
Organizations. If any legal or beneficial interest in a Residual Security is
transferred to a Disqualified Organization (as defined below), a tax would be
imposed in an amount equal to the product of (i) the present value of the total
anticipated excess inclusions with respect to such Residual Security for periods
after the transfer and (ii) the highest marginal federal income tax rate
applicable to corporations. The REMIC Regulations provide that the anticipated
excess inclusions are based on actual prepayment experience to the date of the
transfer and projected payments based on the Prepayment Assumption. The present
value rate equals the applicable Federal rate under Code Section 1274(d) as of
the date of the transfer for a term ending with the last calendar quarter in
which excess inclusions are expected to accrue. Such rate is applied to the
anticipated excess inclusions from the end of the remaining calendar quarters in
which they arise to the date of the transfer. Such a tax generally would be
imposed on the transferor of the Residual Security, except that where such
transfer is through an agent (including a broker, nominee, or other middleman)
for a Disqualified Organization, the tax would instead be imposed on such agent.
However, a transferor of a Residual Security would in no event be liable for
such tax with respect to a transfer if the transferee furnished to the
transferor an affidavit stating that the transferee is not a Disqualified
Organization and, as of the time of the transfer, the transferor does not have
actual knowledge that such affidavit is false. The tax also may be waived by the
Internal Revenue Service if the Disqualified Organization promptly disposes of
the Residual Security and the transferor pays income tax at the highest
corporate rate on the excess inclusion for the period the Residual Security is
actually held by the Disqualified Organization.
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Security during a taxable year and a
Disqualified Organization is the record holder of an equity interest in such
entity, then a tax is imposed on such entity equal to the product of (i) the
amount of excess inclusions that are allocable to the interest in the
Pass-Through Entity during the period such interest is held by such Disqualified
Organization, and (ii) the highest marginal federal corporate income tax rate.
Such tax would be deductible from the ordinary gross income of the Pass-Through
Entity for the taxable year. The Pass-Through Entity would not be liable for
such tax if it has received an affidavit from such record holder that it is not
a Disqualified Organization or stating such holder's taxpayer identification
number and, during the period such person is the record holder of the Residual
Security, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Security, all interests in the electing
large partnership are treated as held by Disqualified Organizations for purposes
of the tax imposed upon a Pass-Through Entity by Section 860E(c) of the Code. An
exception to this tax, otherwise available to a Pass-Through Entity that is
furnished certain affidavits by record holders of interests in the entity and
that does not know such affidavits are false, is not available to an electing
large partnership.
For these purposes, (i) "DISQUALIFIED ORGANIZATION" means the United
States, any state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing (provided, that such term does not include an instrumentality if all
of its activities are subject to tax and a majority of its board of directors is
not selected by any such governmental entity), any cooperative organization
furnishing electric energy or providing telephone service or persons in rural
areas as described in Code Section 1381(a)(2)(C), and any organization (other
than a farmers' cooperative described in Code Section 531) that is exempt from
taxation under the Code unless such organization is subject to the tax on
unrelated business income imposed by Code Section 511, (ii) "PASS-THROUGH
ENTITY" means any regulated investment company, real estate investment trust,
common trust fund, partnership, trust or estate and certain corporations
operating on a cooperative basis. Except as may be provided in Treasury
regulations, any person holding an interest in a Pass-Through Entity as a
nominee for another will, with respect to such interest, be treated as a
Pass-Through Entity, and (iii) an "electing large partnership" means any
partnership having more than 100 members during the preceding tax year (other
than certain service partnerships and commodity pools), which elects to apply
certain simplified reporting provisions under the Code.
The applicable agreement with respect to a series will provide that no
legal or beneficial interest in a Residual Security may be transferred or
registered unless (i) the proposed transferee furnished to the transferor and
the trustee an affidavit providing its taxpayer identification number and
stating that such transferee is the beneficial owner of the Residual Security
and is not a Disqualified Organization and is not purchasing such Residual
Security on behalf of a Disqualified Organization (i.e., as a broker, nominee or
middleman thereof) and (ii) the transferor provides a statement in writing to
the trustee that it has no actual knowledge that such affidavit is false.
Moreover, such agreement will provide that any attempted or purported transfer
in violation of these transfer restrictions will be null and void and will vest
no rights in any purported transferee. Each Residual Security with respect to a
series will bear a legend referring to such restrictions on transfer, and each
Residual Holder will be deemed to have agreed, as a condition of ownership
thereof, to any amendments to such agreement required under the Code or
applicable Treasury regulations to effectuate the foregoing restrictions.
Information necessary to compute an applicable excise tax must be furnished to
the Internal Revenue Service and to the requesting party within 60 days of the
request, and the Depositor or the trustee may charge a fee for computing and
providing such information.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Securities, in which case the transferor would
continue to be treated as the owner of the Residual Securities and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC Pool. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Holder (other than a Residual Holder
who is not a U.S. Person as defined below under "--Foreign Investors") is
disregarded for all federal income tax purposes if a significant purpose of the
transferor is to impede the assessment or collection of tax. A residual interest
in a REMIC (including a residual interest with a positive value at issuance) is
a "noneconomic residual interest" unless, at the time of the transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes on each excess inclusion. The anticipated excess
inclusions and the present value rate are determined in the same manner as set
forth above under "--Disqualified Organizations." The REMIC Regulations explain
that a significant purpose to impede the assessment or collection of tax exists
if the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation of
the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts as
they came due in the future, and (ii) the transferee represents to the
transferor that it understands that, as the holder of the non-economic residual
interest, the transferee may incur liabilities in excess of any cash flows
generated by the interest and that the transferee intends to pay taxes
associated with holding the residual interest as they become due. The agreement
with respect to each series of Securities will require the transferee of a
Residual Security to certify to the matters in the preceding sentence as part of
the affidavit described above under the heading "--Disqualified Organizations."
Foreign Investors. The REMIC Regulations provide that the transfer of a
Residual Security that has "tax avoidance potential" to a "foreign person" will
be disregarded for all federal tax purposes. This rule appears intended to apply
to a transferee who is not a "U.S. Person" (as defined below), unless such
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A Residual Security is deemed to have tax
avoidance potential unless, at the time of the transfer, (i) the future value of
expected distributions equals at least 30% of the anticipated excess inclusions
after the transfer, and (ii) the transferor reasonably expects that the
transferee will receive sufficient distributions from the REMIC Pool at or after
the time at which the excess inclusions accrue and prior to the end of the next
succeeding taxable year for the accumulated withholding tax liability to be
paid. If the non-U.S. Person transfers the Residual Security back to a U.S.
Person, the transfer will be disregarded and the foreign transferor will
continue to be treated as the owner unless arrangements are made so that the
transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
The prospectus supplement relating to the Securities of a series may
provide that a Residual Security may not be purchased by or transferred to any
person that is not a U.S. Person or may describe the circumstances and
restrictions pursuant to which such a transfer may be made. The term "U.S.
PERSON" means a citizen or resident of the United States, a corporation or
partnership or other entity created or organized in or under the laws of the
United States, any State thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide otherwise),
including any entity treated as a corporation or partnership for federal income
tax purposes, an estate that is subject to U.S. federal income tax regardless of
the source of its income, or, generally, a trust if a court within the United
States is able to exercise primary supervision over the administration of such
trust, and one or more U.S. Persons have the authority to control all
substantial decisions of such trust (or, to the extent provided in applicable
Treasury regulations, certain trusts in existence on August 20, 1996, which are
eligible to elect to be treated as U.S. Persons).
Sale or Exchange of a Residual Security. Upon the sale or exchange of a
Residual Security, the Residual Holder will recognize gain or loss equal to the
excess, if any, of the amount realized over the adjusted basis (as described
above under "--Taxation of Owners of Residual Securities -- Basis and Losses")
of such Residual Holder in such Residual Security at the time of the sale or
exchange. In addition to reporting the taxable income of the REMIC Pool, a
Residual Holder will have taxable income to the extent that any cash
distribution to it from the REMIC Pool exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or exchange
of the Residual Holder's Residual Security, in which case, if the Residual
Holder has an adjusted basis in its Residual Security remaining when its
interest in the REMIC Pool terminates, and if it holds such Residual Security as
a capital asset under Code Section 1221, then it will recognize a capital loss
at that time in the amount of such remaining adjusted basis.
Any gain on the sale of a Residual Security will be treated as ordinary
income (i) if a Residual Security is held as part of a "conversion transaction"
as defined in Code Section 1258(c), up to the amount of interest that would have
accrued on the Residual Holder's net investment in the conversion transaction at
120% of the appropriate applicable Federal rate in effect at the time the
taxpayer entered into the transaction minus any amount previously treated as
ordinary income with respect to any prior disposition of property that was held
as a part of such transaction or (ii) in the case of a non-corporate taxpayer,
to the extent such taxpayer has made an election under Code Section 163(d)(4) to
have net capital gains taxed as investment income at ordinary income rates. In
addition, gain or loss recognized from the sale of a Residual Security by
certain banks or thrift institutions will be treated as ordinary income or loss
pursuant to Code Section 582(c).
The Conference Committee Report to the 1986 Act provides that, except as
provided in Treasury regulations yet to be issued, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Securities where the seller
of the Residual Security, during the period beginning six months before the sale
or disposition of the Residual Security and ending six months after such sale or
disposition, acquires (or enters into any other transaction that results in the
application of Code Section 1091) any residual interest in any REMIC or any
interest in a "taxable mortgage pool" (such as a non-REMIC owner trust) that is
economically comparable to a Residual Security.
Mark to Market Regulations. On December 24, 1996, the Internal Revenue
Service issued final regulations (the "MARK TO MARKET REGULATIONS") under Code
Section 475 relating to the requirement that a securities dealer mark to market
securities held for sale to customers. This mark to market requirement applies
to all securities of a dealer, except to the extent that the dealer has
specifically identified a security as held for investment. The Mark to Market
Regulations provide that, for purposes of this mark to market requirement, a
Residual Security is not treated as a security and thus may not be marked to
market. The Mark to Market Regulations apply to all Residual Securities acquired
on or after January 4, 1995.
TAXES THAT MAY BE IMPOSED ON THE REMIC POOL
Prohibited Transactions. Income from certain transactions by the REMIC
Pool, called prohibited transactions, will not be part of the calculation of
income or loss includible in the federal income tax returns of Residual Holders,
but rather will be taxed directly to the REMIC Pool at a 100% rate. Prohibited
transactions generally include (i) the disposition of a qualified mortgage other
than for (a) substitution within two years of the Startup Day for a defective
(including a defaulted) obligation (or repurchase in lieu of substitution of a
defective (including a defaulted) obligation at any time) or for any qualified
mortgage within three months of the Startup Day, (b) foreclosure, default, or
imminent default of a qualified mortgage, (c) bankruptcy or insolvency of the
REMIC Pool, or (d) a qualified (complete) liquidation, (ii) the receipt of
income from assets that are not the type of mortgages or investments that the
REMIC Pool is permitted to hold, (iii) the receipt of compensation for services,
or (iv) the receipt of gain from disposition of cash flow investments other than
pursuant to a qualified liquidation. Notwithstanding (i) and (iv), it is not a
prohibited transaction to sell REMIC Pool property to prevent a default on
Regular Securities as a result of a default on qualified mortgages or to
facilitate a clean-up call (generally, an optional termination to save
administrative costs when no more than a small percentage of the Securities is
outstanding). The REMIC Regulations indicate that the modification of a Mortgage
Loan generally will not be treated as a disposition if it is occasioned by a
default or reasonably foreseeable default, an assumption of the Mortgage Loan,
the waiver of a due-on-sale or due-on-encumbrance clause, or the conversion of
an interest rate by a borrower pursuant to the terms of a convertible adjustable
rate Mortgage Loan.
Contributions to the REMIC Pool After the Startup Day. In general, the
REMIC Pool will be subject to a tax at a 100% rate on the value of any property
contributed to the REMIC Pool after the Startup Day. Exceptions are provided for
cash contributions to the REMIC Pool (i) during the three months following the
Startup Day, (ii) made to a qualified reserve fund by a Residual Holder, (iii)
in the nature of a guarantee, (iv) made to facilitate a qualified liquidation or
clean-up call, and (v) as otherwise permitted in Treasury regulations yet to be
issued. We do not anticipate that there will be any contributions to the REMIC
Pool after the Startup Day.
Net Income from Foreclosure Property. The REMIC Pool will be subject of
federal income tax at the highest corporate rate on "net income from foreclosure
property", determined by reference to the rules applicable to real estate
investment trusts. Generally, property acquired by deed in lieu of foreclosure
would be treated as "foreclosure property" until the close of the third calendar
year following the year of acquisition, with a possible extension. 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. We do not anticipate that the REMIC Pool will have any taxable
net income from foreclosure property.
Liquidation of the REMIC Pool. If a REMIC Pool adopts a plan of complete
liquidation, within the meaning of Code Section 860F(a)(4)(A)(i), which may be
accomplished by designating in the REMIC Pool's final tax return a date on which
such adoption is deemed to occur, and sells all of its assets (other than cash)
within a 90-day period beginning on such date, the REMIC Pool will not be
subject to the prohibited transaction rules on the sale of its assets, provided
that the REMIC Pool credits or distributes in liquidation all of the sale
proceeds plus its cash (other than amounts retained to meet claims) to holders
of Regular Securities and Residual Holders within the 90-day period.
Administrative Matters. The REMIC Pool will be required to maintain its
books on a calendar year basis and to file federal income tax returns for
federal income tax purposes in a manner similar to a partnership. The form for
such income tax return is Form 1066, U.S. Real Estate Mortgage Investment
Conduit Income Tax Return. The trustee will be required to sign the REMIC Pool's
returns. Treasury regulations provide that, except where there is a single
Residual Holder for an entire taxable year, the REMIC Pool will be subject to
the procedural and administrative rules of the Code applicable to partnerships,
including the determination by the Internal Revenue Service of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction, or credit
in a unified administrative proceeding. The master servicer will be obligated to
act as "tax matters person", as defined in applicable Treasury regulations, with
respect to the REMIC Pool as agent of the Residual Holder holding the largest
percentage interest in the Residual Securities. If the Code or applicable
Treasury regulations do not permit the master servicer to act as tax matters
person in its capacity as agent of such Residual Holder, such Residual Holder or
such other person specified pursuant to Treasury regulations will be required to
act as tax matters person.
Limitations on Deduction of Certain Expenses. An investor who is an
individual, estate, or trust will be subject to limitation with respect to
certain itemized deductions described in Code Section 67, to the extent that
such itemized deductions, in the aggregate, do not exceed 2% of the investor's
adjusted gross income. In addition, Code Section 68 provides that itemized
deductions otherwise allowable for a taxable year of an individual taxpayer will
be reduced by the lesser of (i) 3% of the excess, if any, of adjusted gross
income over $124,500 for 1998 ($62,250 in the case of a married individual
filing a separate return) (as adjusted for inflation for subsequent years), or
(ii) 80% of the amount of itemized deductions otherwise allowable for such year.
In the case of a REMIC Pool, such deductions may include deductions under Code
Section 212 for the Servicing Fee and all administrative and other expenses
relating to the REMIC Pool, or any similar expenses allocated to the REMIC Pool
with respect to a regular interest it holds in another REMIC. Such investors who
hold REMIC Securities either directly or indirectly through certain pass-through
entities may have their pro rata share of such expenses allocated to them as
additional gross income, but may be subject to such limitation on deductions. In
addition, such expenses are not deductible at all for purposes of computing the
alternative minimum tax, and may cause such investors to be subject to
significant additional tax liability. Temporary Treasury regulations provide
that the additional gross income and corresponding amount of expenses generally
are to be allocated entirely to the holders of Residual Securities in the case
of a REMIC Pool that would not qualify as a fixed investment trust in the
absence of a REMIC election. However, such additional gross income and
limitation on deductions will apply to the allocable portion of such expenses to
holders of Regular Securities, as well as holders of Residual Securities, where
such Regular Securities are issued in a manner that is similar to pass-through
certificates in a fixed investment trust. Unless indicated otherwise in the
related prospectus supplement, all such expenses will be allocable to the
Residual Securities. In general, such allocable portion will be determined based
on the ratio that a REMIC Holder's income, determined on a daily basis, bears to
the income of all holders of Regular Securities and Residual Securities with
respect to a REMIC Pool. As a result, individuals, estates or trusts holding
REMIC Securities (either directly or indirectly through a grantor trust,
partnership, S corporation, REMIC, or certain other pass-through entities
described in the foregoing temporary Treasury regulations) may have taxable
income in excess of the interest income at the pass-through rate on Regular
Securities that are issued in a single class or otherwise consistently with
fixed investment trust status or in excess of cash distributions for the related
period on Residual Securities.
TAXATION OF CERTAIN FOREIGN INVESTORS
REGULAR SECURITIES. Interest, including original issue discount,
distributable to Regular Securityholders who are non-resident aliens, foreign
corporations, or other non-U.S. Persons (as defined below), will be considered
"portfolio interest" and, therefore, generally will not be subject to 30% United
States withholding tax, provided that such non-U.S. Person (i) is not a
"10-percent shareholder" within the meaning of Code Section 871(h)(3)(B) or a
controlled foreign corporation described in Code Section 881(c)(3)(C) and (ii)
provides the trustee, or the person who would otherwise be required to withhold
tax from such distributions under Code Section 1441 or 1442, with an appropriate
statement, signed under penalties of perjury, identifying the beneficial owner
and stating, among other things, that the beneficial owner of the Regular
Security is a Non-U.S. Person. If such statement, or any other required
statement, is not provided, 30% withholding will apply unless reduced or
eliminated pursuant to an applicable tax treaty or unless the interest on the
Regular Security is effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Person. In the latter case,
such Non-U.S. Person will be subject to United States federal income tax at
regular rates. Investors who are Non-U.S. Persons should consult their own tax
advisors regarding the specific tax consequences to them of owning a Regular
Security. The term "NON-U.S. PERSON" means any person who is not a U.S. Person.
The IRS recently issued final regulations (the "NEW REGULATIONS") which
would provide alternative methods of satisfying the beneficial ownership
certification requirement described above. The New Regulations will be effective
January 1, 2001, current withholding certificates will remain valid until the
earlier of December 31, 2000, or the date of expiration of the certificate under
the rules as currently in effect. The New Regulations would require, in the case
of Regular Securities held by a foreign partnership, that (x) the certification
described above be provided by the partners rather than by the foreign
partnership and (y) the partnership provide certain information, including a
United States taxpayer identification number. A look-through rule would apply in
the case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors concerning the application of the certification requirements in the New
Regulations.
RESIDUAL SECURITIES. The Conference Committee Report to the 1986 Act
indicates that amounts paid to Residual Holders who are Non-U.S. Persons
generally should be treated as interest for purposes of the 30% (or lower treaty
rate) United States withholding tax. Treasury regulations provide that amount
distributed to Residual Holders may qualify as "portfolio interest", subject to
the conditions described in "Regular Securities" above, but only to the extent
that (i) the Mortgage Loans were issued after July 18, 1984 and (ii) the Trust
Estate or segregated pool of assets in such Trust Estate (as to which a separate
REMIC election will be made), to which the Residual Security relates, consists
of obligations issued in "registered form" within the meaning of Code Section
163(f)(1). Generally, Mortgage Loans will not be, but regular interests in
another REMIC Pool will be, considered obligations issued in registered form.
Furthermore, Residual Holders will not be entitled to any exemption from the 30%
withholding tax (or lower treaty rate) to the extent of that portion of REMIC
taxable income that constitutes an "excess inclusion." See "--Taxation of Owners
of Residual Securities -- Limitations on Offset or Exemption of REMIC Income" in
this prospectus. If the amounts paid to Residual Holders who are Non-U.S.
Persons are effectively connected with the conduct of a trade or business within
the United States by such Non-U.S. Persons, 30% (or lower treaty rate)
withholding will not apply. Instead, the amounts paid to such Non-U.S. Persons
will be subject to United States federal income tax at regular rates. If 30% (or
lower treaty rate) withholding is applicable, such amounts generally will be
taken into account for purposes of withholding only when paid or otherwise
distributed (or when the Residual Security is disposed of) under rules similar
to withholding upon disposition of debt instruments that have original issue
discount. See "--Tax-Related Restrictions on Transfer of Residual Securities --
Foreign Investors" above concerning the disregard of certain transfers having
"tax avoidance potential." Investors who are Non-U.S. Persons should consult
their own tax advisors regarding the specific tax consequences to them of owning
Residual Securities.
BACKUP WITHHOLDING. Distributions made on the Regular Securities, and
proceeds from the sale of the Regular Securities to or through certain brokers,
may be subject to a "backup" withholding tax under Code Section 3406 of 31% on
"reportable payments" (including interest distributions, original issue
discount, and, under certain circumstances, principal distributions) unless the
Regular Holder complies with certain reporting and/or certification procedures,
including the provision of its taxpayer identification number to the trustee,
its agent or the broker who effected the sale of the Regular Security, or such
holder is otherwise an exempt recipient under applicable provisions of the Code.
Any amounts to be withheld from distribution on the Regular Securities would be
refunded by the Internal Revenue Service or allowed as a credit against the
Regular Holder's federal income tax liability. The New Regulations will change
certain of the rules relating to certain presumptions currently available
relating to information reporting and backup withholding. Non-U.S. Persons are
urged to contact their own tax advisors regarding the application to them of
backup withholding and information reporting.
REPORTING REQUIREMENTS. Reports of accrued interest, original issue
discount and information necessary to compute the accrual of market discount
will be made annually to the Internal Revenue Service and to individuals,
estates, non-exempt and non-charitable trusts, and partnerships who are either
holders of record of Regular Securities or beneficial owners who own Regular
Securities through a broker or middleman as nominee. All brokers, nominees and
all other non-exempt holders of record of Regular Securities (including
corporations, non-calendar year taxpayers, securities or commodities dealers,
real estate investment trusts, investment companies, common trust funds, thrift
institutions and charitable trusts) may request such information for any
calendar quarter by telephone or in writing by contacting the person designated
in Internal Revenue Service Publication 938 with respect to a particular series
of Regular Securities. Holders through nominees must request such information
from the nominee.
The Internal Revenue Service's Form 1066 has an accompanying Schedule Q,
Quarterly Notice to Residual Interest Holders of REMIC Taxable Income or Net
Loss Allocation.
Treasury regulations require that Schedule Q be furnished by the REMIC Pool
to each Residual Holder by the end of the month following the close of each
calendar quarter (41 days after the end of a quarter under proposed Treasury
regulations) in which the REMIC Pool is in existence. Treasury regulations
require that, in addition to the foregoing requirements, information must be
furnished quarterly to Residual Holders, furnished annually, if applicable, to
holders of Regular Securities, and filed annually with the Internal Revenue
Service concerning Code Section 67 expenses (see "--Limitations on Deduction of
Certain Expenses" above) allocable to such holders. Furthermore, under such
regulations, information must be furnished quarterly to Residual Holders,
furnished annually to holders of Regular Securities, and filed annually with the
Internal Revenue Service concerning the percentage of the REMIC Pool's assets
meeting the qualified asset tests described above under "--Characterization of
Investments in REMIC Securities."
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS. With respect to each series of
Grantor Trust Securities, Cadwalader, Wickersham & Taft will deliver its opinion
to the effect that, assuming compliance with all provisions of the applicable
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, an
association taxable as a corporation, or a "taxable mortgage pool" within the
meaning of Code Section 7701(i). Accordingly, each holder of a Grantor Trust
Security generally will be treated as the beneficial owner of an undivided
interest in the Mortgage Loans included in the Grantor Trust Fund.
STANDARD SECURITIES
GENERAL. Where there is no Retained Interest with respect to the Mortgage
Loans underlying the Securities of a series, and where such Securities are not
designated as "STRIPPED SECURITIES", the holder of each such Security in such
series (referred to as "STANDARD SECURITIES") will be treated as the owner of a
pro rata undivided interest in the ordinary income and corpus portions of the
Grantor Trust Fund represented by its Standard Security and will be considered
the beneficial owner of a pro rata undivided interest in each of the Mortgage
Loans, subject to the discussion below under "--Recharacterization of Servicing
Fees." Accordingly, the holder of a Standard Security of a particular series
will be required to report on its federal income tax return its pro rata share
of the entire income from the Mortgage Loans represented by its Standard
Security, including interest at the coupon rate on such Mortgage Loans, original
issue discount (if any), prepayment fees, assumption fees, and late payment
charges received by the Servicer, in accordance with such holder's method of
accounting. A holder of Securities generally will be able to deduct its share of
the Servicing Fee and all administrative and other expenses of the Trust Estate
in accordance with its method of accounting, provided that such amounts are
reasonable compensation for services rendered to that Grantor Trust Fund.
However, investors who are individuals, estates or trusts who own Securities,
either directly or indirectly through certain pass-through entities, will be
subject to limitation with respect to certain itemized deductions described in
Code Section 67, including deductions under Code Section 212 for the Servicing
Fee and all such administrative and other expenses of the Grantor Trust Fund, to
the extent that such deductions, in the aggregate, do not exceed two percent of
an investor's adjusted gross income. In addition, Code Section 68 provides that
itemized deductions otherwise allowable for a taxable year of an individual
taxpayer will be reduced by the lesser of (i) 3% of the excess, if any, of
adjusted gross income over $124,500 for 1998 ($62,250 in the case of a married
individual filing a separate return) (in each case, as adjusted for inflation in
subsequent years), or (ii) 80% of the amount of itemized deductions otherwise
allowable for such year. As a result, such investors holding Standard
Securities, directly or indirectly through a pass-through entity, may have
aggregate taxable income in excess of the aggregate amount of cash received on
such Standard
Securities with respect to interest at the pass-through rate or as discount
income on such Standard Securities. In addition, such expenses are not
deductible at all for purposes of computing the alternative minimum tax, and may
cause such investors to be subject to significant additional tax liability.
Moreover, where there is Retained Interest with respect to the Mortgage Loans
underlying a series of Securities or where the servicing fees are in excess of
reasonable servicing compensation, the transaction will be subject to the
application of the "stripped bond" and "stripped coupon" rules of the Code, as
described below under "--Stripped Securities" and "--Recharacterization of
Servicing Fees", respectively.
TAX STATUS. Cadwalader, Wickersham & Taft has advised the Depositor that:
1. A Standard Security owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) will be
considered to represent "loans. . . secured by an interest in real property
which is. . . residential real property" within the meaning of Code Section
7701(a)(19)(C)(v), provided that the real property securing the Mortgage
Loans represented by that Standard Security is of the type described in
such section of the Code.
2. A Standard Security owned by a real estate investment trust will be
considered to represent "REAL ESTATE ASSETS" within the meaning of Code
Section 856(c)(4)(A) to the extent that the assets of the related Grantor
Trust Fund consist of qualified assets, and interest income on such assets
will be considered "interest on obligations secured by mortgages on real
property" to such extent within the meaning of Code Section 856(c)(3)(B).
3. A Standard Security owned by a REMIC will be considered to
represent an "obligation (including any participation or certificate of
beneficial ownership in such REMIC) which is principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3)(A)
to the extent that the assets of the related Grantor Trust Fund consist of
"qualified mortgages" within the meaning of Code Section 860G(a)(3).
4. A Standard Security owned by a "financial asset securitization
investment trust" within the meaning of Code Section 860L(a) will be
considered to represent "permitted assets" within the meaning of Code
Section 860L(c) to the extent that the assets of related Grantor Trust Fund
consist of "debt instruments" or other permitted assets within the meaning
of Code Section 860L(c).
An issue arises as to whether Buydown Loans may be characterized in
their entirety under the Code provisions cited in clauses 1 and 2 of the
immediately preceding paragraph or whether the amount qualifying for such
treatment must be reduced by the amount of the Buydown Funds. There is
indirect authority supporting treatment of an investment in a Buydown Loan
as entirely secured by real property if the fair market value of the real
property securing the loan exceeds the principal amount of the loan at the
time of issuance or acquisition, as the case may be. There is no assurance
that the treatment described above is proper. Accordingly, holders of
Securities are urged to consult their own tax advisors concerning the
effects of such arrangements on the characterization of such holder's
investment for federal income tax purposes.
PREMIUM AND DISCOUNT. holders of Securities are advised to consult with
their tax advisors as to the federal income tax treatment of premium and
discount arising either upon initial acquisition of Standard Securities or
thereafter.
Premium. The treatment of premium incurred upon the purchase of a Standard
Security will be determined generally as described above under "--Taxation of
Owners of Residual Securities -- Premium".
Original Issue Discount. The original issue discount rules of Code Section
1271 through 1275 will be applicable to a holder's interest in those Mortgage
Loans as to which the conditions for the application of those sections are met.
Rules regarding periodic inclusion of original issue discount income are
applicable to mortgages of corporations originated after May 27, 1969, mortgages
of noncorporate borrowers (other than individuals) originated after July 1,
1982, and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, such original issue discount could arise by the charging of points
by the originator of the mortgages in an amount greater than the statutory de
minimis exception, including a payment of points that is currently deductible by
the borrower under applicable Code provisions or, under certain circumstances,
by the presence of "teaser" rates on the Mortgage Loans. See "Stripped
Securities" below regarding original issue discount on Stripped Securities.
Original issue discount generally must be reported as ordinary gross income
as it accrues under a constant interest method that takes into account the
compounding of interest, in advance of the cash attributable to such income.
Unless indicated otherwise in the related prospectus supplement, no prepayment
assumption will be assumed for purposes of such accrual. However, Code Section
1272 provides for a reduction in the amount of original issue discount
includible in the income of a holder of an obligation that acquires the
obligation after its initial issuance at a price greater than the sum of the
original issue price and the previously accrued original issue discount, less
prior payments of principal. Accordingly, if such Mortgage Loans acquired by a
holder of Securities are purchased at a price equal to the then unpaid principal
amount of such Mortgage Loans, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
Mortgage Loans (i.e., points) will be includible by such holder.
Market Discount. Holders of Securities also will be subject to the market
discount rules to the extent that the conditions for application of those
sections are met. Market discount on the Mortgage Loans will be determined and
will be reported as ordinary income generally in the manner described above
under "REMICs -- Taxation of Owners of Regular Securities -- Market Discount,"
except that the ratable accrual methods described in those sections will not
apply. Rather, the holder will accrue market discount pro rata over the life of
the Mortgage Loans, unless the constant yield method is elected. Unless
indicated otherwise in the related prospectus supplement, no prepayment
assumption will be assumed for purposes of such accrual.
RECHARACTERIZATION OF SERVICING FEES. If the servicing fees paid to a
Servicer were deemed to exceed reasonable servicing compensation, the amount of
such excess would represent neither income nor a deduction to holders of
Securities. In this regard, there are no authoritative guidelines for federal
income tax purposes as to either the maximum amount of servicing compensation
that may be considered reasonable in the context of this or similar transactions
or whether, in the case of Standard Securities, the reasonableness of servicing
compensation should be determined on a weighted average or loan-by-loan basis.
If a loan-by-loan basis is appropriate, the likelihood that such amount would
exceed reasonable servicing compensation as to some of the Mortgage Loans would
be increased. Internal Revenue Service guidance indicates that a servicing fee
in excess of reasonable compensation ("excess servicing") will cause the
Mortgage Loans to be treated under the "stripped bond" rules. Such guidance
provides safe harbors for servicing deemed to be reasonable and requires
taxpayers to demonstrate that the value of servicing fees in excess of such
amounts is not greater than the value of the services provided.
Accordingly, if the Internal Revenue Service's approach is upheld, a
Servicer who receives a servicing fee in excess of such amounts would be viewed
as retaining an ownership interest in a portion of the interest payments on the
Mortgage Loans. Under the rules of Code Section 1286, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from the right to receive some or all of the principal payments on
the obligation would result in treatment of such Mortgage Loans as "stripped
coupons" and "stripped bonds." Subject to the de minimis rule discussed below
under "Stripped Securities", each stripped bond or stripped coupon could be
considered for this purpose as a non-interest bearing obligation issued on the
date of issue of the Standard Securities, and the original issue discount rules
of the Code would apply to the holder thereof. While holders of Securities would
still be treated as owners of beneficial interests in a grantor trust for
federal income tax purposes, the corpus of such trust could be viewed as
excluding the portion of the Mortgage Loans the ownership of which is attributed
to the Servicer, or as including such portion as a second class of equitable
interest. Applicable Treasury regulations treat such an arrangement as a fixed
investment trust, since the multiple classes of trust interests should be
treated as merely facilitating direct investments in the trust assets and the
existence of multiple classes of ownership interests is incidental to that
purpose. In general, such a recharacterization should not have any significant
effect upon the timing or amount of income reported by a holder of Securities,
except that the income reported by a cash method holder may be slightly
accelerated. See "--Stripped Securities" below for a further description of the
federal income tax treatment of stripped bonds and stripped coupons.
SALE OR EXCHANGE OF STANDARD SECURITIES. Upon sale or exchange of a
Standard Security, a holder of Securities will recognize gain or loss equal to
the difference between the amount realized on the sale and its aggregate
adjusted basis in the Mortgage Loans and other assets represented by the
Security. In general, the aggregate adjusted basis will equal the holder's cost
for the Standard Security, exclusive of accrued interest, increased by the
amount of any income previously reported with respect to the Standard Security
and decreased by the amount of any losses previously reported with respect to
the Standard Security and the amount of any distributions (other than accrued
interest) received thereon. Except as provided above with respect to market
discount on any Mortgage Loans, and except for certain financial institutions
subject to the provisions of Code Section 582(c), any such gain or loss
generally would be capital gain or loss if the Standard Security was held as a
capital asset. However, gain on the sale of a Standard Security will be treated
as ordinary income (i) if a Standard Security is held as part of a "conversion
transaction" as defined in Code Section 1258(c), up to the amount of interest
that would have accrued on the holder's net investment in the conversion
transaction at 120% of the appropriate applicable Federal rate in effect at the
time the taxpayer entered into the transaction minus any amount previously
treated as ordinary income with respect to any prior disposition of property
that was held as part of such transaction or (ii) in the case of a non-corporate
taxpayer, to the extent such taxpayer has made an election under Code Section
163(d)(4) to have net capital gains taxed as investment income at ordinary
income rates. Capital gains of noncorporate taxpayers generally are subject to a
lower maximum tax rate (20%) than ordinary income of such taxpayers (39.6%) for
capital assets held for more than one year. The maximum tax rate for
corporations is the same with respect to both ordinary income and capital gains.
STRIPPED SECURITIES
GENERAL. Pursuant to Code Section 1286, the separation of ownership of the
right to receive some or all of the principal payments on an obligation from
ownership of the right to receive some or all of the interest payments results
in the creation of "stripped bonds" with respect to principal payments and
"stripped coupons" with respect to interest payments. For purposes of this
discussion, Securities that are subject to those rules will be referred to as
"STRIPPED SECURITIES." The Securities will be subject to those rules if (i) the
Depositor or any of its affiliates retains (for its own account or for purposes
of resale), in the form of Retained Interest or otherwise, an ownership interest
in a portion of the payments on the Mortgage Loans, (ii) the Depositor or any of
its affiliates is treated as having an ownership interest in the Mortgage Loans
to the extent it is paid (or retains) servicing compensation in an amount
greater than reasonable consideration for servicing the Mortgage Loans (see
"--Standard Securities -- Recharacterization of Servicing Fees" above), and
(iii) a class of Securities are issued in two or more classes or subclasses
representing the right to non-pro-rata percentages of the interest and principal
payments on the Mortgage Loans.
In general, a holder of a Stripped Security will be considered to own
"stripped bonds" with respect to its pro rata share of all or a portion of the
principal payments on each Mortgage Loan and/or "stripped coupons" with respect
to its pro rata share of all or a portion of the interest payments on each
Mortgage Loan, including the Stripped Security's allocable share of the
servicing fees paid to a Servicer, to the extent that such fees represent
reasonable compensation for services rendered. See the discussion above under
"--Standard Securities -- Recharacterization of Servicing Fees." Although not
free from doubt, for purposes of reporting to Stripped holders of Securities,
the servicing fees will be allocated to the classes of Stripped Securities in
proportion to the distributions to such classes for the related period or
periods. The holder of a Stripped Security generally will be entitled to a
deduction each year in respect of the servicing fees, as described above under
"--Standard Securities -- General," subject to the limitation described in such
section.
Code Section 1286 treats a stripped bond or a stripped coupon generally as
an obligation issued on the date that such stripped interest is purchased.
Although the treatment of Stripped Securities for federal income tax purposes is
not clear in certain respects, particularly where such Stripped Securities are
issued with respect to a Mortgage Pool containing variable-rate Mortgage Loans,
the Depositor has been advised by counsel that (i) the Grantor Trust Fund will
be treated 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 a "taxable mortgage
pool" within the meaning of Code Section 7701(i), and (ii) each Stripped
Security should be treated as a single installment obligation for purposes of
calculating original issue discount and gain or loss on disposition. This
treatment is based on the interrelationship of Code Section 1286, Code Sections
1272 through 1275, and the OID Regulations. Although it is possible that
computations with respect to Stripped Securities could be made in one of the
ways described below under "--Possible Alternative Characterizations," the OID
Regulations state, in general, that two or more debt instruments issued by a
single issuer to a single investor in a single transaction should be treated as
a single debt instrument. Accordingly, for original issue discount purposes, all
payments on any Stripped Securities should be aggregated and treated as though
they were made on a single debt instrument. The applicable agreement will
require that the trustee make and report all computations described below using
this aggregate approach, unless substantial legal authority requires otherwise.
Furthermore, Treasury regulations provide for treatment of a Stripped
Security as a single debt instrument issued on the date it is purchased for
purposes of calculating any original issue discount. In addition, under such
regulations, a Stripped Security that represents a right to payments of both
interest and principal may be viewed either as issued with original issue
discount or market discount (as described below), at a de minimis original issue
discount, or, presumably, at a premium. This treatment indicates that the
interest component of such a Stripped Security would be treated as qualified
stated interest under the OID Regulations, assuming it is not an interest-only
or super-premium Stripped Security. Further, these regulations provide that the
purchaser of such a Stripped Security will be required to account for any
discount as market discount rather than original issue discount if either (i)
the initial discount with respect to the Stripped Security was treated as zero
under the de minimis rule, or (ii) no more than 100 basis points in excess of
reasonable servicing is stripped off the related Mortgage Loans. Any such market
discount would be reportable as described above under "--Taxation of Owners of
Regular Securities -- Market Discount," without regard to the de minimis rule
described in this prospectus, assuming that a prepayment assumption is employed
in such computation.
STATUS OF STRIPPED SECURITIES. No specific legal authority exists as to
whether the character of the Stripped Securities, for federal income tax
purposes, will be the same as that of the Mortgage Loans. Although the issue is
not free from doubt, counsel has advised the Depositor that Stripped Securities
owned by applicable holders should be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(4)(A), "obligation[s]. . .
principally secured by an interest in real property" within the meaning of Code
Section 860G(a)(3)(A), and "loans. . . secured by an interest in real property"
within the meaning of Code Section 7701(a)(19)(C)(v), and interest (including
original issue discount) income attributable to Stripped Securities should be
considered to represent "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B), provided that in each
case the Mortgage Loans and interest on such Mortgage Loans qualify for such
treatment. The application of such Code provisions to Buydown Loans is
uncertain. See "--Standard Securities -- Tax Status" above.
TAXATION OF STRIPPED SECURITIES. Original Issue Discount. Except as
described above under "General," each Stripped Security will be considered to
have been issued at an original issue discount for federal income tax purposes.
Original issue discount with respect to a Stripped Security must be included in
ordinary income as it accrues, in accordance with a constant yield method that
takes into account the compounding of interest, which may be prior to the
receipt of the cash attributable to such income. Based in part on the issue
discount required to be included in the income of a holder of a Stripped
Security (referred to in this discussion as a "STRIPPED HOLDER OF SECURITIES")
in any taxable year likely will be computed generally as described above under
"--Taxation of Owner of Regular Securities -- Original Issue Discount" and "--
Variable Rate Regular Securities." However, with the apparent exception of a
Stripped Security qualifying as a market discount obligation as described above
under "-- General," the issue price of a Stripped Security will be the purchase
price paid by each holder thereof, and the stated redemption price at maturity
will include the aggregate amount of the payments to be made on the Stripped
Security to such holder of Securities, presumably under the Prepayment
Assumption, other than qualified stated interest.
If the Mortgage Loans prepay at a rate either faster or slower than that
under the Prepayment Assumption, a holder's recognition of original issue
discount will be either accelerated or decelerated and the amount of such
original issue discount will be either increased or decreased depending on the
relative interests in principal and interest on each Mortgage Loan represented
by such holder's Stripped Security. While the matter is not free from doubt, the
holder of a Stripped Security should be entitled in the year that it becomes
certain (assuming no further prepayments) that the holder will not recover a
portion of its adjusted basis in such Stripped Security to recognize a loss
(which may be a capital loss) equal to such portion of unrecoverable basis.
As an alternative to the method described above, the fact that some or all
of the interest payments with respect to the Stripped Securities will not be
made if the Mortgage Loans are prepaid could lead to the interpretation that
such interest payments are "contingent" within the meaning of the OID
Regulations. The OID Regulations, as they relate to the treatment of contingent
interest, are by their terms not applicable to prepayable securities such as the
Stripped Securities. However, if final regulations dealing with contingent
interest with respect to the Stripped Securities apply the same principles as
the OID Regulations, such regulations may lead to different timing of income
inclusion that would be the case under the OID Regulations. Furthermore,
application of such principles could lead to the characterization of gain on the
sale of contingent interest Stripped Securities as ordinary income. Investors
should consult their tax advisors regarding the appropriate tax treatment of
Stripped Securities.
Sale or Exchange of Stripped Securities. Sale or exchange of a Stripped
Security prior to its maturity will result in gain or loss equal to the
difference, if any, between the amount received and the holder's adjusted basis
in such Stripped Security, as described above under "--Taxation of Owners of
Regular Securities -- Sale or Exchange of Regular Securities." To the extent
that a subsequent purchaser's purchase price is exceeded by the remaining
payments on the Stripped Securities, such subsequent purchaser will be required
for federal income tax purposes to accrue and report such excess as if it were
original issue discount in the manner described above. It is not clear for this
purpose whether the assumed prepayment rate that is to be used in the case of a
holder of Securities other than an original holder of Securities should be the
Prepayment Assumption or a new rate based on the circumstances at the date of
subsequent purchase.
Purchase of More Than One Class of Stripped Securities. When an investor
purchases more than one class of Stripped Securities, it is currently unclear
whether for federal income tax purposes such classes of Stripped Securities
should be treated separately or aggregated for purposes of the rules described
above.
Possible Alternative Characterization. The characterizations of the
Stripped Securities discussed above are not the only possible interpretations of
the applicable Code provisions. For example, the holder of Securities may be
treated as the owner of (i) one installment obligation consisting of such
Stripped Security's pro rata share of the payments attributable to principal on
each Mortgage Loan and a second installment obligation consisting of such
Stripped Security's pro rata share of the payments attributable to interest on
each Mortgage Loan, (ii) as many stripped bonds or stripped coupons as there are
scheduled payments of principal and/or interest on each Mortgage Loan, or (iii)
a separate installment obligation for each Mortgage Loan, representing the
Stripped Security's pro rata share of payments of principal and/or interest to
be made with respect thereto. Alternatively, the holder of one or more classes
of Stripped Securities may be treated as the owner of a pro rata fractional
undivided interest in each Mortgage Loan to the extent that such Stripped
Security, or classes of Stripped Securities in the aggregate, represent the same
pro rata portion of principal and interest on each such Mortgage Loan, and a
stripped bond or stripped coupon (as the case may be), treated as an installment
obligation or contingent payment obligation, as to the remainder. Treasury
regulations regarding original issue discount on stripped obligations make the
foregoing interpretations less likely to be applicable. The preamble to such
regulations states that they are premised on the assumption that an aggregation
approach is appropriate for determining whether original issue discount on a
stripped bond or stripped coupon is de minimis, and solicits comments on
appropriate rules for aggregating stripped bonds and stripped coupons under Code
Section 1286.
Because of these possible varying characterizations of Stripped Securities
and the resultant differing treatment of income recognition, holders of
Securities are urged to consult their own tax advisors regarding the proper
treatment of Stripped Securities for federal income tax purposes.
REPORTING REQUIREMENTS AND BACKUP WITHHOLDING. The trustee will furnish,
within a reasonable time after the end of each calendar year, to each holder of
Securities at any time during such year, such information (prepared on the basis
described above) as is necessary to enable such holder of Securities to prepare
its federal income tax returns. Such information will include the amount of
original issue discount accrued on Securities held by persons other than holders
of Securities exempted from the reporting requirements. However, the amount
required to be reported by the trustee may not be equal to the proper amount of
original issue discount required to be reported as taxable income by a holder of
Securities, other than an original holder of Securities that purchased at the
issue price. In particular, in the case of Stripped Securities, unless provided
otherwise in the related prospectus supplement, such reporting will be based
upon a representative initial offering price of each class of Stripped
Securities. The trustee will also file such original issue discount information
with the Internal Revenue Service. If a holder of Securities fails to supply an
accurate taxpayer identification number or if the Secretary of the Treasury
determines that a holder of Securities has not reported all interest and
dividend income required to be shown on his federal income tax return, 31%
backup withholding may be required in respect of any reportable payments, as
described above under "--REMICs -- Backup Withholding."
TAXATION OF CERTAIN FOREIGN INVESTORS. To the extent that a Security
evidences ownership in Mortgage Loans that are issued on or before July 18,
1984, interest or original issue discount paid by the person required to
withhold tax under Code Section 1441 or 1442 to nonresident aliens, foreign
corporations, or other Non-U.S. persons generally will be subject to 30% United
States withholding tax, or such lower rate as may be provided for interest by an
applicable tax treaty. Accrued original issue discount recognized by the holder
of Securities on the sale or exchange of such a Security also will be subject to
federal income tax at the same rate.
Treasury regulations provide that interest or original issue discount paid
by the trustee or other withholding agent to a Non-U.S. Person evidencing
ownership interest in Mortgage Loans issued after July 18, 1984 will be
"portfolio interest" and will be treated in the manner, and such persons will be
subject to the same certification requirements, described above under "--REMICs
- -- Taxation of Certain Foreign Investors -- Regular Securities."
PARTNERSHIP TRUST FUNDS
CLASSIFICATION OF PARTNERSHIP TRUST FUNDS. With respect to each series of
Partnership Securities or Debt Securities, Cadwalader, Wickersham & Taft will
deliver its opinion that the Trust Fund will not be a taxable mortgage pool or
an association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. This opinion will be based on the assumption that
the terms of the applicable agreement and related documents will be complied
with, and on counsel's conclusion that the nature of the income of the Trust
Fund will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
CHARACTERIZATION OF INVESTMENTS IN PARTNERSHIP SECURITIES AND DEBT
SECURITIES. For federal income tax purposes, (i) Partnership Securities and Debt
Securities held by a thrift institution taxed as a domestic building and loan
association will not constitute "loans . . . secured by an interest in real
property which is. . . residential real property" within the meaning of Code
Section 7701(a)(19)(C)(v) and (ii) interest on Debt Securities held by a real
estate investment trust will not be treated as "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B), and Debt Securities held by a real estate
investment trust will not constitute "real estate assets" within the meaning of
Code Section 856(c)(4)(A), but Partnership Securities held by a real estate
investment trust will qualify under those sections based on the real estate
investments trust's proportionate interest in the assets of the Partnership
Trust Fund based on capital accounts.
TAXATION OF DEBT HOLDER OF SECURITIES. Treatment of the Debt Securities as
Indebtedness. The Depositor will agree, and the holders of Securities will agree
by their purchase of Debt Securities, to treat the Debt Securities as debt for
federal income tax purposes. No regulations, published rulings, or judicial
decisions exist that discuss the characterization for federal income tax
purposes of securities with terms substantially the same as the Debt Securities.
However, with respect to each series of Debt Securities, Cadwalader, Wickersham
& Taft will deliver its opinion that the Debt Securities will be classified as
indebtedness for federal income tax purposes. The discussion below assumes this
characterization of the Debt Securities is correct.
If, contrary to the opinion of counsel, the IRS successfully asserted that
the Debt Securities were not debt for federal income tax purposes, the Debt
Securities might be treated as equity interests in the Partnership Trust, and
the timing and amount of income allocable to holders of such Debt Securities may
be different than as described in the following paragraph.
Debt Securities generally will be subject to the same rules of taxation as
Regular Securities issued by a REMIC, as described above, except that (i) income
reportable on Debt Securities is not required to be reported under the accrual
method unless the holder otherwise uses the accrual method and (ii) the special
rule treating a portion of the gain on sale or exchange of a Regular Security as
ordinary income is inapplicable to Debt Securities. See "--Taxation of Owners of
Regular Securities" above.
TAXATION OF OWNERS OF PARTNERSHIP SECURITIES
TREATMENT OF THE PARTNERSHIP TRUST FUND AS A PARTNERSHIP. If so specified
in the related prospectus supplement, the Depositor will agree, and the holders
of Securities will agree by their purchase of Securities, to treat the
Partnership Trust Fund (i) as a partnership for purposes of federal and state
income tax, franchise tax and any other tax measured in whole or in part by
income, with the assets of the partnership being the assets held by the
Partnership Trust Fund, the partners of the partnership being the holders of
Securities (including the Depositor), and the Debt Securities (if any) being
debt of the partnership or (ii) if a single beneficial owner owns all of the
Partnership Securities in a Trust Fund, the Trust Fund will be ignored for
federal income tax purposes and the assets and Debt Securities of the Trust Fund
will be treated as assets and indebtedness of such owner.
A variety of alternative characterizations are possible. For example,
because one or more of the classes of Partnership Securities have certain
features characteristic of debt, the Partnership Securities might be considered
debt of the Depositor or the Partnership Trust Fund. Any such characterization
would not result in materially adverse tax consequences to holders of Securities
as compared to the consequences from treatment of the Partnership Securities as
equity in a partnership, described below. The following discussion assumes that
the Partnership Securities represent equity interests in a partnership.
PARTNERSHIP TAXATION. As a partnership, the Partnership Trust Fund will not
be subject to federal income tax. Rather, each holder of Securities will be
required to separately take into account such holder's allocated share of
income, gains, losses, deductions and credits of the Partnership Trust Fund. We
anticipate that the Partnership Trust Fund's income will consist primarily of
interest earned on the Mortgage Loans (including appropriate adjustments for
market discount, original issue discount and bond premium) as described above
under "-- Standard Securities -- General," and "-- Premium and Discount") and
any gain upon collection or disposition of Mortgage Loans. The Partnership Trust
Fund's deductions will consist primarily of interest accruing with respect to
the Debt Securities, servicing and other fees, and losses or deductions upon
collection or disposition of Debt Securities.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
applicable governing agreement and related documents). Such agreement will
provide, in general, that the holders of Securities will be allocated taxable
income of the Partnership Trust Fund for each Due Period equal to the sum of (i)
the interest that accrues on the Partnership Securities in accordance with their
terms for such Due Period, including interest accruing at the applicable
pass-through rate for such Due Period and interest on amounts previously due on
the Partnership Securities but not yet distributed; (ii) any Partnership Trust
Fund income attributable to discount on the Mortgage Loans that corresponds to
any excess of the principal amount of the Partnership Securities over their
initial issue price; and (iii) any other amounts of income payable to the
holders of Securities for such Due Period. Such allocation will be reduced by
any amortization by the Partnership Trust Fund of premium on Mortgage Loans that
corresponds to any excess of the issue price of Partnership Securities over
their principal amount. All remaining taxable income or net loss of the
Partnership Trust Fund will be allocated to the Depositor. Based on the economic
arrangement of the parties, this approach for allocating Partnership Trust Fund
income should be permissible under applicable Treasury regulations, although no
assurance can be given that the IRS would not require a greater amount of income
to be allocated to Securities. Moreover, even under the foregoing method of
allocation, holders of Securities may be allocated income equal to the entire
pass-through rate plus the other items described above even though the Trust
Fund might not have sufficient cash to make current cash distributions of such
amount. Thus, cash basis holders will in effect be required to report income
from the Partnership Securities on the accrual basis and holders of Securities
may become liable for taxes on Partnership Trust Fund income even if they have
not received cash from the Partnership Trust Fund to pay such taxes.
All of the taxable income allocated to a holder of Securities that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code.
A share of expenses of the Partnership Trust Fund (including fees of the
master servicer but not interest expense) allocable to an individual, estate or
trust holder of Securities would be miscellaneous itemized deductions subject to
the limitations described above under " -- Standard Securities -- General."
Accordingly, such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Partnership Trust Fund.
Discount income or premium amortization with respect to each Mortgage Loan
would be calculated in a manner similar to the description above under "--
Standard Securities -- General" and "-- Premium and Discount." Notwithstanding
such description, it is intended that the Partnership Trust Fund will make all
tax calculations relating to income and allocations to holders of Securities on
an aggregate basis with respect to all Mortgage Loans held by the Partnership
Trust Fund rather than on a Mortgage Loan-by-Mortgage Loan basis. If the IRS
were to require that such calculations be made separately for each Mortgage
Loan, the Partnership Trust Fund might be required to incur additional expense,
but it is believed that there would not be a material adverse effect on holders
of Securities.
DISCOUNT AND PREMIUM. Unless indicated otherwise in the related prospectus
supplement, it is not anticipated that the Mortgage Loans will have been issued
with original issue discount and, therefore, the Partnership Trust Fund should
not have original issue discount income. However, the purchase price paid by the
Partnership Trust Fund for the Mortgage Loans may be greater or less than the
remaining principal balance of the Mortgage Loans at the time of purchase. If
so, the Mortgage Loans will have been acquired at a premium or discount, as the
case may be. See " -- Standard Securities -- Premium and Discount" in this
prospectus. (As indicated above, the Partnership Trust Fund will make this
calculation on an aggregate basis, but might be required to recompute it on a
Mortgage Loan-by-Mortgage Loan basis).
If the Partnership Trust Fund acquires the Mortgage Loans at a market
discount or premium, the Partnership Trust Fund will elect to include any such
discount in income currently as it accrues over the life of the Mortgage Loans
or to offset any such premium against interest income on the Mortgage Loans. As
indicated above, a portion of such market discount income or premium deduction
may be allocated to holders of Securities.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Partnership
Trust Fund will be deemed to terminate for federal income tax purposes if 50% or
more of the capital and profits interests in the Partnership Trust Fund are sold
or exchanged within a 12-month period. Such a termination would cause a deemed
contribution of the assets of a Partnership Trust Fund (the "old partnership")
to a new Partnership Trust Fund (the "new partnership") in exchange for
interests in the new partnership. Such interests would be deemed distributed to
the partners of the old partnership in liquidation thereof, which would not
constitute a sale or exchange. The Partnership Trust Fund will not comply with
certain technical requirements that might apply when such a constructive
termination occurs. As a result, the Partnership Trust Fund may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Partnership Trust Fund might
not be able to comply due to lack of data.
DISPOSITION OF SECURITIES. Generally, capital gain or loss will be
recognized on a sale of Partnership Securities in an amount equal to the
difference between the amount realized and the seller's tax basis in the
Partnership Securities sold. A holder's tax basis in a Partnership Security will
generally equal the holder's cost increased by the holder's share of Partnership
Trust Fund income (includible in income) and decreased by any distributions
received with respect to such Partnership Security. In addition, both the tax
basis in the Partnership Securities and the amount realized on a sale of a
Partnership Security would include the holder's share of the Debt Securities and
other liabilities of the Partnership Trust Fund. A holder acquiring Partnership
Securities at different prices may be required to maintain a single aggregate
adjusted tax basis in such Partnership Securities, and, upon sale or other
disposition of some of the Partnership Securities, allocate a portion of such
aggregate tax basis to the Partnership Securities sold (rather than maintaining
a separate tax basis in each Partnership Security for purposes of computing gain
or loss on a sale of that Partnership Security).
Any gain on the sale of a Partnership Security attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Partnership Trust Fund does not expect
to have any other assets that would give rise to such special reporting
considerations. Thus, to avoid those special reporting requirements, the
Partnership Trust Fund will elect to include market discount in income as it
accrues.
If a holder of Securities is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Partnership Securities that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Partnership Securities.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
Partnership Trust Fund's taxable income and losses will be determined each Due
Period and the tax items for a particular Due Period will be apportioned among
the holders of Securities in proportion to the principal amount of Partnership
Securities owned by them as of the close of the last day of such Due Period. As
a result, a holder purchasing Partnership Securities may be allocated tax items
(which will affect its tax liability and tax basis) attributable to periods
before the actual transaction.
The use of such a Due Period convention may not be permitted by existing
regulations. If a Due Period convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Partnership Trust Fund might be reallocated among the holders of
Securities. The Depositor will be authorized to revise the Partnership Trust
Fund's method of allocation between transferors and transferees to conform to a
method permitted by future regulations.
SECTION 731 DISTRIBUTIONS. In the case of any distribution to a holder of
Securities, no gain will be recognized to that holder of Securities to the
extent that the amount of any money distributed with respect to such Security
exceeds the adjusted basis of such holder's interest in the Security. To the
extent that the amount of money distributed exceeds such holder's adjusted
basis, gain will be currently recognized. In the case of any distribution to a
holder of Securities, no loss will be recognized except upon a distribution in
liquidation of a holder's interest. Any gain or loss recognized by a holder of
Securities will be capital gain or loss.
SECTION 754 ELECTION. In the event that a holder of Securities sells its
Partnership Securities at a profit (loss), the purchasing holder of Securities
will have a higher (lower) basis in the Partnership Securities than the selling
holder of Securities had. The tax basis of the Partnership Trust Fund's assets
would not be adjusted to reflect that higher (or lower) basis unless the
Partnership Trust Fund were to file an election under Section 754 of the Code.
In order to avoid the administrative complexities that would be involved in
keeping accurate accounting records, as well as potentially onerous information
reporting requirements, the Partnership Trust Fund will not make such election.
As a result, holders of Securities might be allocated a greater or lesser amount
of Partnership Trust Fund income than would be appropriate based on their own
purchase price for Partnership Securities.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the Partnership Trust Fund. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and the
fiscal year of the Partnership Trust Fund will be the calendar year. The trustee
will file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Partnership Trust Fund and will report each holder's
allocable share of items of Partnership Trust Fund income and expense to holders
and the IRS on Schedule K-1. The trustee will provide the Schedule K-1
information to nominees that fail to provide the Partnership Trust Fund with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Partnership Securities.
Generally, holders must file tax returns that are consistent with the
information return filed by the Partnership Trust Fund or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership
Securities as a nominee at any time during a calendar year is required to
furnish the Partnership Trust Fund with a statement containing certain
information on the nominee, the beneficial owners and the Partnership Securities
so held. Such information includes (i) the name, address and taxpayer
identification number of the nominee and (ii) as to each beneficial owner (x)
the name, address and identification number of such person, (y) whether such
person is a United States person, a tax-exempt entity or a foreign government,
an international organization, or any wholly-owned agency or instrumentality of
either of the foregoing, and (z) certain information on Partnership Securities
that were held, bought or sold on behalf of such person throughout the year. In
addition, brokers and financial institutions that hold Partnership Securities
through a nominee are required to furnish directly to the trustee information as
to themselves and their ownership of Partnership Securities. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
such information statement to the Partnership Trust Fund. The information
referred to above for any calendar year must be furnished to the Partnership
Trust Fund on or before the following January 31. Nominees, brokers and
financial institutions that fail to provide the Partnership Trust Fund with the
information described above may be subject to penalties.
The person specified in the applicable agreement as the tax matters partner
will be responsible for representing the holders of Securities in any dispute
with the IRS. The Code provides for administrative examination of a partnership
as if the partnership were a separate and distinct taxpayer. Generally, the
statute of limitations for partnership items does not expire until three years
after the date on which the partnership information return is filed. Any adverse
determination following an audit of the return of the Partnership Trust Fund by
the appropriate taxing authorities could result in an adjustment of the returns
of the holders of Securities, and, under certain circumstances, a holder of
Securities may be precluded from separately litigating a proposed adjustment to
the items of the Partnership Trust Fund. An adjustment could also result in an
audit of a holder's returns and adjustments of items not related to the income
and losses of the Partnership Trust Fund.
TAX CONSEQUENCES TO FOREIGN HOLDERS OF SECURITIES. It is not clear whether
the Partnership Trust Fund would be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes with
respect to Non-U.S. Persons, because there is no clear authority dealing with
that issue under facts substantially similar to those described in this
prospectus. However, for taxable years of a Partnership Trust Fund commencing on
or after January 1, 1998, securityholders who are Non-U.S. Persons would in any
event not be treated as engaged in a trade or business in the United States if
holding such Security (or other investing or trading in stock or securities for
the holder's own account) is the only activity of the securityholder within the
United States and the securityholder is not a dealer in securities. Accordingly,
such securityholders will not be subject to withholding tax pursuant to Section
1446 of the Code, at a rate of 35% for Non-U.S. Persons that are taxable as
corporations and 39.6% for all other foreign holders. The prospectus supplement
relating to an applicable series will describe whether an exception to the 30%
United States withholding tax on interest may apply to securityholders.
BACKUP WITHHOLDING. Distributions made on the Partnership Securities and
proceeds from the sale of the Partnership Securities will be subject to a
"backup" withholding tax of 31% if, in general, the holder of Securities fails
to comply with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A SECURITYHOLDER'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF REMIC SECURITIES, GRANTOR TRUST SECURITIES, PARTNERSHIP
SECURITIES AND DEBT SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences" in this prospectus, 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 the discussion above
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
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code impose certain requirements on
retirement plans and on certain other employee benefit plans and arrangements
(including for this purpose individual retirement accounts and annuities and
Keogh plans) which are subject thereto and on bank collective investment funds
and insurance company general and separate accounts in which such plans,
accounts or arrangements are invested (all of which are referred to as "PLANS"
in this prospectus) 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 in this prospectus. Accordingly,
assets of such plans may be invested in Securities 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 in
Interest that participate in 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 Section 4975 of the Code with respect to
a Plan that purchases 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 (such as a Trust Fund), 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) of 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. Because of the factual nature of certain of the rules set forth in the
DOL Regulations, 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 or holding of Notes by or on behalf of a Plan could be
considered to result in a prohibited transaction if the Issuer, the holder of an
Equity Certificate or any of their respective affiliates is or becomes a Party
in Interest with respect to such Plan, or if the Depositor, the master servicer,
any sub-servicer or any trustee has investment authority with respect to the
assets of 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 assets included in a Trust Fund constitute plan assets, the
purchase or holding of 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 25, 1990 to PaineWebber Incorporated, which generally exempts from the
application of the prohibited transaction provisions of Section 406 of ERISA,
and the excise taxes and civil penalties 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 pass-through certificates,
such as a senior class of Certificates, underwritten by an Underwriter ,
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 under such Exemption. 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 Ratings Services, Moody's Investors Service,
Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA, 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 borrower with respect to assets of the Trust Fund
constituting more than 5% of the aggregate unamortized principal balance of the
assets of the Trust Fund 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 assets of the
Trust Fund 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 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) certificates 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 year prior to the acquisition of Certificates by or on behalf of a Plan or
with plan assets; and (iii) certificates 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 Certificates 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, the Exemption will not apply to an investment by a Plan during a
Funding Period unless certain additional conditions specified in the related
prospectus supplement are satisfied. Furthermore, 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 borrower with respect to 5% or less of the
fair market value of the assets of the Trust Fund 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 related Trust
Fund. 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 related Trust Fund, 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 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 and other applicable
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 investor using plan
assets 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, including the prohibited transaction provisions
thereof, and Section 4975 of 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. The DOL proposed such
regulations on December 22, 1997, but they have not yet been finalized.
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 Section 4975 of 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 in such Exemption or Class Exemption
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 Securities offered thereby.
LEGAL INVESTMENT
The prospectus supplement relating to 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, as amended ("SMMEA"). 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. The
appropriate characterization of those Securities not qualifying as "mortgage
related securities" ("NON-SMMEA SECURITIES") under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase such Securities, may be subject to significant interpretive
uncertainties. Accordingly, investors whose investment authority is subject to
legal restrictions should consult their own legal advisors to determine whether
and to what extent the Non-SMMEA Securities constitute legal investments for
them.
Classes of Securities qualifying as "mortgage related securities" will
constitute legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including, but not limited
to, state-chartered savings banks, commercial banks, savings and loan
associations and insurance companies, as well as trustees and state government
employee retirement systems) created pursuant to or existing under the laws of
the United States or of any state (including the District of Columbia and Puerto
Rico) whose authorized investments are subject to state regulation to the same
extent that, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any agency or instrumentality
thereof constitute legal investments for such entities. Pursuant to SMMEA, a
number of states enacted legislation, on or before the October 3, 1991 cutoff
for such enactments, limiting to varying extents the ability of certain entities
(in particular, insurance companies) to invest in "mortgage related securities"
secured by liens on residential, or mixed residential and commercial properties,
in most cases by requiring the affected investors to rely solely upon existing
state law, and not SMMEA. Accordingly, the investors affected by such
legislation will be authorized to invest in Securities qualifying as "mortgage
related securities" only to the extent provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage related
securities" without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
ss. 24 (Seventh), subject in each case to such regulations as the applicable
federal regulatory authority may prescribe. In this connection, the Office of
the Comptroller of the Currency (the "OCC") amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus (but subject to
compliance with certain general standards in 12 C.F.R. ss. 1.5 concerning
"safety and soundness" and retention of credit information), certain "Type IV
securities," defined in 12 C.F.R. ss. 1.2(l) to include certain "residential
mortgage-related securities." As so defined, "residential mortgage-related
security" means, in relevant part, "mortgage related security" within the
meaning of SMMEA. The National Credit Union Administration ("NCUA") has adopted
rules, codified at 12 C.F.R. Part 703, which permit federal credit unions to
invest in "mortgage related securities" under certain limited circumstances,
other than stripped mortgage related securities and residual interests in
mortgage related securities, unless the credit union has obtained written
approval from the NCUA to participate in the "investment pilot program"
described in 12 C.F.R. ss. 703.140. The Office of Thrift Supervision (the "OTS")
has issued Thrift Bulletin 13a (December 1, 1998), "Management of Interest Rate
Risk, Investment Securities and Derivatives Activities," which thrift
institutions subject to the jurisdiction of the OTS should consider before
investing in the Securities.
All depository institutions considering an investment in the Securities
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "1998 POLICY STATEMENT") of the Federal
Financial Institutions Examination Council, which has been adopted by the Board
of Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the OCC and the OTS effective May 26, 1998, and by the NCUA,
effective October 1, 1998. The 1998 Policy statement sets forth general
guidelines which depository institutions must follow in managing risks
(including market, credit, liquidity, operational (transaction), and legal
risks) applicable to all securities (including mortgage pass-through securities
and mortgage-derivative products) used for investment purposes. Institutions
whose investment activities are subject to regulation by federal or state
authorities should review rules, policies and guidelines adopted from time to
time by such authorities before purchasing any Securities, as certain series or
classes may be deemed unsuitable investments, or may otherwise be restricted,
under such rules, policies or guidelines (in certain instances irrespective of
SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying," and, with regard to any Securities issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain classes of Securities as "mortgage
related securities," no representation is made as to the proper characterization
of the Securities for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Securities under applicable legal investment restrictions.
The uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Securities) may adversely affect the liquidity of the 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 their own legal advisors in determining
whether and to what extent the Securities 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 in
such underwriting agreement. In such event, the related 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 related
prospectus supplement will describe any such compensation paid by the Depositor.
Alternatively, the related prospectus supplement may specify that the
Securities will be distributed by PaineWebber acting as agent or in some cases
as principal with respect to 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.
If specified in the prospectus supplement relating to Securities of a
particular series offered hereby, the Depositor or any other person or persons
specified therein may purchase some or all of such Securities from the
underwriter or underwriters or such other person or persons specified in such
prospectus supplement. Such purchaser may thereafter from time to time offer and
sell, pursuant to this prospectus and the related prospectus supplement, some or
all of such Securities so purchased, directly, through one or more underwriters
to be designated at the time of the offering of such Securities, through dealers
acting as agent and/or principal or in such other manner as may be specified in
the related prospectus supplement. Such offering may be restricted in the manner
specified in such prospectus supplement. Such transactions may be effected at
market prices prevailing at the time of sale, at negotiated prices or at fixed
prices. Any underwriters and dealers participating in such purchaser's offering
of such Securities may receive compensation in the form of underwriting
discounts or commissions from such purchaser and such dealers may receive
commissions from the investors purchasing such Securities for whom they may act
as agent (which discounts or commissions will not exceed those customary in
those types of transactions involved). Any dealer that participates in the
distribution of such Securities may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933, and any commissions and discounts
received by such dealer and any profit on the resale or such Securities by such
dealer might be deemed to be underwriting discounts and commissions under the
Securities Act of 1933.
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 in
such residential loans, 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. Holders of Securities 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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
With respect to each series of Securities offered hereby, there are
incorporated in this prospectus 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 in this prospectus 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, Attention: General Counsel, or
by telephone at (212) 713-2000.
The Depositor filed a registration statement (the "REGISTRATION STATEMENT"
") relating to the Securities with the Securities and Exchange Commission (the
"COMMISSION"). This prospectus is part of the Registration Statement, but the
Registration Statement includes additional information.
Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549, upon payment of the
prescribed charges, or may be examined free of charge at the Commission's
offices, 450 Fifth Street N.W., Washington, D.C. 20549 or at the regional
offices of the Commission located at Suite 1300, 7 World Trade Center, New York,
New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. The Commission also maintains a site on the World
Wide Web at "http://www.sec.gov" at which you 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.
LEGAL MATTERS
The validity of the Securities and certain federal income tax matters in
connection with the Securities will be passed upon for the Depositor by
Cadwalader, Wickersham & Taft, New York, New York.
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
It will be a condition to the issuance of the Securities of each series
offered hereby and by the related prospectus supplement that they shall have
been rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies (each, a "RATING AGENCY")
specified in the related prospectus supplement.
Any such rating would be based on, among other things, the adequacy of the
value of the assets of the Trust Fund 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 holders of Securities are entitled by their terms. 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 assets of the Trust Fund 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 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 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.
<PAGE>
INDEX OF DEFINED TERMS
PAGE
1
1998 Policy Statement
4
401(c) Regulations
A
Accrual Securities
Accrued Security Interest
Administration Fee Rate
Agency Securities
ARM Loans
Assumed Reinvestment Rate
Available Distribution Amount
B
Bankruptcy Bond
Bankruptcy Code
Book-Entry Securities
C
Cash Flow Value
CEDEL
CERCLA
Certificates
Charter Act
Class Exemptions
Code
Collateral Value
Commission
Conservation Act
Contract
Cooperative
Cooperative Loans
Cooperative Notes
Cooperative Unit
Credit Insurance Instrument
Cumulative Subordination Payments
D
Debt Securities
Deficiency Event
Definitive Security
Deposit Period
Depositor
Disqualified Organization
Disqualified Persons
Distribution Date
DOL
DOL Regulations
DTC
Due Period
E
EDGAR
Environmental Lien
Equity Certificates
ERISA
Euroclear
Events of Default
Excluded Plan
Exemption
Exemption Rating Agencies
F
FHA
FHA Insurance
FHA Loans
FHLMC
FHLMC Act
FHLMC Certificate Group
FHLMC Certificates
Final Distribution Date
Financial Intermediary
FNMA
FNMA Certificates
FTC Rule
Funding Period
G
Garn-St. Germain Act
GNMA
GNMA Certificates
Grantor Trust Fund
Grantor Trust Securities
H
Hazard Insurance Instrument
Holder in Due Course
holders
Home Equity Loans
Home Improvement Contracts
Housing Act
HUD
I
Initial Deposit
Insurance Instrument
Insurance Proceeds
Issuer
L
L/C Bank
Land Contracts
Liquidation Proceeds
Loan-to-Value Ratio
Lockout Period
M
Manufactured Housing Contracts
Manufacturer's Invoice Price
Mark to Market Regulations
Maximum Subordination Amount
Mortgage Loans
Mortgage Notes
Mortgage Securities
Mortgaged Properties
Mortgaged Property
Mortgages
Multifamily Loans
N
NCUA
Net Interest Rate
New Regulations
Non-Pro Rata Security
Non-SMMEA Securities
Non-U.S. Person
Notes
O
OCC
OID Regulations
Optional Termination
OTS
P
PaineWebber
Participants
Parties in Interest
Partnership Securities
Partnership Trust Fund
Pass-Through Entity
Percentage Interest
Permitted Instruments
Plans
Pool Insurance Policy
Prepayment Assumption
Prepayment Period
Primary Credit Insurance Policy
Primary Hazard Insurance Policy
PTCE
R
Rating Agency
real estate assets
Realized Loss
Record Date
Refinance Loans
Registration Statement
regular interests
Regular Securities
Regular Securityholder
Relief Act
REMIC
REMIC Pool
REMIC Provisions
REMIC Regular Securities
REMIC Regulations
REMIC Residual Securities
REMIC Securities
Reserve Fund
Residential Loans
Residential Properties
Residual Holders
residual interests
Residual Securities
Restricted Group
Retained Interest
Retained Interest Rate
Riegle Act
Rules
S
SBJPA of 1996
Securities
Security Interest Rate
Security Owners
Security Principal Balance
Security Register
Security Registrar
Senior Liens
Senior Securities
Senior/Subordinate Series
Servicemen's Readjustment Act
Servicing Default
SMMEA
Special Hazard Amount
Special Hazard Insurer
Special Hazard Losses
Special Hazard Subordination Amount
Special Servicer
Specified Reserve Fund Balance
Standard Securities
Startup Day
Strip Securities
Stripped Agency Securities
Stripped Interest
Stripped Securities
Subordinate Securities
Subordination
T
Tiered REMICs
Title V
Title VIII
Trust Account
Trust Fund
U
U.S. Person
Unaffiliated Sellers
Underwriter
V
VA 10
VA Guaranty Policy
VA Insurance
VA Loans
W
Window Period Loans
<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 securities 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...................... $ 417,000.00
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 $1,827,000.00
ITEM 15 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, 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 6(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, 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, the Prospectus, or any amendment or supplement thereto, 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 certain
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 for each series of Certificates
and the Sale and Servicing Agreement for each series of Notes will provide that
no director, officer, employee or agent of the Depositor is liable to the Trust
Fund or the Certificateholders or the Issuer or the Noteholders, as applicable,
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 for each series of Certificates and the
Sale and Servicing Agreement for each series of Notes 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 and related Certificates or such Sale and Servicing Agreement and
related Notes, as applicable, other than such expenses related to particular
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.
4.2 Form of Owner Trust Agreement.
4.3 Form of Indenture.
4.4 Form of Sale and Servicing Agreement (relating to Notes).
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to legality.
8.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain tax
matters (included as part of Exhibit 5.1).
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of Exhibit
5.1).
24.1 Power of Attorney (included on page II-6 of this Registration
Statement).
*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 the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement; and
(iii) to include any material information with respect
to the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, as amended, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
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 director, officer 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>
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 May,
1999.
PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV
By: /S/ JOSEPH PISCINA
Name: Joseph Piscina
Title: President
<PAGE>
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Joseph Piscina, Daniel Leyden, Ramesh Singh,
Michael T. Sullivan and Joseph Piscina, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for and in his name, place and stead, in any and all capacities
to sign any or all amendments (including post-effective amendments) to this
Registration Statement and any or all other documents in connection therewith,
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as might or could be done in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated.
SIGNATURE TITLE DATE
/s/ Joseph Piscina President and Director May 25, 1999
- --------------------------- (Principal Executive
Joseph Piscina Officer)
/s/ Daniel Leyden Senior Vice President May 25, 1999
- --------------------------- (Principal Accounting and
Daniel Leyden Financial Officer)
/s/ Ramesh Singh Director May 25, 1999
- ---------------------------
Ramesh Singh
/s/ Michael T. Sullivan Director May 25, 1999
- ---------------------------
Michael T. Sullivan
<PAGE>
EXHIBIT INDEX
Number Description of Document
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.
4.2 Form of Owner Trust Agreement.
4.3 Form of Indenture.
4.4 Form of Sale and Servicing Agreement (relating to Notes).
5.1 Opinion of Cadwalader, Wickersham & Taft with respect to legality.
8.1 Opinion of Cadwalader, Wickersham & Taft with respect to certain
tax matters (included as part of Exhibit 5.1).
23.1 Consent of Cadwalader, Wickersham & Taft (included as part of
Exhibit 5.1).
24.1 Power of Attorney (included on page II-6 of this Registration
Statement)
*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).
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
$-----------------------
____________ Home Loan Owner Trust
Series 199_-_
UNDERWRITING AGREEMENT
______________, 199_
PaineWebber Incorporated
[----------------------------
c/o PaineWebber Incorporated]
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
PaineWebber Mortgage Acceptance Corporation IV, a Delaware corporation (the
"COMPANY") proposes to sell to PaineWebber Incorporated ("PWI") [and
__________________ ("_____" and together with PWI, the "UNDERWRITERS")],
pursuant to this agreement ("AGREEMENT"), Home Loan Asset Backed Notes, Series
199_-_ (the "OFFERED NOTES") issued by ___________ Home Loan Owner Trust 199_-_,
a Delaware business trust (the "OWNER TRUST" or the "ISSUER"),. The Owner Trust
will be formed pursuant to a trust agreement, to be dated as of ____________,
199_ (the "OWNER TRUST AGREEMENT"), among the Company, as depositor, Wilmington
Trust Company, as owner trustee (the "OWNER TRUSTEE"), ____________________, as
paying agent ("____________," and in such capacity, the "PAYING AGENT") and
_______________ ("________" or the "TRANSFEROR"). The Notes will be secured by
the assets of the Owner Trust, which is primarily comprised of a pool (the
"POOL") of [closed-end, fixed and adjustable-rate first lien mortgage loans]
(the "LOANS") as described in the Prospectus (as hereinafter defined). The Loans
will be sold by the Company to the Owner Trust pursuant to a sale and servicing
agreement, to be dated as of ___________, 199_ (the "SALE AND SERVICING
AGREEMENT"), among the Owner Trust, as issuer, the Company, as depositor,
____________, as indenture trustee (in such capacity, the "INDENTURE TRUSTEE"),
and _________, as master servicer and transferor. The Loans will be sold by
____________ to the Company pursuant to a home loan purchase agreement, to be
dated as of ___________, 199_ (the "HOME LOAN PURCHASE AGREEMENT"), between the
Company, as depositor, and __________, as transferor. The Notes will be issued
pursuant to an indenture, to be dated as of ________, 199_ (the "INDENTURE"),
between the Owner Trust and the Indenture Trustee. Reference is hereby made to
(i) an indemnification and contribution agreement, dated ___________, 199_ (the
"INDEMNIFICATION AND CONTRIBUTION AGREEMENT"), among the Company, the
Underwriters and _________t, (ii) an administration agreement, to be dated as of
__________, 199_ (the "ADMINISTRATION AGREEMENT"), among the Owner Trust,
____________ (in such capacity, the "ADMINISTRATOR") and ___________ and (iii) a
custodial agreement, to be dated as of ___________, 199_ (the "CUSTODIAL
AGREEMENT"), among ____________, the Company and ____________ (in such capacity,
the "CUSTODIAN"). The Home Loan Purchase Agreement, the Sale and Servicing
Agreement, the Indenture, the Owner Trust Agreement, the Indemnification and
Contribution Agreement, the Custodial Agreement, the Administration Agreement
and this Agreement are collectively referred to herein as the "TRANSACTION
DOCUMENTS." The Notes are described more fully in the Prospectus (as hereinafter
defined). Only the Offered Notes are being sold pursuant to this Agreement.
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-3 (No. 333-______) for the
registration of the Notes under the Securities Act of 1933 (the "1933 ACT"),
which registration statement has become effective and copies of which, as
amended to the date hereof, have been delivered to each of the Underwriters. The
Company proposes to file with the Commission pursuant to Rule 424(b)(5) under
the rules and regulations of the Commission under the Act (the "1933 ACT
REGULATIONS") a prospectus supplement, dated __________, 199_ (the "PROSPECTUS
SUPPLEMENT"), to the prospectus, dated __________, 199_, included in such
registration statement, relating to the Offered Notes and the method of
distribution thereof. Such registration statement on Form S-3, including
exhibits thereto, as amended as of the date hereof, is hereinafter called the
"REGISTRATION STATEMENT"; and such prospectus, supplemented by the Prospectus
Supplement or further supplement relating to the Offered Notes, is hereinafter
called the "PROSPECTUS".
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants to the Underwriter[s] as follows:
(i) The Registration Statement, as amended as of the
effective date thereof (the "EFFECTIVE DATE") and the Prospectus, as
of the date thereof, complied in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations. The
Registration Statement, as of the Effective Date, did not contain an
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus, as of the date
thereof, did not, and as of the Closing Date will not, contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus (a) arising from or included in
_____________ Information (as defined in the Indemnification and
Contribution Agreement) or (b) made in reliance upon and in
conformity with information furnished to the Company in writing by
[each of] the Underwriter[s] expressly for use in the Registration
Statement or Prospectus. The Company and the Underwriter[s] hereby
acknowledge that only the statements set forth in the ____ paragraph
of the cover of the Prospectus Supplement (other than the _____
sentence), under the caption "Underwriting" in the Prospectus
Supplement (other than the __________ paragraph and the _____
sentence of the ____ paragraph under such caption) and the
Underwriter Information (as defined in Section 9(k)) contained in
any Furnished Term Sheets (as defined in Section 9(d)), constitute
statements made in reliance upon and in conformity with information
furnished to the Company in writing by [each of] the Underwriter[s]
expressly for use in the Registration Statement, or Prospectus (such
statements being collectively referred to as "UNDERWRITER
STATEMENTS").
(ii) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, except as
otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, whether or
not arising in the ordinary course of business, and (B) there have
been no transactions entered into by the Company, other than those
in the ordinary course of business, which are material with respect
to the Company, in either case which would materially and adversely
affect the Company's ability to perform its obligations hereunder or
under the Transaction Documents to which it is a party.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware with corporate power and authority to own, lease
and operate its properties and to conduct its business, as now
conducted by it, and to enter into and perform its obligations under
the Transaction Documents to which it is a party; and the Company is
duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which the failure to be so
qualified would have a material and adverse effect on the Company's
ability to perform its obligations hereunder or under any
Transaction Document to which the Company is a party.
(iv) The Company is not in violation of its charter or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument
to which the Company is a party, or to which any of the property or
assets of the Company may be subject, or by which it or any of them
may be bound; and the issuance and sale of the Notes to [each of]
the Underwriter[s], the execution, delivery and performance of the
Transaction Documents to which it is a party and the consummation of
the transactions contemplated therein and compliance by the Company
with its obligations thereunder have been duly authorized by all
necessary corporate action and will not conflict with or constitute
a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to, any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which
the Company is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company is subject,
nor will such action result in any violation of the provisions of
the charter or by-laws of the Company or any applicable law,
administrative regulation or administrative or court decree.
(v) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now
pending, or, to the knowledge of the Company, threatened, against or
affecting the Company, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might materially and adversely affect Company's ability to perform
its obligations hereunder or under the Transaction Documents to
which it is a party; all pending legal or governmental proceedings
to which the Company is a party or of which its property or assets
is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material.
(vi) No authorization, approval or consent of any court or
governmental authority or agency is necessary in connection with the
offering, issuance or sale of the Offered Notes hereunder, except
such as have been, or as of the Closing Date will have been,
obtained or such as may otherwise be required under applicable state
securities laws in connection with the purchase and offer and sale
of the Offered Notes by the Underwriter[s] and any recordation of
the respective assignments of the Loans to the Indenture Trustee
pursuant to the Indenture that have not yet been completed.
(vii) The Company possesses all material licenses,
certificates, authorities or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies necessary to
perform its obligations hereunder or under any Transaction Document
to which the Company is a party, and the Company has not received
any notice of proceedings relating to the revocation or modification
of any such license, certificate, authority or permit which, singly
or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the ability
of the Company to perform its obligations hereunder or under the
Transaction Documents.
(viii) Each of the Transaction Documents to which it is a
party has been duly authorized, executed and delivered by the
Company and constitutes a legal, valid and binding agreement
enforceable against the Company in accordance with its terms, except
as enforceability may be limited by (A) bankruptcy, insolvency,
reorganization, receivership, moratorium or other similar laws
affecting the enforcement of the rights of creditors generally, (B)
general principles of equity, whether enforcement is sought in a
proceeding in equity or at law, and (C) public policy considerations
underlying the securities laws, to the extent that such public
policy considerations limit the enforceability of the provisions of
such Transaction Documents that purport to provide indemnification
from securities law liabilities.
(ix) At the time of the execution and delivery of the Sale
and Servicing Agreement, the Company (i) will have good and
marketable title to the Loans being transferred by it to the Owner
Trust pursuant thereto, free and clear of any lien, mortgage,
pledge, charge, encumbrance, adverse claim or other security
interest (collectively "LIENS"), to the extent good and marketable
title to the Loans is transferred to the Company, free and clear of
all Liens, by the Transferor, and (ii) will have the power and
authority to transfer such Loans to the Owner Trust, and upon
execution and delivery of the Sale and Servicing Agreement by the
Owner Trust and the Transferor, the Owner Trust will have acquired
ownership of all of the Company's right, title and interest in and
to the related Loans.
(x) At the Closing Date, the Notes will be rated not lower
than "____" by _________ ("______") and "____" by ----------------
("------").
(xi) Any taxes, fees and other governmental charges in
connection with the execution, delivery and issuance of the
Transaction Documents to which it is a party and the Offered Notes
have been paid or will be paid at or prior to the Closing Date.
(b) Any certificate signed by any officer of the Company and delivered to
the Underwriter[s] or [its/their] counsel shall be deemed a representation and
warranty by the Company to the Underwriter[s] as to the matters covered thereby.
SECTION 2. PURCHASE AND SALE.
Subject to the terms and conditions herein set forth and in reliance upon
the representations and warranties herein contained, the Company agrees to sell
to [each of] the Underwriter[s], and [each of] the Underwriter[s] agrees,
severally and not jointly, to purchase from the Company, at a purchase price set
forth on Schedule A hereto, the principal amount of the Offered Notes set forth
on Schedule A hereto.
SECTION 3. DELIVERY AND PAYMENT.
Payment of the purchase price for, and delivery of, the Offered Notes to be
purchased by the Underwriter[s] shall be made at the office of PaineWebber
Incorporated, 1285 Avenue of the Americas, New York, New York 10019, or at such
other place as shall be agreed upon by the Underwriter[s] and the Company, at
10:00 A.M. New York City time, on __________, 199_, which date and time may be
postponed by agreement between you and the Company (such time and date of
payment and delivery being herein called the "CLOSING DATE"). Payment shall be
made to the Company in immediately available Federal funds wired to such bank as
may be designated by the Company, against delivery of the Offered Notes or with
respect to payments to be made by PWI, at the Company's option, by appropriate
notation of an inter-company transfer between affiliates of PaineWebber Group,
Inc. The Offered Notes shall be in such denominations and registered in such
names as you may request in writing at least two business days before Closing
Date. The Offered Notes will be made available for examination and packaging by
you not later than 10:00 A.M.
on the last business day prior to Closing Date.
SECTION 4. COVENANTS OF THE COMPANY. The Company covenants with each of the
Underwriters as follows:
(a) The Company will give the Underwriter[s] notice of its intention to
file or prepare any amendment to the Registration Statement or any amendment or
supplement to the Prospectus (including any revised prospectus which the Company
proposes for use by the Underwriter[s] in connection with the offering of the
Offered Notes which differs from the prospectus on file at the Commission at the
time the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act
Regulations), will furnish the Underwriters with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such amendment or supplement or use any
such prospectus to which you shall reasonably object.
(b) The Company will cause the Prospectus to be transmitted to the
Commission for filing pursuant to Rule 424(b)(5) under the 1933 Act by means
reasonably calculated to result in filing with the Commission pursuant to said
rule.
(c) The Company will deliver to the Underwriter[s] as many signed copies of
the Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith or incorporated by reference therein) as the
Underwriters may reasonably request and will also deliver to the Underwriter[s]
a conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits).
(d) The Company will furnish to [each of] the Underwriter[s], from time to
time during the period when the Prospectus is required to be delivered under the
1933 Act or the Securities Exchange Act of 1934 (the "1934 ACT"), such number of
copies of the Prospectus (as amended or supplemented) as [each of] the
Underwriter[s] may reasonably request for the purposes contemplated by the 1933
Act or the 1934 Act or the respective applicable rules and regulations of the
Commission thereunder.
(e) If during the period after the first date of the public offering of the
Offered Notes in which a prospectus relating to the Offered Notes is required to
be delivered under the 1933 Act, any event shall occur as a result of which it
is necessary, in the opinion of counsel for you, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, the Company
will forthwith amend or supplement the Prospectus (in form and substance
satisfactory to counsel for you) so that, as so amended or supplemented, the
Prospectus will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a purchaser,
not misleading, and the Company will furnish to the Underwriter[s] a reasonable
number of copies of such amendment or supplement. Neither your consent to nor
your delivery of, any such amendment or supplement shall constitute a waiver of
any of the conditions set forth in Section 5 hereof.
(f) The Company will endeavor to arrange for the qualification of the
Offered Notes for sale under the applicable securities laws of such states and
other jurisdictions of the United States as the Underwriters may designate;
provided, however, that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not so qualified. In each
jurisdiction in which the Offered Notes have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement.
(g) If the transactions contemplated by this Agreement are consummated, the
Company will pay or cause to be paid all expenses incident to the performance of
the obligations of the Company under this Agreement, and will reimburse the
Underwriter[s] for any reasonable expenses (including reasonable fees and
disbursements of counsel) reasonably incurred by [him/them] in connection with
qualification of the Offered Notes for sale and determination of their
eligibility for investment under the laws of such jurisdictions as the
Underwriter[s] ha[ve/s] reasonably requested and the printing of memoranda
relating thereto, for any fees charged by investment rating agencies for the
rating of the Offered Notes, and for expenses incurred in distributing the
Prospectus (including any amendments and supplements thereto) to the
Underwriter[s]. Except as herein provided, the Underwriter[s] shall be
responsible for paying all costs and expenses incurred by each including the
fees and disbursements of counsel, in connection with the purchase and sale of
the Offered Notes.
(h) If, during the period after the Closing Date in which a prospectus
relating to the Offered Notes is required to be delivered under the 1933 Act,
the Company receives notice that a stop order suspending the effectiveness of
the Registration Statement or preventing the offer and sale of the Offered Notes
is in effect, the Company will immediately advise the Underwriters of the
issuance of such stop order. The Company will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
SECTION 5. CONDITIONS OF UNDERWRITER[S]' OBLIGATIONS. The Underwriter[s]'
obligation to purchase the Offered Notes shall be subject to the following
conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall be in effect, and no proceedings for that purpose shall be
pending or, to the Company's knowledge, threatened by the Commission.
(b) At Closing Date the Underwriter[s] shall have received:
(i) The favorable opinion, dated as of the Closing Date, of
John Fearey, Esq. General Counsel for the Company, in form and
substance satisfactory to the Underwriter[s].
(ii) The favorable opinion, dated as of the Closing Date,
of Cadwalader, Wickersham & Taft, counsel for the Company, in form
and substance satisfactory to the Underwriter[s].
(c) On the Closing Date, there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement, the Prospectus [and the Private Placement Memorandum],
any material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, and the Underwriter[s] shall have
received a certificate of the President or a Vice President of the Company,
dated as of the Closing Date, to the effect that (i) the representations and
warranties in Section 1 hereof are true and correct with the same force and
effect as though expressly made at and as of the Closing Date, (ii) the Company
has complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date, and (iii) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been initiated or threatened by the
Commission.
(d) On the Closing Date counsel for the Underwriter[s] shall have been
furnished with such other documents and opinions as counsel may reasonably
require for the purpose of enabling them to pass upon the issuance and sale of
the Notes as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Notes as
herein contemplated shall be satisfactory in form and substance to the
Underwriter[s] and counsel for the Underwriter[s].
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriter[s] by notice to the Company at any time at or prior to the Closing
Date, and such termination shall be without liability of any party to any other
party.
SECTION 6. INDEMNIFICATION. The Company and each of the Underwriters agree
that:
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls such Underwriter within the meaning of Section
15 of the 1933 Act as follows:
(i)against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be part of the Registration Statement pursuant
to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the
omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred
(including, the fees and disbursements of counsel chosen by you),
reasonably incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission (a) arising
from or included in the ____________ Information, (b) made in the Underwriter
Statements or (c) arising out of or based upon the failure of any Underwriter to
comply with any provision of Section 9.
(b) Each Underwriter agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to (i) untrue statements or omissions, or
alleged untrue statements or omissions, made in the Underwriter Statements or
(ii) the failure of such Underwriter or any member of its selling group to
comply with any provision of Section 9. Only the Underwriter who failed to
comply with Section 9 shall have the foregoing obligations for such failure,
provided however, that each such Underwriter shall have the foregoing
obligations for any such failure by any member of its selling group.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
which it may have to any indemnified party otherwise than under the provisions
of Section 3 of the Indemnification and Contribution Agreement unless and only
to the extent that, such omission results in the forfeiture of substantive
rights or defenses by the indemnifying party. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that, by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
the indemnifying party elects to assume the defense thereof, it may participate
(jointly with any other indemnifying party similarly notified) with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party or parties shall have reasonably
concluded that there may be legal defenses available to it or them and/or other
indemnified parties that are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of such counsel, the indemnifying party shall not be
liable to such indemnified party under this paragraph for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof, unless (i) the indemnified party shall have employed separate
counsel (plus any local counsel) in connection with the assertion of legal
defenses in accordance with the proviso to the immediately preceding sentence,
(ii) the indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party, or (iv) a conflict or potential conflict exists (based
on advice of counsel to the indemnified party) between the indemnified party and
the indemnifying party (in which case the indemnifying party will not have the
right to direct the defense of such action on behalf of the indemnified party).
Unless it shall assume the defense of any proceeding, the indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party shall indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. If any indemnifying party assumes the defense of any
proceeding, it shall not settle, compromise or consent to the entry of any
judgment with respect thereto if indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes any unconditional release of each indemnified party from
all liability arising out of such proceeding and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act by or
on behalf of any indemnified party.
(d) [Each Underwriter will indemnify and hold harmless each other
Underwriter and each person, if any, who controls each such Underwriter within
the meaning of either the 1933 Act or the 1934 Act (a "NON-INDEMNIFYING
UNDERWRITER") from and against any and all losses, claims, damages or
liabilities, joint or several, to which such Non-Indemnifying Underwriter
becomes subject under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement of material fact contained in any
computational or other written materials developed by, mailed or otherwise
transmitted by such indemnifying Underwriter or any member of its selling group,
in connection with the Notes or in any revision or amendment thereof or
supplement thereto or (ii) the failure of such indemnifying Underwriter, or any
member of its selling group, to comply with any provision of Section 9, and
agrees to reimburse each such Non-Indemnifying Underwriter, as incurred for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action.]
SECTION 7. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
Section 6 hereof is for any reason held to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company and
[each/the] Underwriter shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company and [each/the] Underwriter, as incurred, in
such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and [each/the] Underwriter on the other
from the offering of the Offered Notes but also the relative fault of the
Company on the one hand and the Underwriter on the other in connection with the
statements or omissions which resulted on such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of [each/the] Underwriter on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by the Company or by such Underwriter, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) or willful failure to comply with Section 9 shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation or failure to comply with Section 9 hereto, as the case may
be. For purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act shall have the same rights to contribution as the Company. This
indemnity agreement will be in addition to any liability that any Underwriter
may otherwise have. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Notes underwritten by it and distributed
to the public were sold to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
SECTION 8. DEFAULT BY AN UNDERWRITER.
(a) If, on the Closing Date, any Underwriter defaults in the performance of
its obligations under this Agreement and the aggregate principal amount of
Offered Notes that such defaulting Underwriter [or Underwriters] agreed but
failed to purchase does not exceed 10% of the total principal amount of Offered
Notes that the Underwriter[s] [is/are] obligated to purchase on the Closing
Date, the non-defaulting Underwriters may make arrangements for the purchase of
the Offered Notes which such defaulting Underwriter agreed but failed to
purchase by other persons satisfactory to the Company and the non-defaulting
Underwriter[s]. If any Underwriter [or Underwriters] so default and the
aggregate principal amount of Offered Notes with respect to which such default
or defaults occur exceeds 10% of the total principal amount of Offered Notes
that the Underwriter[s] [is/are] obligated to purchase on such Closing Date and
arrangements satisfactory to the non-defaulting Underwriter[s] and the Company
for the purchase of such Offered Notes by other persons are not made within 36
hours after such default, this Agreement shall terminate without liability on
the part of the non-defaulting Underwriter or the Company, except that the
Company will continue to be liable for the payment of expenses to the extent set
forth in Section 4(h) and except that the provisions of Sections 6, 7 and 9
shall not terminate and shall remain in effect. As used in this Agreement, the
term "Underwriter[s]" includes, for all purposes of this Agreement unless the
context otherwise requires, any party not listed in Schedule 1 hereto that,
pursuant to this Section 8 purchases Notes which a defaulting Underwriter agreed
but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company [or any non-defaulting Underwriter] for
damages caused by its default. If other persons are obligated or agree to
purchase the Notes of a defaulting Underwriter, either the non-defaulting
Underwriters or the Company may postpone the Closing Date for up to seven full
business days in order to effect any changes that in the opinion of the counsel
for the Company or counsel for the Underwriter[s] may be necessary in the
Registration Statement and/or the Prospectus or in any other document or
arrangement, and the Company agrees to promptly prepare any amendment or
supplement to the Registration Statement and/or the Prospectus that effects any
such changes.
SECTION 9. COMPUTATIONAL MATERIALS AND ABS TERM SHEETS.
(a) The parties acknowledge that, subsequent to the date on which the
Registration Statement became effective and up to and including the date on
which the Prospectus with respect to the offered Notes is first made available
to the Underwriter[s], the Underwriter[s], including any member of its selling
group, may furnish to various potential investors in Notes, in writing: (i)
"COMPUTATIONAL MATERIALS," as defined in a no-action letter (the "KIDDER
NO-ACTION LETTER") issued by the staff of the Commission on May 20, 1994 to
Kidder, Peabody Acceptance Corporation I, et al., as modified by a no-action
letter (the "FIRST PSA NO-ACTION LETTER") issued by the staff of the Commission
on May 27, 1994 to the Public Securities Association (the "PSA") and as further
modified by a no-action letter (the "SECOND PSA NO-ACTION LETTER," and together
with the Kidder No-Action Letter and the First PSA No-Action Letter, the
"NO-ACTION LETTERS") issued by the staff of the Commission on February 17, 1995
to the PSA; (ii) "STRUCTURAL TERM Sheets," as defined in the Second PSA
No-Action Letter and/or (iii) "COLLATERAL TERM SHEETS," as defined in the Second
PSA No-Action Letter.
(b) In connection with the Notes, [each/the ]Underwriter shall furnish to
the Company, at least one business day prior to the time of filing of the
Prospectus pursuant to Rule 424 under the 1933 Act, all Computational Materials
used by such Underwriter, or any member of its selling group, and required to be
filed with the Commission in order for such Underwriter to avail itself of the
relief granted in the No-Action Letters (such Computational Materials, the
"FURNISHED COMPUTATIONAL MATERIALS").
(c) In connection with the Notes, [each/the] Underwriter shall furnish to
the Company, at least one business day prior to the time of filing of the
Prospectus pursuant to Rule 424 under the 1933 Act, all Structural Term Sheets
used by such Underwriter, or any member of its selling group, and required to be
filed with the Commission in order for such Underwriter to avail itself of the
relief granted in the No-Action Letters (such Structural Term Sheets, the
"FURNISHED STRUCTURAL TERM SHEETS").
(d) In connection with the Notes, [each/the] Underwriter shall furnish to
the Company, within one business day after the first use thereof, all Collateral
Term Sheets used by such Underwriter, or any member of its selling group, and
required to be filed with the Commission in order for such Underwriter to avail
itself of the relief granted in the No-Action Letters (such Collateral Term
Sheets, the "FURNISHED COLLATERAL TERM SHEETS" and together with the Furnished
Structural Term Sheets, the "FURNISHED TERM Sheets") and shall advise the
Company of the date on which each such Collateral Term Sheet was first used.
(e) The Company shall cause to be filed with the Commission one or more
current reports on Form 8-K (collectively, together with any amendments and
supplements thereto, the "8-KS," and each an "8-K") with respect to all
Furnished Computational Materials, Structural Term Sheets and Collateral Term
Sheets used by an Underwriter or any member of its selling group such that such
Underwriter may avail itself of the relief granted in the No-Action Letters. In
particular, the Company shall cause to be filed with the Commission (i) all of
the Furnished Computational Materials and all of the Furnished Structural Term
Sheets on an 8-K prior to or concurrently with the filing of the final
Prospectus with respect to the Notes pursuant to Rule 424 under the 1933 Act;
and (ii) all of its Furnished Collateral Term Sheets on an 8-K not later than
two business days after the first use thereof.
(f) [Each/The] Underwriter represents and warrants to, and covenants with,
the Company that as presented in any Furnished Term Sheets, the Underwriter
Information (defined below) is not misleading and not inaccurate in any material
respect and that any Pool Information (defined below) contained in any Furnished
Term Sheets prepared by it which is not otherwise inaccurate in any material
respect is not presented in such Furnished Term Sheets prepared by it in a way
that is either misleading or inaccurate in any material respect. [The/Each]
Underwriter further covenants with the Company that if any Computational
Materials or ABS Term Sheets (as such term is defined in the Second PSA
No-Action Letter) contained in any Furnished Term Sheets are found to include
any information that is misleading or inaccurate in any material respect, such
Underwriter promptly shall inform the Company of such finding and provide the
Company with revised and/or corrected Computational Materials or ABS Term
Sheets, as the case may be and the Company shall cause to be delivered for
filing to the Commission in accordance herewith, an 8-K containing such revised
and/or corrected Computational Materials or ABS Term Sheets, as the case may be.
(g) [Each/The] Underwriter covenants that all Computational Materials and
ABS Term Sheets used by it shall contain the following legend:
"THIS INFORMATION IS FURNISHED TO YOU SOLELY BY
PAINEWEBBER INCORPORATE AND ___________________ AS
UNDERWRITERS FOR THE ___________ HOME LOAN OWNER TRUST
199_-_ AND NOT BY _________ HOME LOAN OWNER TRUST
199_-_ NOR ANY OF ITS AFFILIATES."
(h) [The/Each] Underwriter covenants that all Collateral Term Sheets used
by it shall contain the following additional legend:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED
BY THE DESCRIPTION OF THE MORTGAGE LOANS CONTAINED IN
THE PROSPECTUS SUPPLEMENT."
(i) [The/Each] Underwriter covenants that all Collateral
Term Sheets (other than the initial Collateral Term Sheet) shall
contain the following additional legend:
"THE INFORMATION CONTAINED HEREIN SUPERSEDES THE
INFORMATION IN ALL PRIOR COLLATERAL TERM SHEETS, IF
ANY."
(i) Notwithstanding the foregoing, subsection 9(g) will be satisfied if all
Computational Materials and ABS Term Sheets referred to therein bear a legend in
a form approved by the Company.
(j) For purposes of this Agreement, the term "UNDERWRITER Information"
means such portion, if any, of the information contained in any Furnished Term
Sheets that is not Pool Information or Prospectus Information; provided,
however, that information contained in Furnished Term Sheets that is not Pool
Information or Prospectus Information shall not constitute Underwriter
Information to the extent such information is inaccurate or misleading in any
material respect directly as a result of it being based on Pool Information or
Prospectus Information that is inaccurate or misleading in any material respect.
"POOL INFORMATION" means the information furnished to the Underwriter[s] by the
Company regarding the Loans and "PROSPECTUS INFORMATION" means the information
contained in (but not incorporated by reference in) any Prospectus, provided,
however, that if any information that would otherwise constitute Pool
Information or Prospectus Information is presented in any Furnished Term Sheets
in a way that is either inaccurate or misleading in any material respect, such
information shall not be Pool Information or Prospectus Information.
SECTION 10. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement, or
contained in certificates of officers of the Company submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Offered Notes
to the Underwriters.
SECTION 11. TERMINATION OF AGREEMENT.
(a) The Underwriter[s] may terminate this Agreement, by notice to the
Company, at any time at or prior to the Closing Date without liability on the
part of any Underwriter to the Company, if, prior to delivery and payment for
the Notes, (i) there has occurred any material adverse change in the financial
markets in the United States or elsewhere or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effect of which is such as to
make it, in the judgment of the Underwriter[s], impracticable to market the
Offered Notes on the terms and in the manner contemplated by the Prospectus, or
(ii) if trading generally on either the American Stock Exchange or the New York
Stock Exchange has been suspended, or minimum or maximum prices for trading have
been fixed, or maximum ranges for prices for securities have been required, by
either of said Exchanges or by order of the Commission or any other governmental
authority, or if a banking moratorium has been declared by either Federal or New
York authorities.
SECTION 12. NOTICES. All notices and other communications hereunder shall
be in writing and effective only on receipt and shall have been duly given if
mailed via the U.S. Postal Service and a reputable overnight delivery service,
hand delivered, sent by facsimile transmission or another reasonable and
standard form of telecommunication. Notices to PWI shall be directed to
PaineWebber Incorporated at 1285 Avenue of the Americas, New York, New York
10019, Attention: John Fearey, Esq.; notices to _________ shall be directed to
________________, ________________, ___________, ________________, Attention:
_________________; and notices to the Company shall be directed to it at
PaineWebber Mortgage Acceptance Corporation IV, 1285 Avenue of the Americas, New
York, New York 10019, attention of the Secretary with a copy to the Treasurer;
or, as to either party, such other address as may hereafter be furnished by such
party to the other in writing.
SECTION 13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriter[s] and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriter[s]
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Section 6 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriter[s] and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Offered Notes from the Underwriters shall be deemed
to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW; TIME; JURISDICTION; WAIVER OF OBJECTION TO
VENUE. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
in said State. Specified times of day refer to New York City time.
SECTION 15. EXECUTION IN COUNTERPARTS; SEVERABILITY; INTEGRATION. This
Agreement may be executed in any number of counterparts, each of which shall for
all purposes be deemed to be an original and all of which when taken together
shall constitute but one and the same Agreement. In case any provision in or
obligation under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby. This
Agreement contains the final and complete integration of all prior expressions
by the parties hereto with respect to the subject matter hereof and shall
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and shall constitute entire Agreement among the parties
hereto with respect to the subject matter hereof, superseding all prior oral or
written understandings.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
Underwriting Agreement, along with all counterparts, will become a binding
agreement among each of the Underwriters and the Company in accordance with its
terms.
Very truly yours,
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV
By:
Name: ________________________________
Title: _______________________________
CONFIRMED AND ACCEPTED, as of the date first above written:
PAINEWEBBER INCORPORATED
By:
Name: ____________________________
Title: ___________________________
[--------------------------------
By:
Name: ____________________________
Title: ___________________________]
<PAGE>
SCHEDULE A
- --------------------------------------------------------------------------
Purchase Price as a
Aggregate Principal Amount percentage of the Aggregate
Underwriter of Notes to be Purchased Principal Amount of Notes to
be Purchased
- --------------------------------------------------------------------------
PWI $____________________ _____%
- ---- $____________________ _____%
- --------------------------------------------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of __________, 199_
by and among
PaineWebber Mortgage Acceptance Corporation IV
(Depositor)
and
-------------------------------
(Transferor)
-------------------------------
(Master Servicer)
and
-------------------------------
(Trustee)
_______ Home Equity Trust 199_ - _
_______ Home Equity Asset Backed Certificates,
Series 199_ - _
Class _ and Class _
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Definitions
Section 1.1 Certain Defined Terms.........................................
Section 1.2 Provisions of General Application.............................
ARTICLE II
Establishment of the Trust;
Sale and Conveyance of Trust Fund
Section 2.1 Sale and Conveyance of Trust Fund; Priority and
Subordination of Ownership Interests; Establishment of
the Trust....................................................
Section 2.2 Possession of Mortgage Files; Access to Mortgage Files........
Section 2.3 Delivery of Mortgage Loan Documents...........................
Section 2.4 Acceptance by Trustee of the Trust Fund; Certain
Substitutions;
Certification by Trustee.....................................
Section 2.5 Designations under REMIC Provisions; Designation of
Startup Date.................................................
Section 2.6 Execution of Certificates.....................................
Section 2.7 Application of Principal and Interest.........................
Section 2.8 Grant of Security Interest....................................
Section 2.9 Further Assurances; Powers of Attorney........................
ARTICLE III
Representations and Warranties
Section 3.1 Representations of the Master Servicer........................
Section 3.2 Representations, Warranties and Covenants of the Depositor....
Section 3.3 Purchase and Substitution.....................................
Section 3.4 Master Servicer Covenants.....................................
ARTICLE IV
The Certificates
Section 4.1 The Certificates..............................................
Section 4.2 Registration of Transfer and Exchange of Certificates.........
Section 4.3 Mutilated, Destroyed, Lost or Stolen Certificates.............
Section 4.4 Persons Deemed Owners.........................................
ARTICLE V
Administration and Servicing of the Mortgage Loans
Section 5.1 Appointment of the Master Servicer............................
Section 5.2 Subservicing Agreements Between the Master Servicer and
Subservicers.................................................
Section 5.3 Collection of Certain Mortgage Loan Payments; Collection
Account......................................................
Section 5.4 Permitted Withdrawals from the Collection Account and
Trustee Collection Account...................................
Section 5.5 Payment of Taxes, Insurance and Other Charges.................
Section 5.6 Maintenance of Casualty Insurance.............................
Section 5.7 Master Servicer Account.......................................
Section 5.8 Fidelity Bond; Errors and Omissions Policy....................
Section 5.9 Collection of Taxes, Assessments and Other Items..............
Section 5.10 Periodic Filings with the Securities and Exchange
Commission; Additional Information...........................
Section 5.11 Enforcement of Due-on-Sale Clauses; Assumption Agreements.....
Section 5.12 Realization upon Defaulted Mortgage Loans.....................
Section 5.13 Trustee to Cooperate; Release of Mortgage Files...............
Section 5.14 Servicing Fee; Servicing Compensation.........................
Section 5.15 Reports to the Trustee; Collection Account Statements.........
Section 5.16 Annual Statement as to Compliance.............................
Section 5.17 Annual Independent Public Accountants' Servicing Report.......
Section 5.18 Reports to be Provided by the Master Servicer.................
Section 5.19 Adjustment of Servicing Compensation in Respect of
Prepaid Mortgage Loans.......................................
Section 5.20 Periodic Advances.............................................
Section 5.21 Indemnification; Third Party Claims...........................
Section 5.22 Maintenance of Corporate Existence and Licenses; Merger
or Consolidation of the Master Servicer......................
Section 5.23 Assignment of Agreement by Master Servicer; Master
Servicer Not to Resign.......................................
ARTICLE VI
Distributions and Payments
Section 6.1 Establishment of Certificate Account, Deposits to the
Certificate Account..........................................
Section 6.2 Permitted Withdrawals From the Certificate Account............
Section 6.3 Collection of Money...........................................
[Section 6.4 The Certificate Insurance Policy..............................
Section 6.5 Distributions.................................................
Section 6.6 Investment of Accounts........................................
Section 6.7 Reports by Trustee............................................
Section 6.8 Additional Reports by Trustee and by Master Servicer..........
Section 6.9 Compensating Interest.........................................
[Section 6.10 Effect of Payments by the Certificate Insurer; Subrogation....
ARTICLE VII
Default
Section 7.1 Events of Default.............................................
Section 7.2 Trustee to Act; Appointment of Successor......................
Section 7.3 Waiver of Defaults............................................
Section 7.4 Mortgage Loans, Trust Fund and Accounts Held for Benefit
of the Certificate Insurer...................................
ARTICLE VIII
Termination
Section 8.1 Termination...................................................
Section 8.2 Additional Termination Requirements...........................
Section 8.3 Accounting Upon Termination of Master Servicer................
ARTICLE IX
The Trustee
Section 9.1 Duties of Trustee.............................................
Section 9.2 Certain Matters Affecting the Trustee.........................
Section 9.3 Not Liable for Certificates or Mortgage Loans.................
Section 9.4 Trustee May Own Certificates..................................
Section 9.5 Trustee's Fees and Expenses; Indemnity........................
Section 9.6 Eligibility Requirements for Trustee..........................
Section 9.7 Resignation and Removal of the Trustee........................
Section 9.8 Successor Trustee.............................................
Section 9.9 Merger or Consolidation of Trustee............................
Section 9.10 Appointment of Co-Trustee or Separate Trustee.................
Section 9.11 Tax Returns; OID Interest Reporting...........................
[Section 9.12 Retirement of Certificates....................................
ARTICLE X
Miscellaneous Provisions
Section 10.1 Limitation on Liability of the Depositor and the Master
Servicer.....................................................
Section 10.2 Acts of Certificateholders; Certificateholders' Rights........
Section 10.3 Amendment or Supplement.......................................
Section 10.4 Recordation of Agreement......................................
Section 10.5 Duration of Agreement.........................................
Section 10.6 Notices.......................................................
Section 10.7 Severability of Provisions....................................
Section 10.8 No Partnership................................................
Section 10.9 Counterparts..................................................
Section 10.10 Successors and Assigns........................................
Section 10.11 Headings......................................................
[Section 10.12 The Certificate Insurer Default..............................
Section 10.13 Third Party Beneficiary.......................................
Section 10.14 Intent of the Parties.........................................
Section 10.15 Appointment of Tax Matters Person.............................
Section 10.16 GOVERNING LAW CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL........................................................
<PAGE>
EXHIBITS
[EXHIBIT A Specimen Certificate Insurance Policy]
EXHIBIT B-1 Specimen Class A-1 Certificate
EXHIBIT B-2 Specimen Class A-2 Certificate
EXHIBIT B-3 Specimen Class A-3 Certificate
EXHIBIT B-4 Specimen Class A-4 Certificate
EXHIBIT B-5 Specimen Class A-5 Certificate
EXHIBIT B-6 Specimen Class R Certificate
EXHIBIT C Contents of Mortgage File
EXHIBIT D Mortgage Loan Schedule
EXHIBIT E Trustee's Certificate as to Mortgage Files
EXHIBIT F Form of Initial Certification of Trustee
EXHIBIT G Form of Final Certification of Trustee
EXHIBIT H Form of Request for Release of Mortgage Files
EXHIBIT I Form of Transfer Affidavit and Agreement
EXHIBIT J Form of Certificate to Be Delivered by Transferring Holder
EXHIBIT K Form of ERISA Investment Representation Letter
EXHIBIT L Form of Officer's Certificate of the Transferor: Prepaid Loans
EXHIBIT M Form of Transferee's Letter
<PAGE>
This Pooling and Servicing Agreement, relating to _______ Home Equity Trust
199_ - _ (the "Trust"), dated as of __________, 199_ by and among PaineWebber
Mortgage Acceptance Corporation IV, as depositor of the Trust (the "Depositor"),
__________________, as Transferor (the "Transferor"), ____________________, as
Master Servicer, (the "Master Servicer"), and ____________________, in its
capacity as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Depositor wishes to establish a trust which provides for the
allocation and sale of the beneficial interests therein and the maintenance and
distribution of the trust estate;
WHEREAS, the Master Servicer has agreed to service the Mortgage Loans,
which constitute the principal assets of the trust estate;
WHEREAS, ____________________, is willing to serve in the capacity of
Trustee hereunder; and
[WHEREAS, ____________________ (the "Certificate Insurer") is intended to
be a third-party beneficiary of this Agreement and is hereby recognized by the
parties hereto to be a third-party beneficiary of this Agreement.]
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the Depositor, the Transferor, the Master Servicer and the
Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 CERTAIN DEFINED TERMS. Whenever used herein the following words
and phrases, unless the context otherwise requires, shall have the following
meanings.
"ACCEPTED SERVICING PRACTICES" shall mean the Master Servicer's normal
servicing practices in servicing and administering mortgage loans for its own
account, which in general will conform to the mortgage servicing practices of
prudent mortgage lending institutions which service for their own account
mortgage loans of the same type as the Mortgage Loans in the jurisdictions in
which the related Mortgaged Properties are located and will give due
consideration to [the Certificate Insurer's and] the Certificateholders'
reliance on the Master Servicer.
"ACCOUNT" shall mean any Eligible Account established hereunder.
"ACCRUAL PERIOD" shall mean (i) with respect to the Class A-1 Certificates
and any Remittance Date, the period commencing on the immediately preceding
Remittance Date or, in the case of the first Remittance Date, the Closing Date,
and ending on the day preceding such Remittance Date and (ii) with respect to
the Certificates other than the Class A-1 Certificates and any Remittance Date,
the period commencing on the ___ day of the month immediately preceding the
month in which such Remittance Date occurs and ending on the last day of the
month immediately preceding the month in which such Remittance Date occurs.
"ADVERSE REMIC EVENT" shall have the meaning set forth in Section 5.1(c).
"AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" have meanings correlative to the
foregoing.
"AGREEMENT" shall mean this Pooling and Servicing Agreement, including the
Exhibits hereto, as amended or supplemented from time to time in accordance
herewith.
"AGGREGATE PRINCIPAL BALANCE" shall mean the aggregated sum of the
Principal Balances of each of the Mortgage Loans as of any date of
determination.
"APPRAISED VALUE" shall mean the appraised value of any Mortgaged Property,
based upon the appraisal or other property valuation made at the time the
related Mortgage Loan is originated; provided that if no such appraisal was
required to be made in accordance with the Underwriting Guidelines, Appraised
Value shall mean the stated value of the Mortgaged Property as set forth in the
loan application submitted by the related Mortgagor.
"ASSIGNMENT OF MORTGAGE" shall mean, with respect to each Mortgage Loan, an
assignment of the Mortgage, notice of transfer or equivalent instrument (which
may be in blank) sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect of record the sale of the
Mortgage to the Trustee for the benefit of the Certificateholders and the
Certificate Insurer.
"AUTHORIZED DENOMINATIONS" shall mean, in the case of the Class A
Certificates, $1,000 or integral multiples of $1,000 in excess thereof;
PROVIDED, HOWEVER, that one Class A-1 Certificate, one Class A-2 Certificate,
one Class A-3 Certificate, one Class A-4 Certificate and one Class A-5
Certificate each is issuable in a denomination equal to an amount less than
$1,000 such that the aggregate denomination of all Class A-1 Certificates, Class
A-2 Certificates, Class A-3 Certificates, Class A-4 Certificates or Class A-5
Certificates, as the case may be, shall be equal to the applicable Original
Class A-1 Principal Balance, Original Class A-2 Principal Balance, Original
Class A-3 Principal Balance, Original Class A-4 Principal Balance or Original
Class A-5 Principal Balance.
"AVAILABLE AMOUNT" shall mean for any Remittance Date, the (i) the Master
Servicer Remittance Amount for such Remittance Date minus (ii) the Proportional
Share of the Trustee Fee [and the Certificate Insurance Premium Amount].
"BASE PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to the Class
A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates and the
Class A-4 Certificates for any Remittance Date, (A) the sum of the amounts
referred to in clauses (i), (ii), (iii), (iv), (vi) and (vii) of clause (b) of
the definition of Principal Distribution Amount for such Remittance Date minus
(B) any Overcollateralization Release Amount and such Remittance Date.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or Sunday, or
(ii) a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to be closed.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980.
"CERTIFICATE" shall mean any Series 199_ - _ Class A Certificate or Series
199_ - _ Class R Certificate executed by the Trustee on behalf of the Trust Fund
and authenticated by the Trustee.
"CERTIFICATE ACCOUNT" shall mean the Certificate Account established in
accordance with Section 6.1(a) hereof and maintained by the Trustee.
"CERTIFICATEHOLDER" shall mean, except as provided in Article X, each
Person in whose name a Certificate is registered in the Certificate Register,
except that, solely for the purposes of giving any consent (except any consent
required to be obtained pursuant to Section 10.2), waiver, requestor demand
pursuant to this Agreement, any Certificate registered in the name of the Master
Servicer or any Subservicer or the Transferor, or any Affiliate of any of them,
shall be deemed not to be outstanding and the undivided interest in the Trust
Fund evidenced thereby shall not be taken into account in determining whether
the requisite percentage of Certificates necessary to effect any such consent,
waiver, request or demand has been obtained. For purposes of any consent,
waiver, request or demand of Certificateholders pursuant to this Agreement, upon
the Trustee's request, the Master Servicer and the Transferor shall provide to
the Trustee a notice identifying any of their respective Affiliates or the
Affiliates of any Subservicer that is a Certificateholder as of the date(s)
specified by the Trustee in such request. [Any Certificates on which payments
are made under the Certificate Insurance Policy shall be deemed to be
outstanding and held by the Certificate Insurer to the extent of such payment.]
["CERTIFICATE INSURANCE POLICY" shall mean the certificate guaranty
insurance policy no. _________, and all endorsements thereto dated the Closing
Date, issued by the Certificate Insurer for the benefit of the Class A
Certificateholders, a copy of which is attached hereto as Exhibit A.]
["CERTIFICATE INSURANCE PREMIUM AMOUNT" shall mean the product of the
Premium Percentage and the Certificate Principal Balance for the related
Remittance Date.]
["CERTIFICATE INSURER" shall mean ____________________, a _______________
organized and created under the laws of the State of __________, and any
successors thereto.
["CERTIFICATE INSURER DEFAULT" shall mean the existence and continuance of
any of the following: (i) a failure by the Certificate Insurer to make a payment
required under a Certificate Insurance Policy in accordance with its terms; (ii)
the entry of a decree or order of a court or agency having jurisdiction in
respect of the Certificate Insurer in an involuntary case under any present or
future federal or state bankruptcy, insolvency or similar law appointing a
conservator or receiver or liquidator or other similar official of the
Certificate Insurer or of any substantial part of its property, or the entering
of an order for the winding up or liquidation of the affairs of the Certificate
Insurer and the continuance of any such decree or order undischarged or unstayed
and in force for a period of 90 consecutive days; (iii) the Certificate Insurer
shall consent to the appointment of a conservator or receiver or liquidator or
other similar proceedings or of relating to the Certificate Insurer or of or
relating to all or substantially all of its property; or (iv) the Certificate
Insurer shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of or otherwise voluntarily
commence a case or proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its obligations.]
"CERTIFICATE PRINCIPAL BALANCE" shall mean the sum of the Class A-1
Principal Balance, the Class A-2 Principal Balance, the Class A-3 Principal
Balance, the Class A-4 Principal Balance and the Class A-5 Principal Balance.
"CERTIFICATE REGISTER" shall have the meaning described in Section
4.2(a).
"CIVIL RELIEF ACT" shall mean the Soldiers' and Sailors' Civil Relief Act
of 1940, as amended.
"CLASS" shall mean any designated Class of Certificates of this Series or
of any new Series issued hereunder.
"CLASS A CERTIFICATE" shall mean any Class A-1 Certificate, any Class A-2
Certificate, any Class A-3 Certificate, any Class A-4 Certificate or any Class
A-5 Certificate.
"CLASS A CERTIFICATEHOLDER" shall mean a Holder of a Class A-1 Certificate,
a Class A-2 Certificate, a Class A-3 Certificate, a Class A-4 Certificate or a
Class A-5 Certificate.
"CLASS A-1 CERTIFICATE" shall mean any Certificate designated as a "CLASS
A-1 CERTIFICATE" on the face thereof, in the form of Exhibit B-1 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"CLASS A-1 CERTIFICATEHOLDER" shall mean a Holder of a Class A-1
Certificate.
"CLASS A-1 DISTRIBUTION AMOUNT" shall mean, with respect to the Class A-1
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-1 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iv), (v), (vi) and (viii) and 6.5(b)(vi) hereof.
"CLASS A-1 FINAL SCHEDULED MATURITY DATE" shall mean the ________, 20__
Remittance Date.
"CLASS A-1 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to the
Class A-1 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-1 Pass-Through Rate during the Accrual Period
on the Class A-1 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case allocable to the Class A-1 Certificates and
as of such Remittance Date.
"CLASS A-1 PASS-THROUGH RATE" with respect to any Remittance Date, will be
equal to a per annum rate (calculated on the basis of actual days elapsed
divided by 360) equal to the lesser of (i) the sum of (a) LIBOR on the Interest
Determination Date plus (b) ____% per annum and (ii) the Weighted Average Rate
Cap.
"CLASS A-1 PRINCIPAL BALANCE" shall mean, as of any date of determination,
the Original Class A-1 Principal Balance less any Principal Distribution Amount
distributed on the Class A-1 Certificates on all prior Remittance Dates.
"CLASS A-2 CERTIFICATE" shall mean any Certificate designated as a "CLASS
A-2 CERTIFICATE" on the face thereof, in the form of Exhibit B-2 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"CLASS A-2 CERTIFICATEHOLDER" shall mean a Holder of a Class A-2
Certificate.
"CLASS A-2 DISTRIBUTION AMOUNT" shall mean, with respect to the Class A-2
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-2 Certificates on such Remittance Date pursuant Sections 6.5(a)(iv),
(v), (vi) and (viii) and 6.5(b)(vi) hereof.
"CLASS A-2 FINAL SCHEDULED MATURITY DATE" shall mean the __________,
20__ Remittance Date.
"CLASS A-2 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to the
Class A-2 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-2 Pass-Through Rate during the Accrual Period
on the Class A-2 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case allocable to the Class A-2 Certificates and
as of such Remittance Date.
"CLASS A-2 PASS-THROUGH RATE" with respect to any Remittance Date, will be
equal to a ____% per annum rate (calculated on the basis of an assumed month of
30 days and an assumed year of 360 days).
"CLASS A-2 PRINCIPAL BALANCE" shall mean, as of any date of determination,
the Original Class A-2 Principal Balance less any Principal Distribution Amount
distributed on the Class A-2 Certificates on all prior Remittance Dates.
"CLASS A-3 CERTIFICATE" shall mean any Certificate designated as a "CLASS
A-3 CERTIFICATE" on the face thereof, in the form of Exhibit B-3 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"CLASS A-3 CERTIFICATEHOLDER" shall mean a Holder of a Class A-3
Certificate.
"CLASS A-3 DISTRIBUTION AMOUNT" shall mean, with respect to the Class A-3
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-3 Certificates on such Remittance Date pursuant to Sections
6.5(a)(iv), (v), (vi) and (viii) and 6.5(b)(vi) hereof.
"CLASS A-3 FINAL SCHEDULED MATURITY DATE" shall mean the __________, 20__
Remittance Date.
"CLASS A-3 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to the
Class A-3 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-3 Pass-Through Rate during the Accrual Period
on the Class A-3 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case allocable to the Class A-3 Certificates and
as of such Remittance Date.
"CLASS A-3 PASS-THROUGH RATE" with respect to any Remittance Date, will be
equal to a ____% per annum rate (calculated on the basis of an assumed month of
30 days and an assumed year of 360 days).
"CLASS A-3 PRINCIPAL BALANCE" shall mean, as of any date of determination,
the Original Class A-3 Principal Balance less any Principal Distribution Amounts
distributed on the Class A-3 Certificates on all prior Remittance Dates.
"CLASS A-4 CERTIFICATE" shall mean any Certificate designated as a "Class
A-4 Certificate" on the face thereof, in the form of Exhibit B-4 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"CLASS A-4 CERTIFICATEHOLDER" shall mean a Holder of a Class A-4
Certificate.
"CLASS A-4 DISTRIBUTION AMOUNT" shall mean, with respect to the Class A-4
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-4 Certificates on such Remittance Date pursuant Sections 6.5(a)(iv),
(v), (vi) and (viii) and 6.5(b)(vi) hereof.
"CLASS A-4 FINAL SCHEDULED MATURITY DATE" shall mean the ________, 20__
Remittance Date.
"CLASS A-4 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to the
Class A-4 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-4 Pass-Through Rate during the Accrual Period
on the Class A-4 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case allocable to the Class A-4 Certificates and
as of such Remittance Date.
"CLASS A-4 PASS-THROUGH RATE" with respect to any Remittance Date prior to
the Optional Termination Date, will be equal to a ____% per annum rate and with
respect to any other Remittance Date, will be equal to a ____% per annum rate
(in each case calculated on the basis of an assumed month of 30 days and an
assumed year of 360 days).
"CLASS A-4 PRINCIPAL BALANCE" shall mean, as of any date of determination,
the Original Class A-4 Principal Balance less any Principal Distribution Amounts
distributed on the Class A-4 Certificates on all prior Remittance Dates.
"CLASS A-5 BASE PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to
the Class A-5 Certificates for any Remittance Date, (A) the sum of the amounts
referred to in clauses (i), (ii), (iii), (iv), (vi) and (vii) of clause (b) of
the definition of Class A-5 Principal Distribution Amount for such Remittance
Date minus (B) any Overcollateralization Release Amount for such Remittance
Date.
"CLASS A-5 CERTIFICATE" shall mean any Certificate designated as a "CLASS
A-5 CERTIFICATE" on the face thereof, in the form of Exhibit B-5 hereto, and
authenticated by the Trustee in accordance with the procedures set forth herein.
"CLASS A-5 CERTIFICATEHOLDER" shall mean a Holder of a Class A-5
Certificate.
"CLASS A-5 DISTRIBUTION AMOUNT" shall mean, with respect to the Class A-5
Certificates for any Remittance Date, the amount distributed to the Holders of
the Class A-5 Certificates on such Remittance Date pursuant to Sections
6.5(a)(vi) and 6.5(b)(iv), (v), (vi) and (viii) hereof.
"CLASS A-5 FINAL SCHEDULED MATURITY DATE" shall mean the ________, 20__
Remittance Date.
"CLASS A-5 INTEREST DISTRIBUTION AMOUNT" shall mean, with respect to the
Class A-5 Certificates for any Remittance Date an amount equal to the aggregate
of interest accrued at the Class A-5 Pass-Through Rate during the Accrual Period
on the Class A-5 Principal Balance excluding (i) any Mortgage Loan Interest
Shortfall and (ii) any reductions in interest resulting from the application of
the Civil Relief Act, in each case allocable to the Class A-5 Certificates and
as of such Remittance Date.
"CLASS A-5 PASS-THROUGH RATE" with respect to any Remittance Date prior to
the Optional Termination Date, will be equal to a ____% per annum rate and with
respect to any other Remittance Date, will be equal to a ____% per annum rate
(in each case calculated on the basis of an assumed month of 30 days and an
assumed year of 360 days).
"CLASS A-5 PRINCIPAL BALANCE" shall mean, as of any date of determination,
the Original Class A-5 Principal Balance less any Class A-5 Principal
Distribution Amounts distributed on the Class A-5 Certificates on all prior
Remittance Dates.
"CLASS A-5 PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to the
Class A-5 Certificates for any Remittance Date, the lesser of:
(a) the excess of (1) the sum of the Available Amount, any Excess Spread
and the applicable portion of any Insured Payment over (2) the Class A-5
Interest Distribution Amount; and
(b) the sum, without duplication, of:
(i) that portion of all scheduled installments of principal in respect of
the Mortgage Loans which is received (or advanced) during the related Due Period
together with all unscheduled recoveries of principal (including Principal
Prepayments, Curtailments and Deficient Valuations) on such Mortgage Loans
actually collected by the Master Servicer during the prior calendar month;
(ii) the Principal Balance of each Mortgage Loan that either was, effective
on such Remittance Date, repurchased by the Transferor or by the Depositor or
purchased by the Master Servicer during the preceding Due Period, but only to
the extent the amount equal to such Principal Balance is actually received by
the Trustee;
(iii) any Substitution Adjustment amounts delivered by the Depositor on the
related Remittance Date in connection with a substitution of a Mortgage Loan, to
the extent such Substitution Adjustments are actually received by the Trustee;
(iv) with respect to each Mortgage Loan that became a Liquidated Mortgage
Loan during the prior calendar month, the Principal Balance of such Mortgage
Loan immediately prior to the time when such Mortgage Loan became a Liquidated
Mortgage Loan;
(v) any Overcollateralization Increase Amount;
(vi) to the extent of any Subordination Deficit the excess, if any of the
Class A-5 Principal Balance over the aggregate Principal Balance of the Mortgage
Loans;
(vii) the portion of the proceeds relating to the Mortgage Loans received
by the Trust Fund following any termination of the 199_ - _ REMIC carried out in
accordance with a plan of complete liquidation pursuant to Section 8.2 hereof or
pursuant to the optional termination of either of the Trust Fund or the 199_ - _
REMIC by either the Master Servicer [or Certificate Insurer] in accordance with
Section 8.1 hereof, up to the then outstanding Class A-5 Principal Balance;
minus
(viii) any Overcollateralization Release Amount.
"CLASS R CERTIFICATE" shall mean any Certificate denominated as a Class R
Certificate and subordinate to the Class A Certificates in right of payment to
the extent set forth herein, which Certificate shall be in the form of Exhibit
B-6 hereto.
"CLASS R CERTIFICATEHOLDER" shall mean a Holder of a Class R Certificate.
"CLOSING DATE" shall mean __________, 199_.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COLLECTION ACCOUNT" shall mean the Eligible Account established and
maintained by the Master Servicer for the benefit of the Certificateholders [and
the Certificate Insurer] pursuant to Section 5.3(a) hereof.
"COMBINED LOAN-TO-VALUE RATIO" shall mean with respect to any Mortgage
Loan, (i) the sum of (x) the outstanding principal balance of any mortgage loan
senior to such Mortgage Loan and secured by the related Mortgaged Property as of
the date of origination of the related Mortgage Loan, plus (y) the Principal
Balance of the related Mortgage Loan as of the Cut-Off Date, divided by (ii) the
Appraised Value of such Mortgaged Property.
"COMMISSION" shall mean the Securities and Exchange Commission.
"COMPENSATING INTEREST" shall have the meaning defined in Section 6.9
hereof.
"CURTAILMENT" shall mean, with respect to a Mortgage Loan, any payment of
principal received during a Due Period as part of a payment that is in excess of
the amount of the Monthly Payment due for such Due Period and which is neither
intended to satisfy the Mortgage Loan in full, intended as an advance payment of
an amount due in a subsequent Due Period, nor intended to cure a delinquency.
"CUSTODIAN" shall have the meaning defined in Section 2.2(c).
"CUT-OFF DATE" shall mean the close of business on __________, 199_.
"DEBT SERVICE REDUCTION" shall mean, with respect to any Mortgage Loan, a
reduction by a court of competent jurisdiction of the Monthly Payment due on
such Mortgage Loan in a proceeding under the Bankruptcy Code, except such a
reduction that constitutes a Deficient Valuation or a permanent forgiveness of
principal.
"DEFICIENT VALUATION" shall mean, with respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the United
States Bankruptcy Code.
"DELETED MORTGAGE LOAN" shall mean a Mortgage Loan replaced by a Qualified
Substitute Mortgage Loan or repurchased pursuant to Sections 2.4(c) or 3.3
hereof.
"DELINQUENT," a Mortgage Loan is "DELINQUENT" if any payment due thereon is
not made by the close of business on the day such payment is scheduled to be
due. A Mortgage Loan is "30 days delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
"DEPOSITOR" shall mean PaineWebber Mortgage Acceptance Corporation IV and
any successor thereto.
"DEPOSITORY" shall mean the Depository Trust Company, 7 Hanover Square, New
York, New York 10004 and any successor Depository hereafter named.
"DETERMINATION DATE" shall mean the third Business Day prior to the
Remittance Date.
"DIRECT PARTICIPANT" shall mean any broker-dealer, bank or other financial
institution for which the Depository holds Class A Certificates from time to
time as a securities depositary.
"DISQUALIFIED ORGANIZATION" shall mean any of (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing (other than an instrumentality which is a corporation if all of
its activities are subject to tax and, except for the FHLMC, a majority of its
board of directors is not selected by such governmental unit), (ii) any foreign
government, any international organization, or any agency or instrumentality of
any of the foregoing, (iii) any organization (other than certain farmers'
cooperatives described in Section 521 of the Code) which is exempt from the tax
imposed by Chapter 1 of the Code (unless such organization is subject to the tax
imposed by Section 511 of the Code on unrelated business taxable income), or
cooperatives engaged in furnishing electric energy, or providing telephone
service, to persons in rural areas as described in Section 1381(a)(2)(C) of the
Code and (iv) any other Person so designated by the Trustee based upon an
Opinion of Counsel provided to the Trustee that the holding of an ownership
interest in a Class R Certificate by such Person may cause the 199_ - _ REMIC or
any Person having an ownership interest in any Class of Certificates (other than
such Person) to incur liability for any federal tax imposed under the Code that
would not otherwise be imposed but for the transfer of an ownership interest in
the Class R Certificate to such Person. The terms "UNITED STATES", "STATE" and
"INTERNATIONAL ORGANIZATION" shall have the meanings set forth in Section 7701
of the Code.
"DUE DATE" shall mean, with respect to any Mortgage Loan, the day of the
month upon which payment is due from the related Mortgagor under the terms of
the related Mortgage Note.
"DUE PERIOD" shall mean, with respect to each Remittance Date, the period
beginning on the opening of business on the first day of the calendar month
preceding the calendar month in which such Remittance Date occurs, and ending at
the close of business on the last day of the calendar month preceding the
calendar month in which such Remittance Date occurs.
"ELIGIBLE ACCOUNT" shall mean either (i) a segregated trust account or
accounts maintained with a depositary institution which is acceptable to the
Certificate Insurer and to each Rating Agency, which institution shall be the
Bank of the West until notice to the contrary is given to the Master Servicer by
the Certificate Insurer and such trust account shall be held in (a) the
corporate trust account department of such depositary institution or (b) an
institution with capital and surplus of not less than $50,000,000, and a minimum
unsecured debt rating of ___ by ____ or ____ by __________; or (ii) an account
or accounts maintained with an institution acceptable to the Certificate Insurer
and whose deposits are insured by the FDIC, the unsecured and uncollateralized
debt obligations of which institution shall be rated ___ or better by ___ and
___ or better by _______ and the highest short-term rating by _______ and
_______, and which is (a) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (b) an
institution duly organized, validly existing and in good standing under the
applicable banking laws of any state, (c) a national banking association duly
organized, validly existing and in good standing under the federal banking laws
institution (including the Trustee), (d) a principal subsidiary of a bank
holding company, or (e) approved in writing by [the Certificate Insurer,] _____
and _____, having capital and surplus of not less than $50,000,000, acting in
its fiduciary capacity.
"ERISA" shall have the meaning defined in Section 4.2(i)(x) hereof.
"EVENT OF DEFAULT" shall have the meaning described in Section 7.1.
"EXCESS SPREAD" shall mean the excess, if any, of the Available Amount over
the sum of the Class A-1 Interest Distribution Amount, the Class A-2 Interest
Distribution Amount, the Class A-3 Interest Distribution Amount, the Class A-4
Interest Distribution Amount, the Class A-5 Interest Distribution Amount and the
Base Principal Distribution Amount.
"FDIC" shall mean the Federal Deposit Insurance Corporation and any
successor thereto.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation and any
successor thereto.
"FNMA" shall mean the Federal National Mortgage Association and any
successor thereto.
"FORECLOSURE PROFITS" shall mean, as to any Remittance Date, the excess, if
any, of (i) Net Liquidation Proceeds in respect of each Mortgage Loan that
became a Liquidated Mortgage Loan during the month immediately preceding the
month of such Remittance Date over (ii) the sum of the unpaid principal balance
of each such Liquidated Mortgage Loan plus accrued and unpaid interest at the
applicable Mortgage Interest Rate on the unpaid principal balance thereof from
the Due Date to which interest was last paid by the Mortgagor (or, in the case
of a Liquidated Mortgage Loan that had been an REO Mortgage Loan, from the Due
Date to which interest was last deemed to have been paid pursuant to Section
5.12) to the first day of the month following the month in which such Mortgage
Loan became a Liquidated Mortgage Loan.
"HAZARDOUS MATERIALS" shall mean any dangerous, toxic or hazardous
pollutants, chemical wastes or substances, including, without limitation, those
identified pursuant to CERCLA or any other federal, state or local environmental
related laws now existing or hereafter enacted.
"HOLDER" shall mean each Person in whose name a Certificate is registered
in the Certificate Register, except that solely for the purposes of giving any
consent (except any consent required to be obtained pursuant to Section 10.2),
waiver, request or demand pursuant to this Agreement, any Certificate registered
in the name of the Master Servicer or any Subservicer or the Transferor, or any
Affiliate of any of them, shall be deemed not to be outstanding and in the case
of any Certificate, the undivided interest in the Trust Fund evidenced thereby
shall not be taken into account in determining whether the requisite percentage
of Certificates necessary to effect any such consent, waiver, request or demand
has been obtained.
"INDIRECT PARTICIPANT" shall mean any financial institution for who many
Direct Participant holds an interest in a Class A Certificate.
"INSURANCE AGREEMENT" shall mean that certain agreement between [the
Certificate Insurer], the Depositor, the Transferor, the Master Servicer,
____________________, as Originator and the Trustee dated as of ___________,
199_.
"INSURANCE PROCEEDS" shall mean proceeds paid by any insurer pursuant to
any insurance policy covering a Mortgage Loan to the extent such proceeds are
not applied to the restoration of the related Mortgaged Property or released
to the related Mortgagor in accordance with Accepted Servicing Practices.
"INSURANCE PROCEEDS" do not include "INSURED PAYMENTS."
["INSURED PAYMENT" shall have the meaning assigned thereto in the
Certificate Insurance Policy.]
"INTEREST COLLECTIONS" shall mean all amounts (including, without
limitation, Monthly Payments (or Periodic Advances in respect thereof) and
Liquidation Proceeds) collected on any Mortgage Loan allocable to interest
pursuant to the terms of the related Mortgage Note, or if no provision for
allocation is made therein, pursuant to the terms hereof.
"INTEREST DETERMINATION DATE" shall mean, with respect to any Accrual
Period applicable to the Class A-1 Certificates, the second LIBOR Business Day
preceding the first day of such Accrual Period.
"INTEREST DISTRIBUTION AMOUNT" shall mean for any Remittance Date, the sum
of the Class A-1 Interest Distribution Amount, the Class A-2 Interest
Distribution Amount, the Class A-3 Interest Distribution Amount and the Class
A-4 Interest Distribution Amount.
"LATE PAYMENT RATE" shall have the meaning assigned thereto in the
Certificate Insurance Agreement.
"LIBOR" shall mean, for any Interest Period other than the first Interest
Period, the rate for United States dollar deposits for one month that appears on
the Telerate Screen Page 3750 as of 11:00 a.m., London, England time, on the
second LIBOR Business Day prior to the first day of such Interest Period. With
respect to the first Interest Period, "LIBOR" shall mean the rate for United
States dollar deposits for one month that appears on the Telerate Screen Page
3750 as of 11:00 a.m., London, England time, two LIBOR Business Days prior to
the Closing Date. If such rate does not appear on such page (or such other page
as may replace such page on such service, or if such service is no longer
offered, such other service for displaying LIBOR or comparable rates as may be
reasonably selected by the Trustee after consultation with the Master Servicer),
the rate will be the Reference Bank Rate. If no such quotations can be obtained
and no Reference Bank Rate is available, LIBOR will be LIBOR applicable to the
preceding Remittance Date.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-1 Certificates for the related Accrual Period shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning the Trustee.
"LIBOR BUSINESS DAY" shall mean any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in the city of London,
England are required or authorized by law to be closed.
"LIEN" means any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), claim, charge, preference, priority, right, interest or
other security agreement or preferential arrangement of any kind or nature
whatsoever, including any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financial statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing.
"LIQUIDATED LOAN LOSS" shall mean, with respect to any Remittance Date, the
aggregate of the amount of losses with respect to each Mortgage Loan which
became a Liquidated Mortgage Loan in the Due Period prior to such Remittance
Date, equal to the excess of (i) the unpaid principal balance of each such
Liquidated Mortgage Loan, plus accrued interest thereon in accordance with the
amortization schedule at the time applicable thereto at the applicable Mortgage
Interest Rate from the Due Date as to which interest was last paid with respect
thereto through the last day of the month in which such Mortgage Loan became a
Liquidated Mortgage Loan, over (ii) Net Liquidation Proceeds with respect to
such Liquidated Mortgage Loan.
"LIQUIDATED MORTGAGE LOAN" shall mean a Mortgage Loan (i) with respect to
which the related Mortgaged Property has been acquired, liquidated and/or
foreclosed upon by the Master Servicer or (ii) which the Master Servicer has
elected to write down the outstanding Principal Balance of such Mortgage Loan
that has been delinquent for a period equal to or greater than 270 days to zero
and, in either case, with respect to which the Master Servicer determines that
all Liquidation Proceeds which it expects to recover have been recovered.
"LIQUIDATION EXPENSES" shall mean expenses incurred by the Master Servicer
in connection with the liquidation of any defaulted Mortgage Loan, REO Mortgage
Loan or REO Property (including, without limitation, legal fees and expenses,
committee or referee fees, and, if applicable, brokerage commissions and
conveyance taxes), any unreimbursed amount expended by the Master Servicer
pursuant to Sections 5.5, 5.6 and 5.12 respecting the related Mortgage Loan and
any unreimbursed expenditures for real property taxes or for property
restoration or preservation of the related Mortgaged Property. Liquidation
Expenses shall not include any previously incurred expenses in respect of an REO
Mortgage Loan which have been netted against related REO Proceeds.
"LIQUIDATION PROCEEDS" shall mean amounts received (or, in the case of
Liquidated Mortgage Loans written-down by the Master Servicer, amounts
deposited) by the Master Servicer (including Insurance Proceeds) in connection
with the liquidation of defaulted or written-down Mortgage Loans or property
acquired in respect thereof, whether through foreclosure, sale or otherwise,
including payments in connection with such Mortgage Loans received from the
Mortgagor, other than amounts required to be paid to the Mortgagor pursuant to
the terms of the applicable Mortgage or to be applied otherwise pursuant to law.
"LOAN REPURCHASE PRICE" shall have the meaning defined in Section 2.4(c).
"MAJORITY CERTIFICATEHOLDERS" shall mean the Holder or Holders of Class A
Certificates evidencing an undivided beneficial ownership interest in the Class
A Certificates in excess of 50% in the aggregate.
"MASTER SERVICER" shall mean ___________________, an ___________________,
or any successor appointed as herein provided.
"MASTER SERVICER ACCOUNT" shall mean the account created and maintained
pursuant to Section 5.7.
"MASTER SERVICER EMPLOYEES" shall have the meaning as defined in Section
5.8 hereof.
"MASTER SERVICER REMITTANCE AMOUNT" shall mean, with respect to any
Determination Date, an amount equal to the sum of (i) all unscheduled
collections of principal and interest on the Mortgage Loans (including Principal
Prepayments and any prepayment penalties received in connection with such
Principal Prepayments or Curtailments, Net REO Proceeds and Net Liquidation
Proceeds, if any, and any amounts deposited in the Collection Account or
Certificate Account in connection with are purchase of the Mortgage Loans)
collected by the Master Servicer during the Due Period and all scheduled Monthly
Payments due on the Mortgage Loans on the Due Date and received by the Master
Servicer on or prior to the _____ Business Day preceding the related
Determination Date, plus (ii) all Periodic Advances made by the Master Servicer
with respect to payments due to be received on the Mortgage Loans on the related
Due Date plus (iii) the amount of Compensating Interest due with respect to
Mortgage Loans with respect to the related Due Period, plus (iv) any other
amounts required to be placed in the Collection Account with respect to Mortgage
Loans by the Master Servicer pursuant to this Pooling and Servicing Agreement
but excluding, without duplication, the following:
(a) amounts received on a particular Mortgage as late payments of principal
or interest and respecting which the Master Servicer has previously made an
unreimbursed Periodic Advance;
(b) the portion of Liquidation Proceeds used to reimburse any unreimbursed
Periodic Advances by the Master Servicer;
(c) those portions of each payment of interest on a particular Mortgage
Loan which represent the Servicing Fee;
(d) that portion of Liquidation Proceeds and REO Proceeds which represents
any unpaid Servicing Fee;
(e) all income from Permitted Investments that is held in the Collection
Account for the account of the Master Servicer;
(f) all amounts in respect of late fees, assumption fees, fees associated
with prepayments other than prepayment penalties, demand statement fees,
reconveyance and recording fees and other service related fees;
(g) all other amounts which are explicitly reimbursable to the Master
Servicer hereunder with respect to the Mortgage Loans, including (1) as provided
in Section 5.4 hereof; and (2) any unreimbursed and accrued Liquidation
Expenses; and
(h) the portion of Net Foreclosure Profits representing any unpaid
Servicing Fee.
"MASTER SERVICER TERMINATION DELINQUENCY RATE TRIGGER" shall have the
meaning assigned thereto in the Insurance Agreement.
"MASTER SERVICER TERMINATION LOSS TRIGGER" shall have the meaning
assigned thereto in the [Insurance Agreement.]
"MATURITY DATE" shall mean the latest possible maturity date as defined in
Section 1.860G-1(a)(4)(iii) of the proposed Treasury regulations, by which the
Certificates representing a regular interest in the 199_ - _ REMIC would be
reduced to zero as determined under a hypothetical scenario that assumes, among
other things, that (i) scheduled interest and principal payments on the Mortgage
Loans are received in a timely manner, with no delinquencies or losses, (ii)
there are no principal prepayments on the Mortgage Loans, (iii) the Transferor
and the Master Servicer will not repurchase any Mortgage Loan and neither the
Transferor, the Master Servicer [nor the Certificate Insurer] will exercise its
option to purchase the Mortgage Loans and thereby cause a termination of the
199_ - _ REMIC, and (iv) certain of the Mortgage Loans have an original term to
maturity of up to 360 months and, on a latest maturing loan basis, a remaining
term to maturity of up to 360 months.
"MONTHLY PAYMENT" shall mean, as to any Mortgage Loan (including any REO
Mortgage Loan) and any Due Date, the scheduled payment of principal and interest
due thereon by such Due Date (after adjustment for any Curtailments and
Deficient Valuations occurring prior to such Due Date but before any adjustment
to such amortization schedule by reason of any bankruptcy, other than Deficient
Valuations or similar proceeding or any moratorium or similar waiver or grace
period).
"MORTGAGE" shall mean the mortgage, deed of trust or other instrument
creating a lien on the Mortgaged Property to secure the Mortgage Loan.
"MORTGAGE DOCUMENTS" shall mean the documents described in Section 2.3
hereof or on Exhibit C required to be contained in a Mortgage File.
"MORTGAGE FILE" shall include the Mortgage Loan documents described in
Section 2.3 hereof and such documents as are applicable from those listed on
Exhibit C attached hereto.
"MORTGAGE INTEREST RATE" shall mean, as to any Mortgage Loan, the per annum
rate at which interest accrues on the unpaid principal balance thereof as set
forth in the related Mortgage Note.
"MORTGAGE LOAN" shall mean (i) each fixed rate, closed end mortgage loan
identified on the Mortgage Loan Schedule on the Closing Date secured by alien on
the related Mortgaged Property, (ii) any additional fixed rate, closed end
mortgage loans identified on the Mortgage Loan Schedule after the Closing Date,
as such schedule is amended and supplemented from time to time to reflect the
deletion of the Deleted Mortgage Loans and the substitution of Qualified
Substitute Mortgage Loans for Deleted Mortgage Loans, (iii) each Mortgage Note
evidencing any loan referred to in (i) or (ii) above, including all amounts now
or hereafter due under such Mortgage Notes, whether relating to such loans or
other loans which may be made from time to time, and (iv) the related Mortgage.
Unless otherwise clearly indicated by the context, Mortgage Loan shall be deemed
to refer to the related REO Mortgage Loan and REO Property.
"MORTGAGE LOAN INTEREST SHORTFALL" shall mean, with respect to any
Remittance Date, as to any Mortgage Loan, any Prepayment Interest Shortfall
for which no payment of Compensating Interest is paid.
"MORTGAGE LOAN SALE AGREEMENT" shall mean the Mortgage Loan Sale Agreement
dated as of __________, 199_, between ____________________, as seller
thereunder, and ____________________, as purchaser thereunder, as such agreement
may be amended, modified or supplemented from time to time.
"MORTGAGE LOAN SCHEDULE" shall mean the list of the Mortgage Loans
transferred to the Trustee on the Closing Date as part of the Trust Fund and
attached hereto as Exhibit D (and also provided to the Certificate Insurer and
the Trustee on a computer readable magnetic tape or disk). The Mortgage Loan
Schedule shall set forth at a minimum the following information as to each
Mortgage Loan:
(a) the Mortgage Loan identifying number;
(b) the Principal Balance of the Mortgage Loan;
(c) the city, state and ZIP code of the Mortgaged Property;
(d) the type of property;
(e) the current Monthly Payment as of the Cut-Off Date;
(f) the original number of months to maturity;
(g) the scheduled maturity date;
(h) the Combined Loan-to-Value Ratio as of the Cut-Off Date;
(i) the Mortgage Interest Rate as of the Cut-Off Date;
(j) the Appraised Value;
(k) the documentation type (as described in the Underwriting
Guidelines); and
(l) the loan classification (as described in the Underwriting
Guidelines).
Such "MORTGAGE LOAN SCHEDULE" may consist of multiple reports that collectively
set forth all of the information required, including the aggregate number of
Mortgage Loans and the Aggregate Principal Balance as of the Cut-Off Date. In
addition, a summary of the information regarding the Mortgage Loans shall be
included as a part of the Mortgage Loan Schedule which summary shall include
such consolidated and aggregated information as may be requested by the Trustee
[or the Certificate Insurer] from time to time.
"MORTGAGE NOTE" shall mean the original, executed note, loan agreement or
other evidence of indebtedness evidencing the indebtedness of a Mortgagor under
a Mortgage Loan.
"MORTGAGED PROPERTY" shall mean the underlying property securing a Mortgage
Loan, consisting of a fee simple estate in a single parcel of land improved by a
Residential Dwelling.
"MORTGAGED PROPERTY STATE" shall mean any state in which any Mortgaged
Property is located.
"MORTGAGOR" shall mean the obligor on a Mortgage Note.
"NET FORECLOSURE PROFITS" shall mean, as to any Remittance Date, the
excess, if any, of (i) the aggregate Foreclosure Profits for such Remittance
Date, over (ii) the Liquidated Loan Loss for such Remittance Date.
"NET LIQUIDATION PROCEEDS" shall mean, as to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses and net of any unreimbursed
Periodic Advances made by the Master Servicer. For all purposes of this
Agreement, Net Liquidation Proceeds shall be allocated first to accrued and
unpaid interest on the related Mortgage Loan and then to the unpaid principal
balance thereof.
"NET REO PROCEEDS" shall mean, as to any REO Mortgage Loan, REO Proceeds
net of any related expenses of the Master Servicer.
"199_ - _REMIC" shall mean the segregated pool of assets in the Trust Fund,
consisting of: (i) the Mortgage Loans which are from time to time subject to
this Agreement, together with the Mortgage Files relating thereto and all
collections thereon and proceeds thereof, (ii) such assets as from time to time
are identified as REO Property of the 199_ - _ REMIC and collections thereon and
proceeds thereof, (iii) assets deposited in the Certificate Account including
any such amounts on deposit in the Certificate Account invested in Permitted
Investments, (iv) the Trustee's rights with respect to the Mortgage Loans under
all insurance policies [(other than the Certificate Insurance Policy)] required
to be maintained pursuant to this Agreement and any Insurance Proceeds, (v)
Liquidation Proceeds, and (vi) Released Mortgaged Property Proceeds.
"NONRECOVERABLE ADVANCE" shall mean, with respect to any Mortgage Loan, (i)
any Periodic Advance previously made and not reimbursed from late collections
pursuant to Section 5.4(b), or (ii) a Periodic Advance proposed to be made in
respect of a Mortgage Loan or REO Property either of which, in the good faith
business judgment of the Master Servicer, as evidenced by an Officer's
Certificate delivered to [the Certificate Insurer and] the Trustee no later than
the Business Day following such determination, would not be ultimately
recoverable pursuant to Section 5.4.
"NON-UNITED STATES PERSON" shall mean any Person other than a United
States Person.
"OFFICER'S CERTIFICATE" shall mean a certificate signed by the Chairman of
the Board, the President or a Vice President and the Treasurer, the Secretary or
one of the Assistant Treasurers or Assistant Secretaries of the Transferor
and/or the Master Servicer, or the Depositor, as required by this Agreement.
"OPINION OF COUNSEL" shall mean a written opinion of counsel, who may,
without limitation, be counsel for the Transferor, the Master Servicer, the
Trustee, a Certificateholder or a Certificateholder's prospective transferee [or
the Certificate Insurer] (including, except as otherwise provided herein,
in-house counsel) reasonably acceptable to each addressee of such opinion and
experienced in matters relating to the subject of such opinion; except that any
opinion of counsel relating to (i) the qualification of the 199_ - _ REMIC as a
REMIC, or (ii) compliance with the REMIC Provisions must bean opinion of counsel
who (a) is in fact independent of the Transferor, the Master Servicer and the
Trustee, (b) does not have any direct financial interest or any material
indirect financial interest in the Transferor or the Master Servicer or the
Trustee or in an Affiliate thereof, (c) is not connected with the Transferor or
the Master Servicer or the Trustee as an officer, employee, director or person
performing similar functions, [and (d) is reasonably acceptable to the
Certificate Insurer.] [The Certificate Insurer shall be an addressee on each
Opinion of Counsel relating to, or otherwise affecting, the Series 199_ - _
Certificates].
"OPTIONAL TERMINATION DATE" shall mean the first date upon which the
Aggregate Principal Balance is less than __% of the Aggregate Principal Balance
as of the Cut-Off Date.
"ORIGINAL CLASS A-1 PRINCIPAL BALANCE" shall mean, as of the Startup Date
and as to the Class A-1 Certificates, $__________.
"ORIGINAL CLASS A-2 PRINCIPAL BALANCE" shall mean, as of the Startup Date
and as to the Class A-2 Certificates, $__________.
"ORIGINAL CLASS A-3 PRINCIPAL BALANCE" shall mean, as of the Startup Date
and as to the Class A-3 Certificates, $__________.
"ORIGINAL CLASS A-4 PRINCIPAL BALANCE" shall mean, as of the Startup Date
and as to the Class A-4 Certificates, $__________.
"ORIGINAL CLASS A-5 PRINCIPAL BALANCE" shall mean, as of the Startup Date
and as to the Class A-1 Certificates, $__________.
"ORIGINATOR" shall mean _____________________, a __________________.
"OUTSTANDING MORTGAGE LOAN" shall mean, as to any Due Date, a Mortgage Loan
(including an REO Mortgage Loan) which has not been paid in full prior to such
Due Date, which did not become a Liquidated Mortgage Loan prior to such Due Date
and which was not repurchased by the Transferor prior to such Due Date pursuant
to Sections 2.4 or 3.3.
"OVERCOLLATERALIZATION AMOUNT" shall mean, with respect to any Remittance
Date, the excess, if any, of (i) the aggregate Principal Balance of all Mortgage
Loans as of the close of business on the last day of the related Due Period over
(ii) (a) the sum of the Class A-1 Principal Balance, Class A-2 Principal
Balance, Class A-3 Principal Balance, Class A-4 Principal Balance and the Class
A-5 Principal Balance as of such Remittance Date (after taking into account
Class A-5 Principal Distribution Amount, other than the Overcollateralization
Increase Amount, for such Remittance Date).
["OVERCOLLATERALIZATION DEFICIENCY AMOUNT" shall mean, with respect to any
date of determination, the excess, if any, of the Overcollateralization Target
Amount over the Overcollateralization Amount.
"OVERCOLLATERALIZATION INCREASE AMOUNT" shall mean the lesser of (i) the
related Excess Spread and (ii) the related Overcollateralization Deficiency
Amount.
"OVERCOLLATERALIZATION TARGET AMOUNT" shall have the meaning assigned
thereto in the Insurance Agreement.
Notwithstanding the above, the Certificate Insurer may, in its sole
discretion, modify the definition of Overcollateralization Target Amount. The
Trustee and the Rating Agencies shall be notified in writing of such
modification prior to the related Remittance Date and any such modification
shall not result in a downgrading of the then-current ratings of any Class A
Certificate without regard to the Certificate Insurance Policy.]
"OWNER-OCCUPIED MORTGAGED PROPERTY" shall mean a Residential Dwelling as to
which (i) the related Mortgagor represented an intent to occupy as such
Mortgagor's primary, secondary or vacation residence at the origination of the
Mortgage Loan, and (ii) the Transferor has no actual knowledge that such
Residential Dwelling is not so occupied.
"OWNERSHIP INTEREST" shall mean, as to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"PERCENTAGE INTEREST" shall mean, with respect to a Class A-1 Certificate,
Class A-2 Certificate, Class A-3 Certificate, Class A-4 Certificate or Class A-5
Certificate, the portion of the total beneficial ownership interest in the
Mortgage Loans evidenced by such Certificate, expressed as a percentage rounded
to four decimal places, equal to a fraction the numerator of which is the
original denomination of such Certificate and the denominator of which is the
Original Class A-1 Principal Balance, the Original Class A-2 Principal Balance,
the Original Class A-3 Principal Balance or the Original Class A-4 Principal
Balance as applicable. With respect to a Class R Certificate, the portion
evidenced thereby as stated on the face of such Certificate.
"PERIODIC ADVANCE" shall mean the aggregate of the advances required to be
made by the Master Servicer on any Determination Date pursuant to Section 5.20
hereof, the amount of any such advances being equal to the sum of: (i) all
Monthly Payments (net of the related Servicing Fee and any amount excluded from
the Master Servicer Remittance Amount pursuant to clauses (a) -(h) of the
definition of "Master Servicer Remittance Amount") on the Mortgage Loans that
are not received by the Master Servicer as of the close of business on the
second Business Day preceding the related Determination Date and have not been
determined by the Master Servicer to be Nonrecoverable Advances, plus (ii) with
respect to each REO Property which was acquired during or prior to the related
Due Period and as to which an REO Disposition did not occur during the related
Due Period, an amount equal to the excess, if any, of (a) interest on the
Principal Balance of the related REO Mortgage Loan at the related Mortgage
Interest Rate, net of the Servicing Fee, for the most recently ended Due Period
for the related Mortgage Loan over (b) the net income from the REO Property
transferred to the Certificate Account for such Remittance Date.
"PRINCIPAL DISTRIBUTION AMOUNT" shall mean, with respect to the Class A-1
Certificates, the Class A-2 Certificates, the Class A-3 Certificates and the
Class A-4 Certificates, for any Remittance Date, the lesser of:
(a) the excess of (1) the sum of the Available Amount, any Excess Spread
and the applicable portion of any Insured Payment over (2) the Interest
Distribution Amount; and
(b) the sum, without duplication, of:
(i) that portion of all scheduled installments of principal in respect of
the Mortgage Loans which is received (or advanced) during the related Due Period
together with all unscheduled recoveries of principal (including Principal
Prepayments, Curtailments and Deficient Valuations) on such Mortgage Loans
actually collected by the Master Servicer during the prior calendar month,
(ii) the Principal Balance of each Mortgage Loan that either was, effective
on such Remittance Date, repurchased by the Transferor or by the Depositor or
purchased by the Master Servicer during the preceding Due Period, but only to
the extent the amount equal to such Principal Balance is actually received by
the Trustee,
(iii) any Substitution Adjustment amounts delivered by the Depositor on the
related Remittance Date in connection with a substitution of a Mortgage Loan, to
the extent such Substitution Adjustments are actually received by the Trustee,
(iv) with respect to each Mortgage Loan that became a Liquidated Mortgage
Loan during the prior calendar month, the Principal Balance of such Mortgage
Loan immediately prior to the time when such Mortgage Loan became a Liquidated
Mortgage Loan,
(v) any Overcollateralization Increase Amount,
(vi) to the extent of any Subordination Deficit the excess, if any of the
sum of the Class A-1 Principal Balance, Class A-2 Principal Balance, Class A-3
Principal Balance, Class A-4 Principal Balance and Class A-5 Principal Balance
over the aggregate Principal Balance of the Mortgage Loans,
(vii) the portion of the proceeds relating to the Mortgage Loans received
by the Trust Fund following any termination of the 199_ - _ REMIC carried out in
accordance with a plan of complete liquidation pursuant to Section 8.2 hereof or
pursuant to the optional termination of any of the Trust Fund, the 199_ - _
REMIC Trust Fund by either the Master Servicer [or Certificate Insurer] in
accordance with Section 8.1 hereof, up to the then outstanding Class A-1
Principal Balance, Class A-2 Principal Balance, Class A-3 Principal Balance
and/or Class A-4 Principal Balance, as applicable minus
(viii) any Overcollateralization Release Amount.
"PRINCIPAL PREPAYMENT" shall mean any payment or other recovery of
principal on a Mortgage Loan equal to the outstanding Principal Balance thereof,
received in advance of the final scheduled Due Date which is not intended as an
advance payment of a Scheduled Monthly Payment.
"PROPORTIONAL SHARE" shall mean, (a) the sum of the Class A-1 Principal
Balance, Class A-2 Principal Balance, Class A-3 Principal Balance, Class A-4
Principal Balance and the Class A-5 Principal Balance divided by (b) the
Certificate Principal Balance.
"PROSPECTUS SUPPLEMENT" shall mean the Prospectus Supplement dated
__________, 199_, as amended and supplemented, relating to the Class A
Certificates and filed with the Commission in connection with the Registration
Statement heretofore filed or to be filed with the Commission pursuant to Rule
424(b)(2) or 424(b)(5).
"PURCHASE AND SALE AGREEMENT" shall mean the Purchase and Sale Agreement,
dated as of the date hereof, between the Transferor and the Depositor and
relating to the sale of the Mortgage Loans to the Depositor.
"QUALIFIED APPRAISER" shall mean an appraiser, duly appointed by the Master
Servicer, who had no interest, direct or indirect, in the Mortgaged Property or
in any loan made on the security thereof, and whose compensation is not affected
by the approval or disapproval of the Mortgage Loan, and such appraiser and the
appraisal made by such appraiser both satisfy the requirements of Title XI of
the Federal Institutions Reform, Recovery and Enforcement Act of 1989 and the
regulations promulgated thereunder, all as in effect on the date the Mortgage
Loan was originated.
"QUALIFIED MORTGAGE" shall have the meaning set forth from time to time in
the definition of "Qualified Mortgage" at Section 860G(a)(3) of the Code (or any
successor statute thereto).
"QUALIFIED SUBSTITUTE MORTGAGE LOAN" shall mean a mortgage loan or mortgage
loans which (i) has an interest rate at least equal to the Deleted Mortgage Loan
for which it is to be substituted (ii) relates or relate to a detached
one-family residence or to the same type of Residential Dwelling as the Deleted
Mortgage Loan for which it is to be substituted and in each case has or have the
same occupancy status or is an Owner-Occupied Mortgaged Property, (iii) matures
or mature no later than (and not more than one year earlier than) the Deleted
Mortgage Loan for which it is to be substituted, (iv) has or have a Combined
Loan-to-Value Ratio or Combined Loan-to-Value Ratios at the time of such
substitution no higher than the Combined Loan-to-Value Ratio of the Deleted
Mortgage Loan for which it is to be substituted, (v) has or have a principal
balance or principal balances (after application of all payments received on or
prior to the date of substitution) not substantially less and not more than the
Principal Balance of the Deleted Mortgage Loan for which it is to be substituted
as of such date, (vi) satisfies or satisfy the criteria set forth from time to
time in the definition of "qualified replacement mortgage" at Section 860G(a)(4)
of the Code (or any successor statute thereto), (vii) has or have an applicable
borrower or borrowers with the same or better traditionally ranked credit status
as the borrower or borrowers under the Deleted Mortgage Loan for which it is to
be substituted, and (viii) complies or comply as of the date of substitution
with each representation and warranty set forth in Sections 3.1 and 3.2 of the
Purchase and Sale Agreement.
"RATING AGENCY" shall mean _______ or _______.
"RECORD DATE" shall mean, with respect to any Remittance Date other than
the initial Remittance Date, the close of business on the ____ day of the
calendar month immediately preceding the month in which such Remittance Date
occurs and with respect to the initial Remittance Date, the Closing Date.
"REFERENCE BANK RATE" shall mean, with respect to any Interest Period, as
follows: the arithmetic mean (rounded upwards, if necessary, to the nearest one
sixteenth of one percent) of the offered rates for United States dollar deposits
for one month which are offered by the Reference Banks as of 11:00 a.m., London,
England time, on the second LIBOR Business Day prior to the first day of such
Interest Period to prime banks in the London interbank market for a period of
one month in amounts approximately equal to the then outstanding Certificate
Principal Balance; provided, that at least two such Reference Banks provide such
rate. If fewer than two offered rates appear, the Reference Bank Rate will be
the arithmetic mean of the rates quoted by one or more major banks in New York
City, selected by the Trustee after consultation with the Master Servicer, as of
11:00 a.m., New York time, on such date for loans in U.S. Dollars to leading
European Banks for a period of one month in amounts approximately equal to the
then outstanding Certificate Principal Balance. If no such quotations can be
obtained, the Reference Bank Rate will be the Reference Bank Rate applicable to
the preceding Interest Period.
"REFERENCE BANKS" shall mean Bankers Trust Company, Barclay's Bank PLC, The
Bank of Tokyo and National Westminster Bank PLC; PROVIDED that if any of the
foregoing banks are not suitable to serve as a Reference Bank, then any leading
banks selected by the Trustee which are engaged in transactions in Eurodollar
deposits in the international Eurocurrency market (i) with an established place
of business in London, (ii) not controlling, under the control of or under
common control with the Depositor or any affiliate thereof, (iii) whose
quotations appear on the Reuters Screen LIBO Page on the relevant Interest
Determination Date and (iv) which have been designated as such by the Trustee
after consultation with the Master Servicer.
["REIMBURSEMENT AMOUNT" shall mean, as of any Remittance Date, the sum of
(i) all Insured Payments previously paid by the Certificate Insurer and in each
case not previously repaid to the Certificate Insurer pursuant to Section
6.5(a)(vii) or 6.5(b)(vii) hereof plus (ii) interest accrued on such Insured
Payments not previously repaid calculated at the Late Payment Rate from the date
such Insured Payment was paid, plus (iii) any amounts then due and owing to the
Certificate Insurer under the Certificate Insurance Agreement, as certified to
the Trustee by the Certificate Insurer, plus (iv) interest on such amounts at
the Late Payment Rate. The Certificate Insurer shall notify the Trustee and the
Depositor of the amount of any Reimbursement Amount.]
"RELEASED MORTGAGED PROPERTY PROCEEDS" shall mean, as to any Mortgage Loan,
proceeds received by the Master Servicer in connection with (i) a taking of an
entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (ii) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise;
which are not released to the Mortgagor in accordance with applicable law,
Accepted Servicing Practices and this Agreement.
"REMIC" shall mean a "real estate mortgage investment conduit "within the
meaning of Section 860D of the Code.
"REMIC CHANGE OF LAW" shall mean any proposed, temporary or final
regulation, revenue ruling, revenue procedure or other official announcement or
interpretation relating to the REMIC and the REMIC Provisions issued after the
Closing Date.
"REMIC PROVISIONS" shall mean provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter I of the Code, and related
provisions, and temporary and final regulations promulgated thereunder and
published rulings, notices and announcements, as the foregoing may be in effect
from time to time.
"REMITTANCE DATE" shall mean the ____ day of any month or if such ____ day
is not a Business Day, the first Business Day immediately following, commencing
on ________, 199_
"REO DISPOSITION" shall mean the final sale by the Master Servicer of a
Mortgaged Property acquired by the Master Servicer in foreclosure or by deed in
lieu of foreclosure.
"REO MORTGAGE LOAN" shall mean any Mortgage Loan that is not a Liquidated
Mortgage Loan and as to which the indebtedness evidenced by the related Mortgage
Note is discharged and the related Mortgaged Property is held as part of the
Trust Fund.
"REO PROCEEDS" shall mean proceeds received in respect of any REO Mortgage
Loan (including, without limitation, proceeds from the rental of the related
Mortgaged Property).
"REO PROPERTY" shall have the meaning described in Section 5.12.
"REPRESENTATION LETTER" shall mean letters to, or agreements with, the
Depository to effectuate a book entry system with respect to the Class A
Certificates registered in the Certificate Register under the nominee name of
the Depository.
"REQUEST FOR RELEASE" shall mean a request for release in substantially the
form attached as Exhibit H hereto.
"RESERVE INTEREST RATE" shall mean, with respect to any Interest
Determination Date, the rate per annum that the 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 U.S. dollar lending rates which New York
City banks selected by the 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 Trustee can determine no
such arithmetic mean, the lowest one-month U.S. dollar lending rate which New
York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"RESIDENTIAL DWELLING" shall mean a one- to four-family dwelling, a unit in
a planned unit development, a unit in a condominium development, a townhouse or
a manufactured housing unit.
"RESPONSIBLE OFFICER" shall mean, when used with respect to the Trustee,
any officer assigned to the Corporate Trust Division (or any successor thereto),
including any Vice President, Senior Trust Officer, Trust Officer, Assistant
Trust Officer, any Assistant Secretary, any trust officer or any other officer
of the Trustee customarily performing functions similar to those performed by
any of the above designated officers and to whom, with respect to a particular
matter, such matter is referred because of such officer's knowledge of and
familiarity with the particular subject. When used with respect to the
Transferor or the Master Servicer, the President or any Vice President,
Assistant Vice President, or any Secretary or Assistant Secretary.
"SERIES" shall mean any designated Series of certificates issued hereunder
and governed by this Agreement. When used herein, "this Series" shall refer to
the _______ Home Equity Asset Backed Certificates, Series 199_ - _.
"SERVICING ADVANCES" shall mean all reasonable and customary
"out-of-pocket" costs and expenses incurred in the performance by the Master
Servicer of its servicing obligations, including, but not limited to, the cost
of (i) the preservation, restoration and protection of the Mortgaged Property,
(ii) any enforcement proceedings, including foreclosures, (iii) expenditures
relating to the purchase or maintenance of a first or second lien not included
in the Trust Fund on the Mortgaged Property, (iv) the management and liquidation
of the REO Property, including reasonable fees paid to any independent
contractor in connection therewith, (v) compliance with the obligations
(including indemnification obligations) under Sections 5.2 (limited solely to
the reasonable and customary out-of-pocket expenses of the Subservicer), 5.5,
5.6 or 5.9, all of which reasonable and customary out-of-pocket costs and
expenses are reimbursable to the Master Servicer to the extent provided in
Section 5.4(a).
"SERVICING COMPENSATION" shall mean the Servicing Fee and other amounts to
which the Master Servicer is entitled pursuant to Section 5.14.
"SERVICING FEE" shall mean, as to each Mortgage Loan, the annual fee
payable to the Master Servicer, which is calculated as an amount equal to the
product of (i) 0.50% per annum in the case of any Mortgage Loan that is first
priority Mortgage Loan as of the Cut-Off Date and ____% in the case of any other
Mortgage Loan, or up to ____% or ____% respectively in the event that
____________________ is succeeded by the Trustee or any other successor Master
Servicer appointed as herein provided, and (ii) the Principal Balance thereof.
Such fee shall be calculated and payable monthly only on amounts actually
received in respect of interest on such Mortgage Loan and shall be computed on
the basis of the same principal amount and for the period respecting which any
related interest payment on a Mortgage Loan is computed. The Servicing Fee
includes any servicing fees owed or payable to any Subservicer.
"SERVICING OFFICER" shall mean any officer of the Master Servicer or the
Originator involved in, or responsible for, the administration and servicing of
the Mortgage Loans whose name and specimen signature appear on a list of
servicing officers furnished to the Trustee [and the Certificate Insurer] by the
Master Servicer, as such list may from time to time be amended.
"STARTUP DATE" shall mean the day designated as such pursuant to Section
2.5 hereof.
"SUBORDINATION DEFICIT" shall mean, with respect to any Remittance Date,
the excess, if any, of (i) the aggregate of the Certificate Principal Balance on
such Remittance Date, after taking into account the payment of the Principal
Distribution Amount on such Remittance Date [(except for amounts payable under
the Certificate Insurance Policy)] over (ii) the Aggregate Principal Balance as
of the end of the related Due Period.
"SUBSERVICER" shall mean any Person with whom the Master Servicer has
entered into a Subservicing Agreement and who satisfies the requirements set
forth in Section 5.2(a) hereof in respect of the qualification of a Subservicer.
"SUBSERVICING AGREEMENT" shall mean any agreement between the Master
Servicer and any Subservicer relating to subservicing and/or administration of
certain Mortgage Loans as provided in Section 5.2(b), a copy of which shall be
delivered, along with any modifications thereto, to the Trustee and the
Certificate Insurer.
"SUBSTITUTION ADJUSTMENT" shall mean, as to any date on which a
substitution occurs pursuant to Section 2.4 or 3.3, the amount (if any) by which
the aggregate principal balances (after application of principal payments
received on or before the date of substitution of any Qualified Substitute
Mortgage Loans as of the date of substitution) are less than the aggregate of
the Principal Balances of the related Deleted Mortgage Loans together with 30
days' interest thereon at the Mortgage Interest Rate.
"TAX MATTERS PERSON" shall mean the Person or Persons appointed pursuant to
Section 10.15 from time to time to act as the "tax matters person" (within the
meaning of the REMIC Provisions) of the 199_ - _ REMIC.
"TAX RETURN" shall mean the federal income tax return on Internal Revenue
Service Form 1066, "U.S. Real Estate Mortgage Investment Conduit Income Tax
Return," including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provision of federal, state or local tax laws.
"TELERATE PAGE 3750" shall mean the display page so designated on the
Bridge Telerate Service (or such other page as may replace page 3750 on such
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace such page on such service, or if such service is no longer offered, such
other service for displaying LIBOR or comparable rates as may be selected by the
Issuer after consultation with the Trustee), the rate will be the Reference Bank
Rate.
"TRANSFER" shall mean any direct or indirect transfer, sale, pledge,
hypothecation or other form of assignment of any Ownership Interest in a
Certificate.
"TRANSFER AFFIDAVIT AND AGREEMENT" shall have the meaning as defined in
Section 4.2(i)(ii).
"TRANSFEREE" shall mean any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"TRANSFEROR" shall mean ____________________, a Delaware corporation.
"TRUST" shall mean _______ Home Equity Trust 199_ - _, the trust created
hereunder.
"TRUST FUND" shall mean (i) each Mortgage transferred to the Trust pursuant
to the provisions hereof, (ii) all rights of or assigned to the Depositor under
the Purchase and Sale Agreement (and exclusive of any of its obligations), (iii)
such assets as from time to time are identified as REO Property and collections
thereon and proceeds thereof, (iv) all assets deposited in the Accounts,
including any amounts on deposit in the Collection Account, the Trustee
Collection Account, and the Certificate Account and all amounts in the Accounts
invested in Permitted Investments, (v) the Trustee's rights with respect to the
Mortgage Loans under all insurance policies (other than the Certificate
Insurance Policy) required to be maintained pursuant to this Agreement and any
Insurance Proceeds, (vi) all Liquidation Proceeds and (vii) all Released
Mortgaged Property Proceeds and (viii) all rights against the Transferor arising
under the Purchase and Sale Agreement.
"TRUSTEE" shall mean _____________________, or its successor in interest,
or any successor trustee appointed as herein provided.
"TRUSTEE COLLECTION ACCOUNT" shall mean any Eligible Account established
and maintained by the Trustee for the benefit of the Certificateholders pursuant
to Section 5.3(a) hereof.
"TRUSTEE FEE" shall mean, as to any Remittance Date, the fee payable to the
Trustee in respect of its services as Trustee that accrues at a monthly rate
equal to 1/12 of _____% of the Certificate Principal Balance as of such
Remittance Date together with its out-of-pocket expenses, including, without
limitation, any costs or expenses associated with the complete transfer of all
servicing data and the completion, correction or manipulation of such servicing
data as may be required by the Trustee to correct any errors or insufficiencies
in the servicing data or otherwise enable the Trustee to service the Mortgage
Loans properly and effectively.
"TRUSTEE'S MORTGAGE FILE" shall mean the documents delivered to the Trustee
or its designated agent pursuant to Section 2.3.
"TRUSTEE'S REMITTANCE REPORT" shall have the meaning as defined in
Section 6.7.
"UNDERWRITER" shall mean PaineWebber Incorporated and ____________________.
"UNDERWRITING GUIDELINES" shall mean the underwriting guidelines of the
Transferor, ____________________ and of the Originator, a copy of which is
attached as an exhibit to the Purchase and Sale Agreement.
"UNITED STATES PERSON" shall mean a beneficial owner of a Certificate that
is for United States federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof (other than a partnership that is not treated as a United
States person under any applicable Treasury regulations), (iii) an estate whose
income is subject to United States federal income tax regardless of its source
or (iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
"UNPAID REO AMORTIZATION" shall mean, as to any REO Mortgage Loan and any
month, the aggregate of the installments of principal and accrued interest
deemed to be due in such month and in any prior months that remain unpaid,
calculated in accordance with Section 5.12.
"WEIGHTED AVERAGE RATE CAP" shall mean with respect to the Class A-1
Certificates, on any Remittance Date, that maximum interest rate computed to
equal one-twelfth the weighted average Mortgage Interest Rate for the Mortgage
Loans, net of the [Premium Percentage and] the rates at which the Servicing Fee
and the Trustee's Fee are calculated.
Section 1.2 PROVISIONS OF GENERAL APPLICATION.
(a) All accounting terms not specifically defined herein shall be construed
in accordance with generally accepted accounting principles.
(b) The terms defined in this Article include the plural as well as the
singular.
(c) The words "herein," "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole. All references to Articles and
Sections shall be deemed to refer to Articles and Sections of this Agreement.
(d) Reference to statutes are to be construed as including all statutory
provisions consolidating, amending or replacing the statute to which reference
is made and all regulations promulgated pursuant to such statutes.
(e) All calculations of interest relating to the Class A-1 Certificates
(other than with respect to the Mortgage Loans, or as otherwise specifically set
forth herein) provided for herein shall be made on the basis of actual days
elapsed divided by a year comprised of 360 days. All calculations of interest
relating to the Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates or Class A-5 Certificates (other than with respect to the Mortgage
Loans, or as otherwise specifically set forth herein) provided for herein, shall
be made on the basis of an assumed year of 360 days consisting of twelve 30 day
months. All calculations of interest with respect to any Mortgage Loan provided
for herein shall be made in accordance with the terms of the related Mortgage
Note and Mortgage or, if such documents do not specify the basis upon which
interest accrues thereon, on the basis of dividing actual days elapsed by a 365
day year.
(f) Any Mortgage Loan payment is deemed to be received on the date such
payment is actually received by the Master Servicer; PROVIDED, HOWEVER, that for
purposes of calculating distributions on the Certificates prepayments with
respect to any Mortgage Loan are deemed to be received on the date they are
applied in accordance with customary servicing practices consistent with the
terms of the related Mortgage Note and Mortgage to reduce the outstanding
principal balance of such Mortgage Loan on which interest accrues.
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<PAGE>
ARTICLE II
ESTABLISHMENT OF THE TRUST;
SALE AND CONVEYANCE OF TRUST FUND
Section 2.1 SALE AND CONVEYANCE OF TRUST FUND; PRIORITY AND SUBORDINATION
OF OWNERSHIP INTERESTS; ESTABLISHMENT OF THE TRUST.
(a) The Depositor does hereby sell, transfer, assign, set over and convey
to the Trust for the benefit of the Certificateholders [and the Certificate
Insurer] without recourse but subject to the provisions in this Section 2.1 and
the other terms and provisions of this Agreement, all of the right, title and
interest of the Depositor in and to the Trust Fund, exclusive of the obligations
of the Depositor, Transferor or any other party with respect to the Mortgage
Loans. In connection with such transfer and assignment, and pursuant to Section
2.5 of the Purchase and Sale Agreement, the Depositor does hereby also
irrevocably transfer, assign, set over and otherwise convey to the Trustee all
of its rights (exclusive of its obligations) under the Purchase and Sale
Agreement, including, without limitation, its right to exercise the remedies
created by Section 3.4 of the Purchase and Sale Agreement for breaches of
representations and warranties, agreements and covenants of the Transferor
contained in Sections 3.1 and 3.2 of the Purchase and Sale Agreement.
(b) The rights of the Certificateholders to receive payments with respect
to the Mortgage Loans in respect of the Certificates and all ownership interests
of the Certificateholders, shall be as set forth in this Agreement. In this
regard, all rights of the Class R Certificateholders to receive payments in
respect of the Class R Certificates, are subject and subordinate to the
preferential rights of the Class A Certificateholders to receive payments in
respect of the Class A Certificates and to the Certificate Insurer's rights to
receive the Reimbursement Amount.
(c) The Depositor does hereby establish, pursuant to the further provisions
of this Agreement and the laws of the State of New York, an express trust to be
known, for convenience, as "_______ HOME EQUITY TRUST 199_ - _" and does hereby
appoint ____________________ as Trustee in accordance with the provisions of
this Agreement.
Section 2.2 POSSESSION OF MORTGAGE FILES; ACCESS TO MORTGAGE FILES.
(a) Upon the issuance of the Certificates, the ownership of each Mortgage
Note, the Mortgage and the contents of the related Mortgage File related to each
Mortgage Loan shall be vested in the Trustee for the benefit of the
Certificateholders [and the Certificate Insurer, as their respective interests
may appear].
(b) Pursuant to Section 2.4 of the Mortgage Loan Sale Agreement,
____________________ has delivered or caused to be delivered the Trustee's
Mortgage File related to each Mortgage Loan to the Trustee.
(c) The Trustee may enter into a custodial agreement pursuant to which the
Trustee will appoint a custodian (a "CUSTODIAN") to hold the Mortgage Files in
trust for the benefit of the Trustee; PROVIDED, HOWEVER, that the custodian so
appointed shall in no event be the Depositor, the Transferor or the Master
Servicer or any Person known to a Responsible Officer of the Trustee to be an
Affiliate of any of them.
(d) The Custodian shall afford the Depositor[, the Certificate Insurer and]
the Master Servicer reasonable access to all records and documentation regarding
the Mortgage Loans relating to this Agreement, such access being afforded at
customary charges, upon reasonable request and during normal business hours at
the offices of the Custodian.
Section 2.3 DELIVERY OF MORTGAGE LOAN DOCUMENTS.
(a) In connection with each conveyance pursuant to Section 2.1 or 2.2
hereof, the Depositor has delivered or does hereby agree to deliver or cause to
be delivered to the Trustee [the Certificate Insurance Policy and] each of the
following documents for each Mortgage Loan sold by the Transferor to the
Depositor and sold by the Depositor to the Trust Fund:
(i)The original Mortgage Note, endorsed by the holder of record
without recourse in the following form: "Pay to the order of ___________,
without recourse" and signed by manual or facsimile signature in the name
of an authorized officer of the holder of record, ____________________,
and if by the Transferor, by an authorized officer;
(ii) The original Mortgage with evidence of recording indicated
thereon; PROVIDED, HOWEVER, that if such Mortgage has not been returned
from the applicable recording office, then such recorded Mortgage shall be
delivered when so returned;
(iii) An assignment of the original Mortgage, in suitable form
for recordation in the jurisdiction in which the related Mortgaged
Property is located, in the name of the holder of record of the Mortgage
Loan by an authorized officer (with evidence of submission for recordation
of such assignment in the appropriate real estate recording office for
such Mortgaged Property to be received by the Trustee within 60 days of
the Closing Date); PROVIDED, HOWEVER, that Assignments of Mortgages shall
not be required to be submitted for recording with respect to any Mortgage
Loan which relates to the Trustee's Mortgage File if the Trustee, each of
the Rating Agencies [and the Certificate Insurer] shall have received an
opinion of counsel satisfactory to the Trustee, each of the Rating
Agencies [and the Certificate Insurer] stating that, in such counsel's
opinion, the failure to record such Assignment of Mortgage shall not have
a materially adverse effect on the security interest of the Trustee in the
Mortgage); PROVIDED, further, that any Assignment of Mortgage for which an
opinion has been delivered shall be recorded by the Master Servicer upon
the earlier to occur of (a) receipt by the Trustee of the Certificate
Insurer's written direction to record such Mortgage, (b) the occurrence of
any Event of Default, as such term is defined in this Agreement, or (c) a
bankruptcy or insolvency proceeding involving the Mortgagor is initiated
or foreclosure proceedings are initiated against the Mortgaged Property as
a consequence of an event of default under the Mortgage Loan; PROVIDED,
HOWEVER, that if the related Mortgage has not been returned from the
applicable recording office within 120 days of the Closing Date, then such
assignment shall be delivered when so returned (and a blanket assignment
with respect to each unrecorded Mortgage shall be delivered on the Closing
Date);
(iv) Any recorded intervening Assignments of the Mortgage with
evidence of recording thereon; and
(v)Any assumption, modification, consolidation or extension
agreements;
PROVIDED, HOWEVER, that in the case of any Mortgage Loans which have been
prepaid in full after the Cut-Off Date and prior to the date of the execution of
this Agreement, the Depositor, in lieu of delivering the above documents, hereby
delivers to the Trustee a certification of an officer of the Transferor of the
nature set forth in Exhibit M attached hereto; and PROVIDED, FURTHER, however,
that as to certain Mortgages or assignments thereof which have been delivered or
are being delivered to recording offices for recording and have not been
returned to the Transferor in time to permit their delivery hereunder at the
time of such transfer, in lieu of delivering such original documents, the
Depositor is delivering to the Trustee a true copy thereof with a certification
by the Transferor on the face of such copy substantially as follows: "certified
true and correct copy of original which has been transmitted for recordation."
The Transferor has agreed pursuant to the Purchase and Sale Agreement that it
will deliver such original documents on behalf of the Depositor to the Trustee
promptly after they are received, and no later than 90 days after the Closing
Date; PROVIDED, HOWEVER, that in those instances where the public recording
office retains the original Mortgage or Assignment of Mortgage after it has been
recorded or such original document has been lost by the recording office, the
Transferor shall be deemed to have satisfied its obligations hereunder if it
shall have delivered to the Trustee a copy of such original Mortgage or
Assignment of Mortgage certified by the public recording office to be a true
copy of the recorded original thereof. The Transferor has agreed pursuant to the
Purchase and Sale Agreement, at its own expense, to record (or to provide the
Trustee with evidence of recordation thereof) each assignment within 60 days of
the Closing Date in the appropriate public office for real property records,
provided that such assignments are redelivered by the Trustee to the Transferor
upon the Transferor's written request and at the Transferor's expense, unless
the Transferor (at its expense) furnishes to the Trustee[, [the Certificate
Insurer] and the Rating Agencies an unqualified Opinion of Counsel reasonably
acceptable to the Trustee to the effect that recordation of such assignment is
not necessary under applicable state law to preserve the Trustee's interest in
the related Mortgage Loan against the claim of any subsequent transferee of such
Mortgage Loan or any successor to, or creditor of, the Transferor.
On or prior to the Closing Date the Master Servicer, at its own expense
shall complete the endorsement of each Mortgage Note such that the final
endorsement appears in the following form:
"Pay to the order of _________, without recourse, ______________________."
The Master Servicer, at its own expense shall also complete each Assignment
of Mortgage either in blank or such that the final Assignment of Mortgage
appears in the following form:
"____________________, as Trustee for _______ Home Equity Trust 199_
- _ formed pursuant to the Pooling and Servicing Agreement dated as
of __________, 199_, among PaineWebber Mortgage Acceptance
Corporation IV as Depositor, ____________________, as Transferor,
____________________, as Master Servicer and ____________________,
as Trustee"
(b) Without diminution of the requirements of Sections 2.2(c) and this
Section 2.3, all original documents relating to the Mortgage Loans that are not
delivered to the Trustee are and shall be delivered to the Master Servicer by
the Transferor on behalf of the Depositor pursuant to the Purchase and Sale
Agreement, and shall be held by the Master Servicer in trust for the benefit of
the Trustee on behalf of the Certificateholders and the Certificate Insurer. In
the event that any such original document is required pursuant to the terms of
this Section 2.3 to be a part of a Mortgage File, the Master Servicer shall
promptly deliver such original document to the Trustee. In acting as custodian
of any such original document, the Master Servicer agrees further that it does
not and will not have or assert any beneficial ownership interest in the
Mortgage Loans or the Mortgage Files. Promptly upon the Depositor's and the
Trust's acquisition thereof and the Master Servicer's receipt thereof, the
Master Servicer on behalf of the Trust shall mark conspicuously each original
document not delivered to the Trustee, and the Transferor's master data
processing records evidencing each Mortgage Loan with a legend, acceptable to
the Trustee [and the Certificate Insurer], evidencing that the Trust has
purchased the Mortgage Loans and all right and title thereto and interest
therein pursuant to the Purchase and Sale Agreement and this Agreement.
(c) In the event that any Mortgage Note required to be delivered pursuant
to this Section 2.3 is conclusively determined by any of the Transferor, the
Master Servicer, the Custodian or the Trustee to be lost, stolen or destroyed,
the Transferor shall, within 14 days of the Closing Date or the later date upon
which such Mortgage Note has been conclusively determined to be lost, deliver to
the Trustee a "lost note affidavit" in form and substance acceptable to the
Trustee, and shall simultaneously therewith request the obligor on such Mortgage
Note to execute and return a replacement Mortgage Note, and shall further agree
to hold the Trustee [and the Certificate Insurer] harmless from any loss or
damage resulting from any action taken in reliance on the delivery and
possession by the Trustee of such lost note affidavit. Upon the receipt of such
replacement Mortgage Note, the Trustee shall return the lost note affidavit.
Delivery by the Transferor of such lost note affidavit shall not affect the
obligations of the Transferor under the Purchase and Sale Agreement with respect
to the related Mortgage Loan.
Section 2.4 ACCEPTANCE BY TRUSTEE OF THE TRUST FUND; CERTAIN SUBSTITUTIONS;
CERTIFICATION BY TRUSTEE.
(a) The Trustee agrees to execute and deliver to the Depositor[, the
Certificate Insurer], the Master Servicer and the Transferor on or prior to the
Closing Date [an acknowledgment of receipt of the Certificate Insurance Policy
and,] with respect to each initial Mortgage Loan, the original Mortgage Note
(with any exceptions noted), in the form attached as Exhibit E hereto and
declares that it will hold such documents and any amendments, replacements or
supplements thereto, as well as any other assets included in the definition of
Trust Fund and delivered to the Trustee, as Trustee in trust upon and subject to
the conditions set forth herein for the benefit of the Certificateholders [and
the Certificate Insurer].
(b) The Trustee agrees, for the benefit of the Certificateholders [and the
Certificate Insurer], to review (or cause to be reviewed) each Trustee's
Mortgage File within 45 Business Days after the Closing Date and to deliver to
the Transferor, the Master Servicer, the Depositor [and the Certificate Insurer]
a certification in the form attached hereto as Exhibit F to the effect that, as
to each Mortgage Loan listed in Mortgage Loan Schedule (other than any Mortgage
Loan paid in full or any Mortgage Loan specifically identified in such
certification as not covered by such certification), (1) all documents required
to be delivered to it pursuant to Section 2.3 hereof and the Purchase and Sale
Agreement are in its possession, (2) each such document has been reviewed by it,
has been, to the extent required, executed and has not been mutilated, damaged,
torn or otherwise physically altered (handwritten additions, changes or
corrections shall not constitute physical alteration if initialed by the
Mortgagor), appears regular on its face and relates to such Mortgage Loan. The
Trustee shall be under no duty or obligation to (1) inspect, review or examine
any such documents, instruments, certificates or other papers to determine that
they are genuine, enforceable, or appropriate for the represented purpose or
that they are other than what they purport to be on their face or (2) determine
whether any Trustee's Mortgage File should contain any of the documents referred
to in Section 2.3(a)(v).
On or prior to the first anniversary of the Closing Date, the Trustee shall
deliver (or cause to be delivered) to the Master Servicer, the Transferor, the
Depositor [and the Certificate Insurer] a final certification in the form
attached hereto as Exhibit G to the effect that, as to each Mortgage Loan listed
in the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in such certification as not covered by
such certification), and as to any document noted in an exception included in
the Trustee's initial certification, (i) all documents required to be delivered
to it pursuant to Section 2.3 hereof and the Purchase and Sale Agreement are in
its possession, (ii) each such document has been reviewed by it, has been, to
the extent required, executed and has not been mutilated, damaged, torn or
otherwise physically altered (handwritten additions, changes or corrections
shall not constitute physical alteration if initialed by the Mortgagor), appears
regular on its face and relates to such Mortgage Loan.
(c) If [the Certificate Insurer or] the Trustee during the process of
reviewing the Trustee's Mortgage Files finds any document constituting a part of
a Trustee's Mortgage File which is not executed, has not been received, is
unrelated to the Mortgage Loan identified in the related Mortgage Loan Schedule,
or does not conform to the requirements of Section 2.3 or the description
thereof as set forth in the related Mortgage Loan Schedule, the Trustee [or the
Certificate Insurer, as applicable,] shall promptly so notify the Master
Servicer, the Transferor, [the Certificate Insurer] and the Trustee. In
performing any such review, the Trustee may conclusively rely on the Transferor
as to the purported genuineness of any such document and any signature thereon.
It is understood that the scope of the Trustee's review of the Mortgage Files is
limited solely to confirming that the documents listed in Section 2.3 have been
executed and received and relate to the Mortgage Files identified in the related
Mortgage Loan Schedule. Pursuant to the Purchase and Sale Agreement, the
Transferor has agreed to use reasonable efforts to cause to be remedied a
material defect in a document constituting part of a Mortgage File of which it
is so notified by the Trustee. If, however, within 120 days after the Trustee's
notice to it respecting such defect the Transferor has not caused to be remedied
the defect and the defect materially and adversely affects the interest of the
Certificateholders in the related Mortgage Loan [or the interests of the
Certificate Insurer (in either case in the reasonable determination of the
Certificate Insurer)], the Trustee shall enforce the Transferor's obligation
pursuant to the Purchase and Sale Agreement to either (1) substitute in lieu of
such Mortgage Loan a Qualified Substitute Mortgage Loan in the manner and
subject to the conditions set forth in Section 3.3 hereof or (2) purchase such
Mortgage Loan at a purchase price equal to the outstanding Principal Balance of
such Mortgage Loan as of the date of purchase, plus the greater of (x) all
accrued and unpaid interest thereon and (y) 30 days' interest thereon, computed
at the related Mortgage Interest Rate, plus the amount of any unreimbursed
Servicing Advances made by the Master Servicer with respect to such Mortgage
Loan, which purchase price shall be deposited in the Certificate Account prior
to the next succeeding Determination Date, after deducting therefrom any amounts
received in respect of such repurchased Mortgage Loan or Loans and being held in
the Collection Account or Trustee Collection Account for future distribution to
the extent such amounts have not yet been applied to principal or interest on
such Mortgage Loan (the "Loan Repurchase Price"); PROVIDED, HOWEVER, that the
Transferor may not, pursuant to clause (ii) preceding, purchase the Principal
Balance of any Mortgage Loan that is not in default or as to which no default is
imminent unless the Transferor has theretofore delivered an Opinion of Counsel
knowledgeable in federal income tax matters which states that such a purchase
would not constitute a prohibited transaction under the Code.
(d) Upon receipt by the Trustee of a certification of a Servicing Officer
of such substitution or purchase and, in the case of a substitution, upon
receipt of the related Trustee's Mortgage File, and the deposit of the amounts
described above into the Certificate Account (which certification shall be in
the form of Exhibit H hereto), the Trustee shall release to the Master Servicer
for release to the Transferor the related Trustee's Mortgage File and shall
execute, without recourse, and deliver such instruments of transfer furnished by
the Transferor as may be necessary to transfer such Mortgage Loan to the
Transferor. [The Trustee shall notify the Certificate Insurer if the Transferor
fails to repurchase or substitute for a Mortgage Loan in accordance with the
foregoing.]
Section 2.5 DESIGNATIONS UNDER REMIC PROVISIONS; DESIGNATION OF STARTUP
DATE.
(a) The Class A Certificates are hereby designated as the "regular
interests", and the Class R Certificates are designated the single Class of
"residual interests" in the 199_ - _ REMIC for the purposes of the REMIC
Provisions. The 199_ - _ REMIC shall be designated as the "_______ HOME EQUITY
TRUST 199_ - _ REMIC."
(b) The Closing Date will be the "startup day" of the 199_ - _ REMIC within
the meaning of Section 860G(a)(9) of the Code (the "STARTUP DATE").
Section 2.6 EXECUTION OF CERTIFICATES. The Trustee acknowledges the
assignment to it of the Mortgage Loans and the delivery to it of the Trustee's
Mortgage Files relating thereto and, concurrently with such delivery, has
executed, authenticated and delivered to or upon the order of the Depositor, in
exchange for the Mortgage Loans, the Trustee's Mortgage Files and the other
assets included in the definition of Trust Fund, Certificates duly authenticated
by the Trustee, and, in the case of the Class A Certificates, in Authorized
Denominations, evidencing the entire beneficial ownership interest in the Trust
Fund.
Section 2.7 APPLICATION OF PRINCIPAL AND INTEREST. In the event that Net
Liquidation Proceeds on a Liquidated Mortgage Loan are less than the outstanding
Principal Balance of the related Mortgage Loan plus accrued interest thereon, or
any Mortgagor makes a partial payment of any Monthly Payment due on a Mortgage
Loan, such Net Liquidation Proceeds or partial payment shall be applied to
payment of the related Mortgage Note as provided therein, and if not so
provided, first to interest accrued at the Mortgage Interest Rate, then to the
principal owed on such Mortgage Loan.
Section 2.8 GRANT OF SECURITY INTEREST.
(a) It is the intention of the parties hereto that the conveyance by the
Depositor of the Trust Fund to the Trustee on behalf of the Trust shall
constitute a purchase and sale of such Trust Fund and not a loan. In the event,
however, that a court of competent jurisdiction were to hold that the
transaction evidenced hereby constitutes a loan and not a purchase and sale, it
is the intention of the parties hereto that this Agreement shall constitute a
security agreement under applicable law, and that the Depositor shall be deemed
to have granted and hereby grants to the Trustee, on behalf of the Trust, a
first priority perfected security interest in all of the Depositor's right,
title and interest in, to and under the Trust Fund to secure a loan in an amount
equal to the purchase price of the Mortgage Loans. The conveyance by the
Depositor of the Trust Fund to the Trustee on behalf of the Trust shall not
constitute and are not intended to result in an assumption by the Trustee[, the
Certificate Insurer] or any Certificateholder of any obligation of the
Transferor, _______________________ or any other Person in connection with the
Trust Fund.
(b) The Depositor and the Master Servicer shall take no action inconsistent
with the Trust's ownership of the Trust Fund and shall indicate or shall cause
to be indicated in its records and records held on its behalf that ownership of
each Mortgage Loan and the assets in the Trust Fund are held by the Trustee on
behalf of the Trust. In addition, the Depositor and the Master Servicer shall
respond to any inquiries from third parties with respect to ownership of a
Mortgage Loan or any other asset in the Trust Fund by stating that it is not the
owner of such asset and that ownership of such Mortgage Loan or other Trust Fund
asset is held by the Trustee on behalf of the Trust.
Section 2.9 FURTHER ASSURANCES; POWERS OF ATTORNEY.
(a) The Master Servicer agrees that, from time to time, at its expense, it
shall cause the Transferor (and the Depositor also agrees that it shall),
promptly to execute and deliver all further instruments and documents, and take
all further action, that may be necessary or appropriate, or that the Master
Servicer or the Trustee may reasonably request, in order to perfect, protect or
more fully evidence the transfer of ownership of the Trust Fund or to enable the
Trustee to exercise or enforce any of its rights hereunder. Without limiting the
generality of the foregoing, the Master Servicer and the Depositor will, upon
the request of the Master Servicer or of the Trustee execute and file (or cause
to be executed and filed) such real estate filings, financing or continuation
statements, or amendments thereto or assignments thereof, and such other
instruments or notices, as may be necessary or appropriate.
(b) In the event that the Depositor in unable to fulfill its obligations in
subsection (a) above, the Depositor hereby grants to the Master Servicer and the
Trustee powers of attorney to execute all documents on its behalf under this
Agreement and the Purchase and Sale Agreement as may be necessary or desirable
to effectuate the foregoing.
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<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 REPRESENTATIONS OF THE MASTER SERVICER. The Master Servicer
hereby represents and warrants to the Trustee, the Depositor[, the Certificate
Insurer] and the Certificateholders as of the Closing Date and during the term
of this Agreement:
(a) the Master Servicer is a ______ duly organized, validly existing and in
good standing under the laws of the State of _______, and has full power and
authority to own its assets and to transact the business in which it is
currently engaged. The Master Servicer is duly qualified to do business 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 otherwise) of the
Master Servicer;
(b) the Master Servicer has full power and authority to make, execute,
deliver and perform this Agreement and all of the transactions contemplated
hereunder, and has taken all necessary corporate action to authorize the
execution, delivery and performance of this Agreement;
(c) the Master 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
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;
(d) the execution and delivery of this Agreement and the performance of the
transactions contemplated hereby by the Master Servicer will not violate any
material provision of any existing law or regulation or any order or decree of
any court applicable to the Master Servicer or any provision of the articles or
bylaws of the Master Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Master Servicer is a party
or by which it may be bound; and
(e) no suit in equity, action at law or other judicial or administrative
proceeding of or before any court, tribunal or governmental body is currently
pending or, to the knowledge of the Master Servicer, threatened against the
Master Servicer or any of its properties or with respect to this Agreement or
the Securities that in the opinion of the Master Servicer has a reasonable
likelihood of resulting in a material adverse effect on the transactions
contemplated by this Agreement.
It is understood and agreed that the representations, warranties and covenants
set forth in this Section 3.1 shall survive the delivery of the respective
Mortgage Files to the Trustee or to a custodian, as the case may be, and inure
to the benefit of the Trustee [and the Certificate Insurer].
Section 3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEPOSITOR. The
Depositor hereby represents, warrants and covenants to the Trustee that as of
the date of this Agreement or as of such date specifically provided herein:
(a) The Depositor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware;
(b) The Depositor has the corporate power and authority to convey the
Mortgage Loans and to execute, deliver and perform, and to enter into and
consummate transactions contemplated by, this Agreement;
(c) This Agreement has been duly and validly authorized, executed and
delivered by the Depositor, all requisite corporate action having been taken,
and, assuming the due authorization, execution and delivery hereof by the Master
Servicer and the Trustee, constitutes or will constitute the legal, valid and
binding agreement of the Depositor, enforceable against the Depositor in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally, and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law);
(d) No consent, approval, authorization or order of, or registration or
filing with, or notice to, any governmental authority or court is required for
the execution, delivery and performance of or compliance by the Depositor with
this Agreement or the consummation by the Depositor of any of the transactions
contemplated hereby, except as have been received or obtained on or prior to the
Closing Date;
(e) None of the execution and delivery of this Agreement, the consummation
of the transactions contemplated hereby or thereby, or the fulfillment of or
compliance with the terms and conditions of this Agreement, (1) conflicts or
will conflict with or results or will result in a breach of, or constitutes or
will constitute a default or results or will result in an acceleration under (i)
the charter or bylaws of the Depositor, or (ii) of any term, condition or
provision of any material indenture, deed of trust, contract or other agreement
or instrument to which the Depositor or any of its subsidiaries is a party or by
which it or any of its subsidiaries is bound; (2) results or will result in a
violation of any law, rule, regulation, order, judgment or decree applicable to
the Depositor of any court or governmental authority having jurisdiction over
the Depositor or its subsidiaries; or (3) results in the creation or imposition
of any lien, charge or encumbrance which would have a material adverse effect
upon the Mortgage Loans or any documents or instruments evidencing or securing
the Mortgage Loans;
(f) There are no actions, suits or proceedings before or against or
investigations of, the Depositor pending, or to the knowledge of the Depositor,
threatened, before any court, administrative agency or other tribunal, and no
notice of any such action, which, in the Depositor's reasonable judgment, might
materially and adversely affect the performance by the Depositor of its
obligations under this Agreement, or the validity or enforceability of this
Agreement; and
(g) The Depositor 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 that would materially and adversely affect its performance
hereunder.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.2 shall survive delivery of the respective
Mortgage Files to the Trustee or to a custodian, as the case maybe, and shall
inure to the benefit of the Trustee and the Certificate Insurer.
Section 3.3 PURCHASE AND SUBSTITUTION.
(a) It is understood and agreed that the representations and warranties set
forth in Sections 3.1 and 3.2 of the Purchase and Sale Agreement shall survive
delivery of the Certificates to the Certificateholders. Pursuant to the Purchase
and Sale Agreement, with respect to any representation or warranty contained in
Sections 3.1 or 3.2 of the Purchase and Sale Agreement that is made to the best
of the Transferor's knowledge, if it is discovered by the Master Servicer, any
Subservicer, the Trustee[, [the Certificate Insurer] or any Certificateholder
that the substance of such representation and warranty was inaccurate as of the
Closing Date and such inaccuracy materially and adversely affects the value of
the related Mortgage Loan, then notwithstanding the Transferor's lack of
knowledge with respect to the inaccuracy at the time the representation or
warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty. Upon discovery by the Transferor, the Master
Servicer, any Subservicer, the Trustee [or the Certificate Insurer] of a breach
of any of such representations and warranties which materially and adversely
affects the value of the Mortgage Loans or the interest of the
Certificateholders, or which materially and adversely affects the interests of
the [Certificate Insurer or the] Certificateholders in the related Mortgage Loan
in the case of a representation and warranty relating to a particular Mortgage
Loan (notwithstanding that such representation and warranty was made to the
Transferor's best knowledge), the party discovering such breach shall give
prompt written notice to the others. Subject to the last paragraph of this
Section 3.3, within 60 days of the earlier of its discovery or its receipt of
notice of any breach of a representation or warranty, pursuant to the Purchase
and Sale Agreement, the Transferor shall be required to (1) promptly cure such
breach in all material respects, (2) purchase such Mortgage Loan in the manner
and at the price specified in Section 2.4(c) (in which case the Mortgage Loan
shall become a Deleted Mortgage Loan), (3) remove such Mortgage Loan from the
Trust Fund (in which case the Mortgage Loan shall become a Deleted Mortgage
Loan) and substitute one or more Qualified Substitute Mortgage Loans; provided,
that, such substitution is effected not later than the date which is two years
after the Startup Date or at such later date, if the Trustee [and the
Certificate Insurer] receive an Opinion of Counsel to the effect that such
substitution will not constitute a prohibited transaction for the purposes of
the REMIC provisions of the Code or cause the 199_ - _ REMIC to fail to qualify
as a REMIC at any time any Certificates are outstanding. Pursuant to the
Purchase and Sale Agreement, any such substitution shall be accompanied by
payment by the Transferor of the Substitution Adjustment, if any, to the Master
Servicer to be deposited in the Certificate Account.
(b) As to any Deleted Mortgage Loan for which the Transferor substitutes a
Qualified Substitute Mortgage Loan or Loans, the Transferor shall be required
pursuant to the Purchase and Sale Agreement to effect such substitution by
delivering to the Trustee a certification in the form attached hereto as Exhibit
H, executed by a Servicing Officer and the documents described in Sections
2.3(a)(i)-(v) for such Qualified Substitute Mortgage Loan or Loans.
(c) The Master Servicer shall deposit in the Collection Account all
payments received in connection with such Qualified Substitute Mortgage Loan or
Loans after the date of such substitution. Monthly Payments received with
respect to Qualified Substitute Mortgage Loans on or before the date of
substitution will be retained by the Transferor. The Trust Fund will own all
payments received on the Deleted Mortgage Loan on or before the date of
substitution, and the Transferor shall thereafter be entitled to retain all
amounts subsequently received in respect of such Deleted Mortgage Loan. The
Master Servicer shall give written notice to the Trustee and the Certificate
Insurer that such substitution has taken place and shall amend the Mortgage Loan
Schedule to reflect the removal of such Deleted Mortgage Loan from the terms of
this Agreement and the substitution of the Qualified Substitute Mortgage Loan.
Upon such substitution, such Qualified Substitute Mortgage Loan or Loans shall
be subject to the terms of this Agreement in all respects.
(d) It is understood and agreed that the obligation of the Transferor set
forth in Section 3.4 of the Purchase and Sale Agreement to cure, purchase,
substitute or otherwise pay amounts to the Trust [or the Certificate Insurer]
for a defective Mortgage Loan as provided in such Section 3.4 constitutes the
sole remedies of the Trustee[, [the Certificate Insurer] and the
Certificateholders with respect to a breach of the representations and
warranties of the Transferor set forth in Sections 3.1 and 3.2 of the Purchase
and Sale Agreement. The Trustee shall give prompt written notice to the
[Certificate Insurer,] _______ and _______ of any repurchase or substitution
made pursuant to Section 3.3 or Section 2.4(b) hereof.
(e) Upon discovery by the Master Servicer, the Trustee[, [the Certificate
Insurer] or any Certificateholder that any Mortgage Loan does not constitute a
Qualified Mortgage, the Person discovering such fact shall promptly (and in any
event within 5 days of the discovery) give written notice thereof to the others
of such Persons. In connection therewith, pursuant to the Purchase and Sale
Agreement, the Transferor shall be required to repurchase or substitute a
Qualified Substitute Mortgage Loan for the affected Mortgage Loan within 60 days
of the earlier of such discovery by any of the foregoing parties, or the
Trustee's or the Transferor's receipt of notice, in the same manner as it would
a Mortgage Loan for a breach of representation or warranty contained in Section
3.1 or 3.2 of the Purchase and Sale Agreement. The Trustee shall reconvey to the
Transferor the Mortgage Loan to be released pursuant hereto in the same manner,
and on the same terms and conditions, as it would a Mortgage Loan repurchased
for breach of a representation or warranty contained in Section 3.1 or 3.2 of
the Purchase and Sale Agreement.
Section 3.4 MASTER SERVICER COVENANTS. The Master Servicer hereby covenants
to the Trustee, the Depositor [and the Certificate Insurer] and the
Certificateholders that as of the Closing Date and during the term of this
Agreement:
(a) The Master Servicer shall deliver on the Closing Date an opinion from
the general counsel or the corporate counsel of the Master Servicer as to
general corporate matters in form and substance reasonably satisfactory to
Underwriter's counsel [and counsel to the Certificate Insurer]; and
(b) The Master Servicer may in its discretion (1) waive any prepayment
penalty or other charge, assumption fee, late payment charge or other charge in
connection with a Mortgage Loan, and (2) arrange a schedule, running for no more
than 180 days after the Due Date for payment of any installment on any Mortgage
Note, for the liquidation of delinquent items; provided, that the Master
Servicer shall not agree to the modification or waiver of any provision of a
Mortgage Loan at a time when such Mortgage Loan is not in default or such
default is not imminent, if such modification or waiver would be treated as a
taxable exchange under Code Section 1001, unless such exchange would not be
considered a "prohibited transaction" under the REMIC Provisions.
It is understood and agreed that the covenants set forth in this Section 3.4
shall survive the delivery of the respective Mortgage Files to the Trustee or to
a custodian, as the case may be, and inure to the benefit of the Trustee [and
the Certificate Insurer].
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<PAGE>
ARTICLE IV
THE CERTIFICATES
Section 4.1 THE CERTIFICATES. The Certificates shall be substantially in
the forms annexed hereto as, in the case of the Class A-1 Certificate, Exhibit
B-1, in the case of the Class A-2 Certificate, Exhibit B-2, in the case of the
Class A-3 Certificate, Exhibit B-3, in the case of the Class A-4 Certificate,
Exhibit B-4, in the case of the Class A-5 Certificate, Exhibit B-5 and in the
case of the Class R Certificate, Exhibit B-6. All Certificates shall be executed
by manual or facsimile signature on behalf of the Trustee by an authorized
officer and authenticated by the manual or facsimile signature of an authorized
officer. Any Certificates bearing the signatures of individuals who were at the
time of the execution thereof the authorized officers of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the delivery of such Certificates or did not hold
such offices at the date of such Certificates. All Certificates issued hereunder
shall be dated the date of their authentication.
Section 4.2 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES.
(a) The Trustee, as registrar, shall cause to be kept a register (the
"Certificate Register") in which, subject to such reasonable regulations as it
may prescribe, the Trustee shall provide for the registration of Certificates
and the registration of transfer of Certificates. The Trustee is hereby
appointed registrar for the purpose of registering and transferring
Certificates, as herein provided. The [Certificate Insurer and the] Master
Servicer shall be entitled to inspect and copy the Certificate Register and the
records of the Trustee relating to the Certificates during normal business hours
upon reasonable notice.
(b) All Certificates issued upon any registration of transfer or exchange
of Certificates shall be valid evidence of the same ownership interests in the
Trust and entitled to the same benefits under this Agreement as the Certificates
surrendered upon such registration of transfer or exchange.
(c) Every Certificate presented or surrendered for registration of transfer
or exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by the Holder or
holder thereof or his attorney duly authorized in writing. [Every Certificate
shall include a statement of insurance provided by the Certificate Insurer.]
(d) No service charge shall be made to a Holder or holder for any
registration of transfer or exchange of Certificates, but the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates; any other expenses in connection with such transferor
exchange shall be an expense of the Trust.
(e) It is intended that the Class A Certificates be registered so as to
participate in a global book-entry system with the Depository, as set forth
herein. The Class A-1 Certificates shall, except as otherwise provided in the
next paragraph, be initially issued in the form of a single fully registered
Class A-1 Certificate with a denomination equal to the Original Class A-1
Principal Balance. The Class A-2 Certificates shall, except as otherwise
provided in the next paragraph, be initially issued in the form of a single
fully registered Class A-2 Certificate with a denomination equal to the Original
Class A-2 Principal Balance. The Class A-3 Certificates shall, except as
otherwise provided in the next paragraph, be initially issued in the form of a
single fully registered Class A-3 Certificate with a denomination equal to the
Original Class A-3 Principal Balance. The Class A-4 Certificates shall, except
as otherwise provided in the next paragraph, be initially issued in the form of
a single fully registered Class A-4 Certificate with a denomination equal to the
Original Class A-4 Principal Balance. The Class A-5 Certificates shall, except
as otherwise provided in the next paragraph, be initially issued in the form of
a single fully registered Class A-5 Certificate with a denomination equal to the
Original Class A-5 Principal Balance. Upon initial issuance, the ownership of
each such Class A Certificate shall be registered in the Certificate Register in
the name of Cede & Co., or any successor thereto, as nominee for the Depository.
The Depositor and the Trustee are hereby authorized to execute and deliver the
Representation Letter with the Depository. With respect to Class A Certificates
registered in the Certificate Register in the name of Cede & Co., as nominee of
the Depository, the Depositor, the Transferor, the Master Servicer, the Trustee
[and the Certificate Insurer] shall have no responsibility or obligation to
Direct or Indirect Participants or beneficial owners for which the Depository
holds Class A Certificates from time to time as a Depository. Without limiting
the immediately preceding sentence, the Depositor, the Transferor, the Master
Servicer, the Trustee [and the Certificate Insurer] shall have no responsibility
or obligation with respect to (1) the accuracy of the records of the Depository,
Cede & Co., or any Direct or Indirect Participant with respect to any Ownership
Interest, (2) the delivery to any Direct or Indirect Participant or any other
Person, other than a Certificateholder, of any notice with respect to the Class
A Certificates or (3) the payment to any Direct or Indirect Participant or any
other Person, other than a Certificateholder, of any amount with respect to any
distribution of principal or interest on the Class A Certificates. No Person
other than a Certificateholder shall receive a certificate evidencing such Class
A Certificate. Upon delivery by the Depository to the Trustee of written notice
to the effect that the Depository has determined to substitute a new nominee in
place of Cede & Co., and subject to the provisions hereof with respect to the
payment of interest by the mailing of checks or drafts to the Certificateholders
appearing as Certificateholders at the close of business on a Record Date, the
name "Cede &Co." in this Agreement shall refer to such new nominee of the
Depository.
(f) In the event that (1) the Depository or the Master Servicer advises the
Trustee in writing that the Depository is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Class A Certificates and the Master Servicer or the Depository is unable to
locate a qualified successor or (2) the Master Servicer at its sole option
elects to terminate the book-entry system through the Depository, the Class A
Certificates shall no longer be restricted to being registered in the
Certificate Register in the name of Cede & Co. (or a successor nominee) as
nominee of the Depository. At that time, the Master Servicer may determine that
the Class A Certificates shall be registered in the name of and deposited with a
successor depository operating a global book-entry system, as may be acceptable
to the Master Servicer, or such depository's agent or designee but, if the
Master Servicer does not select such alternative global book-entry system, then
the Class A Certificates may be registered in whatever name or names
Certificateholders transferring Class A Certificates shall designate, in
accordance with the provisions hereof; PROVIDED, HOWEVER, that any such
reregistration shall be at the expense of the Master Servicer.
(g) Notwithstanding any other provision of this Agreement to the contrary,
so long as any Class A Certificate is registered in the name of Cede & Co., as
nominee of the Depository, all distributions of principal or interest on such
Class A Certificates as the case may be and all notices with respect to such
Class A Certificates as the case may be shall be made and given, respectively,
in the manner provided in the Representation Letter.
(h) No transfer, sale, pledge or other disposition of any Class R
Certificate shall be made unless such disposition is made pursuant to an
effective registration statement under the Securities Act of 1933 and effective
registration or qualification under applicable state securities laws or "Blue
Sky" laws, or is made in a transaction that does not require such registration
or qualification. None of the Master Servicer, the Depositor, the Transferor or
the Trustee is obligated under this Agreement to register the Certificates under
the Securities Act of 1933, as amended or any other securities law or to take
any action not otherwise required under this Agreement to permit the transfer of
the Class R Certificates without such registration or qualification. Any such
Certificateholder desiring to effect such transfer shall, and does hereby agree
to, indemnify the Trustee, the Depositor, the Transferor, the Master Servicer
[and the Certificate Insurer] against any liability that may result if the
transfer is not exempt or is not made in accordance with such applicable federal
and state laws. Promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this paragraph, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this paragraph. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to appoint counsel
reasonably satisfactory to such indemnified party to represent the indemnified
party in such action; PROVIDED, HOWEVER, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are in conflict
with or contrary to the interests of the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
appoint counsel to defend such action and approval by the indemnified party of
such counsel, the indemnifying party will not be liable to such indemnified
party under this paragraph for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (1) the
indemnified party shall have employed separate counsel in accordance with the
proviso of the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel for any indemnified party), (2) the indemnifying party shall
not have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of commencement of the
action or (3) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. Under no
circumstances shall the indemnified party enter into a settlement agreement with
respect to any lawsuit, claim or other proceeding without the prior written
consent of the indemnifying party.
(i) Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions and to have
irrevocably appointed the Master Servicer or its designee as its
attorney-in-fact to negotiate the terms of any mandatory sale under subclause
(vii) below and to execute all instruments of transfer and to do all other
things necessary in connection with any such sale, and the rights of each Person
acquiring any Ownership Interest in a Class R Certificate are expressly subject
to the following provisions:
(i)Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall be a Permitted Transferee and a United States
Person and shall promptly notify the Trustee of any change or impending
change in its status as either a United States Person or a Permitted
Transferee;
(ii) In connection with any proposed Transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall require delivery to
it, and shall not register the Transfer of any Class R Certificate until
its receipt of, an affidavit and agreement (a "Transfer Affidavit and
Agreement") attached hereto as Exhibit I from the proposed Transferee,
representing and warranting, among other things, that such Transferee is a
Permitted Transferee, that it is not acquiring its Ownership Interest in
the Class R Certificate that is the subject of the proposed Transfer as a
nominee, trustee or agent for any Person that is not a Permitted
Transferee, that for so long as it retains its Ownership Interest in a
Class R Certificate, it will endeavor to remain a Permitted Transferee,
and that it has reviewed the provisions of this Section 4.2(i) and agrees
to be bound by them;
(iii) Notwithstanding the delivery of a Transfer Affidavit and
Agreement by a proposed Transferee under clause (ii) above, if a
Responsible Officer of the Trustee has actual knowledge that the proposed
Transferee is not a Permitted Transferee, no Transfer of an Ownership
Interest in a Class R Certificate to such proposed Transferee shall be
effected;
(iv) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall agree (x) to require a Transfer Affidavit and
Agreement from any other Person to whom such Person attempts to transfer
its Ownership Interest in a Class R Certificate and (y) not to transfer
its Ownership Interest unless it provides a certificate (attached hereto
as Exhibit J) to the Trustee stating that, among other things, it has no
actual knowledge that such other Person is not a Permitted Transferee;
(v) Each Person holding or acquiring an Ownership Interest in a
Class R Certificate, by purchasing an Ownership Interest in such
Certificate, agrees to give the Trustee written notice that it is a
"pass-through interest holder" within the meaning of temporary Treasury
Regulation Section 1.67-3T(a)(2)(i)(A) immediately upon acquiring an
Ownership Interest in a Class R Certificate, if it is, or is holding an
Ownership Interest in a Class R Certificate on behalf of, a "pass-through
interest holder";
(vi) The Trustee will register the Transfer of any Class R
Certificate only if it shall have received the Transfer Affidavit and
Agreement. In addition, no Transfer of a Class R Certificate shall be made
unless the Trustee shall have received a representation letter, the form
of which is attached hereto as Exhibit N from the Transferee of such
Certificate to the effect that such Transferee is a United States Person
and is not a "disqualified organization" (as defined in Section 860E(e)(5)
of the Code)(such Person, a "Permitted Transferee");
(vii) Any attempted or purported transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of this
Section 4.2 shall be absolutely null and void and shall vest no rights in
the purported transferee. If any purported transferee shall become a
Holder of a Class R Certificate in violation of the provisions of this
Section 4.2, then the last preceding Permitted Transferee shall be
restored to all rights as Holder thereof retroactive to the date of
registration of transfer of such Class R Certificate. The Trustee shall
notify the Master Servicer upon receipt of written notice or discovery by
a Responsible Officer that the registration of transfer of a Class R
Certificate was not in fact permitted by this Section 4.2. Knowledge shall
not be imputed to the Trustee with respect to an impermissible transfer in
the absence of such a written notice or discovery by a Responsible
Officer. The Trustee shall be under no liability to any Person for any
registration of transfer of a Class R Certificate that is in fact not
permitted by this Section 4.2 or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect
to such Holder under the provisions of this Agreement so long as the
transfer was registered after receipt of the related Transfer Affidavit
and Transfer Certificate. The Trustee shall be entitled, but not obligated
to recover from any Holder of a Class R Certificate that was in fact not a
Permitted Transferee at the time it became a Holder or, at such subsequent
time as it became other than a Permitted Transferee, all payments made on
such Class R Certificate at and after either such time. Any such payments
so recovered by the Trustee shall be paid and delivered by the Trustee to
the last preceding Holder of such Certificate;
(viii) If any purported transferee shall become a Holder of a
Class R Certificate in violation of the restrictions in this Section 4.2,
then the Master Servicer or its designee shall have the right, without
notice to the Holder or any prior Holder of such Class R Certificate, to
sell such Class R Certificate to a purchaser selected by the Master
Servicer or its designee on such reasonable terms as the Master Servicer
or its designee may choose. Such purchaser may be the Master Servicer
itself or any Affiliate of the Master Servicer. The proceeds of such sale,
net of commissions, expenses and taxes due, if any, will be remitted by
the Master Servicer to the last preceding purported transferee of such
Class R Certificate, except that in the event that the Master Servicer
determines that the Holder or any prior Holder of such Class R Certificate
may be liable for any amount due under this Section 4.2 or any other
provision of this Agreement, the Master Servicer may withhold a
corresponding amount from such remittance as security for such claim. The
terms and conditions of any sale under this subclause (viii) shall be
determined in the sole discretion of the Master Servicer or its designee,
and it shall not be liable to any Person having an Ownership Interest in a
Class R Certificate as a result of its exercise of such discretion;
(ix) The provisions of Section 4.2(i) may be modified, added to
or eliminated (solely to amend the transfer restrictions contained in this
Section), provided that there shall have been delivered to the Trustee and
the Certificate Insurer an Opinion of Counsel to the effect that such
modification of, addition to or elimination of such provisions will not
cause the 199_ - _ REMIC to cease to qualify as a REMIC and will not cause
(x) the 199_ - _ REMIC to be subject to an entity-level tax caused by the
Transfer of any Ownership Interest in a Class R Certificate to a Person
that is not a Permitted Transferee or (y) a Person other than the
prospective transferee to be subject to a REMIC-related tax caused by the
Transfer of an Ownership Interest in a Class R Certificate to a Percentage
that is not a Permitted Transferee;
(x) No transfer of a Class R Certificate or any interest therein
shall be made to any employee benefit plan or other retirement
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, that is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
the Code (each, a "Plan"), unless the prospective transferee of such Class
R Certificate provides the Master Servicer and the Trustee with a
certification of facts and, at the prospective transferee's expense, an
Opinion of Counsel which establish to the satisfaction of the Master
Servicer and the Trustee that such transfer will not result in a violation
of Section 406 of ERISA or Section 4975 of the Code or cause the Master
Servicer or the Trustee to be deemed a fiduciary of such Plan or result in
the imposition of an excise tax under Section 4975 of the Code. In the
absence of their having received the certification of facts or Opinion of
Counsel contemplated by the preceding sentence, the Trustee and the Master
Servicer shall require the prospective transferee of any Class R
Certificate to certify (in the form of Exhibit K hereto) that (A) it is
neither (i) a Plan nor (ii) a Person who is directly or indirectly
purchasing a Class R Certificate on behalf of, as named fiduciary of, as
trustee of, or with assets, of a Plan and (B) all funds used by such
transferee to purchase such Certificates will be funds held by it in its
general account which it reasonably believes do not constitute "plan
assets" of any Plan; and
(xi) Subject to the restrictions set forth in this Agreement,
upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office of the Trustee, the Trustee shall execute,
authenticate and deliver in the name of the designated transferee or
transferees, a new Certificate of the same Class and evidencing, in the
case of a Class A-1 Certificate, Class A-2 Certificate, Class A-3
Certificate, Class A-4 Certificate or Class A-5 Certificate, the same
Percentage Interest, and in any other case, the equivalent undivided
beneficial ownership interest in the 199_ - _ REMIC and dated the date of
authentication by the Trustee. At the option of the Certificateholders,
Certificates may be exchanged for other Certificates of Authorized
Denominations of a like aggregate undivided beneficial ownership interest,
upon surrender of the Certificates to be exchanged at such office.
Whenever any Certificates are so surrendered for exchange, the Trustee
shall execute, authenticate and deliver the Certificates which the
Certificateholder making the exchange is entitled to receive. No service
charge shall be made for any transfer or exchange of Certificates, but the
Trustee 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. All Certificates surrendered for transfer and
exchange shall be canceled by the Trustee.
Section 4.3 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. (i) If any
mutilated Certificate is surrendered to the Trustee, or the Trustee receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Master Servicer[, the
Certificate Insurer] and the Trustee such security or indemnity as may
reasonably be required by each of them to save each of them harmless, then, in
the absence of notice to the Master Servicer[, the Certificate Insurer] and the
Trustee that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall execute, authenticate and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
like tenor and representing an equivalent beneficial ownership interest, but
bearing a number not contemporaneously outstanding. Upon the issuance of any new
Certificate under this Section 4.3, the Master Servicer and the Trustee may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and their fees and expenses
connected therewith. Any duplicate Certificate issued pursuant to this Section
4.3 shall constitute complete and indefeasible evidence of ownership in the
Trust Fund, as if originally issued, whether or not the mutilated, destroyed,
lost or stolen Certificate shall be found at any time.
Section 4.4 PERSONS DEEMED OWNERS. Prior to due presentation of a
Certificate for registration of transfer and subject to the provisions of
Section 4.2 and Article X, the Master Servicer, the Depositor, the Transferor[,
the Certificate Insurer] and the Trustee may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving remittances pursuant to Section 6.5 and for all other purposes
whatsoever, and the Master Servicer, the Depositor, the Transferor[, the
Certificate Insurer] and the Trustee shall not be affected by notice to the
contrary.
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ARTICLE V
ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS
Section 5.1 APPOINTMENT OF THE MASTER SERVICER.
(a) _______________________ agrees to act as the Master Servicer and to
perform all servicing duties under this Agreement subject to the terms hereof.
(b) The Master Servicer shall service and administer the Mortgage Loans on
behalf of the Trustee [and the Certificate Insurer] and shall have full power
and authority, acting alone or through one or more Subservicers, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable. Without limiting the generality of the foregoing,
the Master Servicer, in its own name or the name of a Subservicer, may, and is
hereby authorized and empowered by the Trustee to, execute and deliver, on
behalf of itself, the Certificateholders[, the Certificate Insurer] and the
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, the insurance policies and accounts related
thereto and the properties subject to the Mortgages. Upon the execution and
delivery of this Agreement, and from time to time as may be required thereafter,
the Trustee shall furnish the Master Servicer or its Subservicers with any
powers of attorney and such other documents (that have been prepared by the
Master Servicer for execution by the Trustee) as may be necessary or appropriate
to enable the Master Servicer to carry out its servicing and administrative
duties hereunder.
In servicing and administering the Mortgage Loans, the Master Servicer
shall employ procedures consistent with Accepted Servicing Practices and in a
manner consistent with recovery under any insurance policy required to be
maintained by the Master Servicer pursuant to this Agreement.
Costs incurred by the Master Servicer in effectuating the timely payment of
taxes and assessments on the property securing a Mortgage Note and foreclosure
costs may be added by the Master Servicer to the amount owing under such
Mortgage Note where the terms of such Mortgage Note so permit; PROVIDED,
HOWEVER, that the addition of any such cost shall not be taken into account for
purposes of calculating the principal amount of the Mortgage Note and the
Mortgage Loan secured by the Mortgage Note or distributions to be made to
Certificateholders. Such costs shall be recoverable by the Master Servicer
pursuant to Section 5.4. Notwithstanding any other provision of this Agreement,
the Master Servicer shall at all times service the Mortgage Loans in a manner
consistent with the provisions of Sections 5.1(b) and 5.1(c).
(c) It is intended that the 199_ - _ REMIC formed hereunder shall
constitute, and that the affairs of the 199_ - _ REMIC shall be conducted so as
to qualify it as, a "real estate mortgage investment conduit" ("REMIC") as
defined in and in accordance with the REMIC Provisions. In furtherance of such
intentions, the Master Servicer covenants and agrees that it shall not take any
action or omit to take any action reasonably within the Master Servicer's
control and the scope of its duties more specifically set forth herein that
would (1) result in a taxable event to the Holders of the Certificates or
endanger the REMIC status of the 199_ - _ REMIC or (2) result in the imposition
on the 199_ - _ REMIC or the Trust Fund of a tax on "prohibited transactions"
(either clause (1) or (2) shall be an "Adverse REMIC Event"); PROVIDED, HOWEVER,
that the Master Servicer may allow reductions in the rate of interest on any
Mortgage Loan so long as the amount of any such reduction does not exceed the
greater of (i) ____% and (ii) __% of the total coupon on such Mortgage Loan. The
Master Servicer shall not take any action or fail to take any action (whether or
not authorized hereunder) as to which the Trustee has advised it in writing that
it has received an Opinion of Counsel to the effect that an Adverse REMIC Event
could occur with respect to such action, and the Master Servicer shall have no
liability hereunder for any action taken by it in accordance with the written
instructions of the Trustee. In addition, prior to taking any action with
respect to the Trust Fund that is not expressly permitted under the terms of
this Agreement (other than interest rate modifications referred to in the
provision to the second preceding sentence),the Master Servicer will consult
with the Trustee or its designee [and the Certificate Insurer], in writing, with
respect to whether such action could cause an Adverse REMIC Event to occur. The
Trustee may consult with counsel to make such written advice, and the cost of
same shall be borne by the party seeking to take the action not permitted by
this Agreement. At all times as may be required by the Code, the Master Servicer
shall use its best efforts to ensure that substantially all of the assets of the
Trust will consist of "qualified mortgages" as defined in Section 860G(a)(3) of
the Code and "permitted investments" as defined in Section 860G(a)(5) of the
Code. In the event any specified time period or other requirement set forth in
this Agreement in respect of compliance with the REMIC Provisions becomes
inconsistent with the REMIC Provisions as the same may be amended, such
specified time period or other requirement shall also be deemed amended to
comply with the requirements of this Section, unless such amended time period or
other requirements shall be less protective of the interests of the
Certificateholders and the Certificate Insurer, in which case, to the extent
consistent with the REMIC Provisions, the former time period or requirement
shall continue in force.
(d) Subject to Section 5.12, the Master Servicer is hereby authorized and
empowered to execute and deliver on behalf of the Trustee and each
Certificateholder, all instruments of satisfaction or cancellation, or of
partial or full release, discharge and all other comparable instruments, with
respect to the Mortgage Loans and with respect to the Mortgaged Properties. If
reasonably required by the Master Servicer, each Certificateholder and the
Trustee shall execute any powers of attorney furnished to the Trustee by the
Master Servicer and other documents necessary or appropriate to enable the
Master Servicer to carry out its servicing and administrative duties under this
Agreement.
(e) On and after such time as the Trustee receives the resignation of, or
notice of the removal of, the Master Servicer from its rights and obligations
under this Agreement, and with respect to resignation pursuant to Section 5.23,
after receipt by the Trustee [and the Certificate Insurer] of the Opinion of
Counsel required pursuant to Section 5.23, the Trustee or its designee approved
by the Certificate Insurer shall, within a period not to exceed 90 days, assume
all of the rights and obligations of the Master Servicer, subject to Section 7.2
hereof. The Master Servicer shall, upon request of the Trustee but at the
expense of the Master Servicer, deliver to the Trustee all documents and records
relating to the Mortgage Loans and an accounting of amounts collected and held
by the Master Servicer and otherwise use its best efforts to effect the orderly
and efficient transfer of servicing rights and obligations to the assuming
party.
(f) The Master Servicer shall deliver a list of Servicing Officers to the
Trustee [and the Certificate Insurer] by the Closing Date, which list may, from
time to time, be amended, modified or supplemented by the subsequent delivery to
the Trustee [and the Certificate Insurer] of any superseding list of Servicing
Officers.
Section 5.2 SUBSERVICING AGREEMENTS BETWEEN THE MASTER SERVICER AND
SUBSERVICERS.
(a) The Master Servicer may[, subject to the prior written approval of the
Certificate Insurer,] enter into Subservicing Agreements with Subservicers for
the servicing and administration of the Mortgage Loans and for the performance
of any and all other activities of the Master Servicer hereunder. The
[Certificate Insurer,] Trustee and Depositor acknowledge that the Master
Servicer has the authority to appoint the Originator as Subservicer. Each
Subservicer shall be either (1) a depository institution the accounts of which
are insured by the FDIC or (2) another entity that engages in the business of
originating, acquiring or servicing loans, and in either case shall be
authorized to transact business in the state or states where the related
Mortgaged Properties it is to service are situated if state law requires such
authorization. In addition, each Subservicer will obtain and preserve its
qualifications to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates and any of the Mortgage Loans
and to perform or cause to be performed its duties under the related
Subservicing Agreement which shall provide that the Subservicer's rights shall
automatically terminate upon the termination, resignation or other removal of
the Master Servicer under this Agreement. Each account used by any Subservicer
for the deposit of payments on any of the Mortgage Loans shall be an Eligible
Account.
(b) Notwithstanding any Subservicing Agreement, any of the provisions of
this Agreement relating to agreements or arrangements between the Master
Servicer and a Subservicer or reference to actions taken through a Subservicer
or otherwise, the Master Servicer shall remain obligated and primarily liable to
the Trustee[, the Certificate Insurer] and the Certificateholders for the
servicing and administering of the Mortgage Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such Subservicing Agreements or arrangements or by virtue of
indemnification from the Subservicer and to the same extent and under the same
terms and conditions as if the Master Servicer alone were servicing and
administering the Mortgage Loans. For purposes of this Agreement, the Master
Servicer shall be deemed to have received payments on Mortgage Loans when the
Subservicer has received such payments.
In the event the Master Servicer shall for any reason no longer be the
Master Servicer (including by reason of an Event of Default), the Trustee or its
designee may[, with the prior written consent of the Certificate Insurer, or
shall, at the direction of the Certificate Insurer,] either (i) assume all of
the rights and obligations of the Master Servicer under each Subservicing
Agreement that the Master Servicer may have entered into or (ii) notwithstanding
anything to the contrary contained in each such Subservicing Agreement,
terminate the related Subservicer without being required to pay any fee in
connection therewith.
Section 5.3 COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS; COLLECTION
ACCOUNT.
(a) The Master Servicer shall use its best 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 Agreement and any
applicable primary mortgage insurance policy, follow such collection procedures
as shall constitute Accepted Servicing Practices.
The Master Servicer shall establish and maintain in the name of the Trustee
one or more Collection Accounts (collectively, the "Collection Account"), in
trust for the benefit of the Holders of the Certificates and the Certificate
Insurer, one of which may be established and maintained with the Trustee (the
"Trustee Collection Account"). The Master Servicer shall promptly provide notice
to the Certificate Insurer, the Trustee and each Rating Agency of any creation
and establishment of a Collection Account hereunder. Each Collection Account
shall be established and maintained as an Eligible Account, and one Collection
Account may be maintained at the _______________. The Certificate Insurer, in
its sole discretion, may direct the Master Servicer to close such Collection
Account and to establish and maintain a replacement Collection Account that is
an Eligible Account.
(b) On the Closing Date, the Master Servicer shall deposit in the
Collection Account any amounts representing the principal portion of Monthly
Payments on the Mortgage Loans made in respect of any Due Date occurring in
_________, 199_ that are received on or prior to the Cut-Off Date and were not
reflected in the Cut-Off Date Principal Balance of the related Mortgage Loan. On
the third Business Day prior to the first Remittance Date, the Master Servicer
shall have deposited into the Certificate Account all of the following
collections and payments received or made by the Master Servicer in respect of
monies due under the Mortgage Loans (other than in respect of interest on the
Mortgage Loans accrued on or before the Due Date immediately preceding the
Cut-Off Date), and shall, on a daily basis thereafter (except as otherwise
provided herein), deposit such collections and payments into the Collection
Account:
(i)all payments received after the Cut-Off Date on account of
principal on the Mortgage Loans and all Principal Prepayments,
Curtailments, associated prepayment penalties and all Net REO Proceeds
collected after the Cut-Off Date;
(ii) all payments received after the Cut-Off Date on account of
interest on the Mortgage Loans (other than payments of interest that
accrued on each Mortgage Loan up to and including the Due Date immediately
preceding the Cut-Off Date);
(iii) all Net Liquidation Proceeds;
(iv) all Insurance Proceeds;
(v)all Released Mortgaged Property Proceeds;
(vi) any amounts payable in connection with the repurchase of any
Mortgage Loan and the amount of any Substitution Adjustment pursuant to
Sections 2.4 and 3.3 hereof; and
(vii) any amount expressly required to be deposited in the
Collection Account or Certificate Account in accordance with certain
provisions of this Agreement, including, without limitation amounts in
respect of the termination of the Trust Fund (which shall be deposited in
the Certificate Account), and amounts referenced in Sections 2.4(c),
3.3(a), 3.3(c), 5.6, and 6.6(b) of this Agreement;
PROVIDED, HOWEVER, that the Master Servicer shall be entitled, at its election,
either (a) to withhold and to pay to itself the applicable Servicing Fee from
any payment on account of interest or other recovery (including Net REO
Proceeds) as received and prior to deposit of such payments in the Collection
Account or (b) to withdraw the applicable Servicing Fee from the Collection
Account after the entire payment or recovery has been deposited therein;
PROVIDED, FURTHER, that with respect to any payment of interest received by the
Master Servicer in respect of a Mortgage Loan (whether paid by the Mortgagor or
received as Liquidation Proceeds, Insurance Proceeds or otherwise) which is less
than the full amount of interest then due with respect to such Mortgage Loan,
only that portion of such payment that bears the same relationship to the total
amount of such payment of interest as the rate used to determine the Servicing
Fee bears to the Mortgage Interest Rate borne by such Mortgage Loan shall be
allocated to the Servicing Fee with respect to such Mortgage Loan. All other
amounts shall be deposited in the Collection Account not later than the Business
Day following the day of receipt and posting by the Master Servicer.
Notwithstanding any regularly scheduled transfer of funds to the Certificate
Account, the Master Servicer shall, not later than 3 Business Days prior to each
Remittance Date transfer to the Certificate Account all funds in each Collection
Account that are to be included in the Master Servicer Remittance Amount on the
Determination Date immediately preceding the Remittance Date.
The Master Servicer shall direct, in writing, the institution maintaining
each Collection Account to invest the funds in the Collection Account only in
Permitted Investments. No Permitted Investment shall be sold or disposed of at a
gain prior to maturity unless the Master Servicer has obtained an Opinion of
Counsel (at the Master Servicer's expense) that such sale or disposition will
not cause the Trust Fund to be subject to the tax on income from prohibited
transactions imposed by Code Section 860F(a)(1),otherwise subject the Trust Fund
to tax or cause the 199_ - _ REMIC to fail to qualify as a REMIC. All income
(other than any gain from a sale or disposition of the type referred to in the
preceding sentence) realized from any such Permitted Investment shall be for the
benefit of the Master Servicer as additional servicing compensation. The amount
of any losses incurred in respect of any such investments shall be deposited in
the Collection Account by the Master Servicer out of its own funds immediately
as realized.
The foregoing requirements for deposit in the Collection Account shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of those described in the last
paragraph of Section 5.14 and payments in the nature of prepayment charges other
than prepayment penalties, late payment charges or assumption fees need not be
deposited by the Master Servicer in the Collection Account. Notwithstanding any
provision herein to the contrary, the Master Servicer shall not deposit in any
Collection Account any amount other than amounts required to be deposited
therein in accordance with the terms of this Agreement, and the Master Servicer
shall have the right at all times to transfer funds from the Collection Account
to the Certificate Account. All funds deposited by the Master Servicer in the
Collection Account and the Certificate Account shall be held therein for the
account of the Trustee in trust for the Certificateholders [and the Certificate
Insurer] until disbursed in accordance with Section 6.1 or withdrawn in
accordance with Section 5.4.
(c) Prior to the time of their required deposit in the Collection Account,
all amounts required to be deposited therein may be deposited in an account in
the name of Master Servicer, provided that such account is an Eligible Account.
All such funds shall be held by the Master Servicer in trust for the benefit of
the Certificateholders and the Certificate Insurer pursuant to the terms hereof.
(d) The Collection Account may[, upon written notice by the Trustee to the
Certificate Insurer,] be transferred to a different depository so long as such
transfer is to an Eligible Account.
Section 5.4 PERMITTED WITHDRAWALS FROM THE COLLECTION ACCOUNT AND TRUSTEE
COLLECTION ACCOUNT. The Master Servicer is hereby authorized by the Trustee
(such authorization to be revocable by the Trustee at any time), from time to
time, to make withdrawals from the Collection Account or, as applicable, the
Trustee Collection Account but only for the following purposes:
(a) to reimburse itself from any funds in the Collection Account and the
Trustee Collection Account for any accrued unpaid Servicing Fees and for
unreimbursed Periodic Advances and Servicing Advances. The Master Servicer's
right to reimbursement for unpaid Servicing Fees and unreimbursed Servicing
Advances shall be limited to late collections on the related Mortgage Loan,
including Liquidation Proceeds, Released Mortgaged Property Proceeds, Insurance
Proceeds and such other amounts on deposit in the Collection Account as may be
collected by the Master Servicer from the related Mortgagor or otherwise
relating to the Mortgage Loan in respect of which such unreimbursed amounts are
owed. The Master Servicer's right to reimbursement for unreimbursed Periodic
Advances shall be limited to late collections of interest on any Mortgage Loan
and to Liquidation Proceeds and Insurance Proceeds on related Mortgage Loans;
(b) to reimburse itself for any Periodic Advances determined in good faith
to have become Nonrecoverable Advances, such reimbursement to be made from any
funds in the Collection Account and the Trustee Collection Account;
(c) to withdraw from the Collection Account or the Trustee Collection
Account any Preference Amount received from a Mortgagor;
(d) to withdraw any funds deposited in the Collection Account or Trustee
Collection Account that were mistakenly deposited therein;
(e) to withdraw from the Collection Account or the Trustee Collection
Account any funds needed to pay itself Servicing Compensation pursuant to
Section 5.14 hereof to the extent not retained or paid pursuant to Section 5.3,
5.4 or 5.14;
(f) to withdraw from the Collection Account or the Trustee Collection
Account to pay to the Transferor with respect to each Mortgage Loan or property
acquired in respect thereof that has been repurchased or replaced pursuant to
Section 2.4 or 3.3 or to pay to itself with respect to each Mortgage Loan or
property acquired in respect thereof that has been purchased pursuant to Section
8.1 all amounts received thereon and not required to be deposited into the
Collection Account or the Trustee Collection Account as a result of such
repurchase or replacement;
(g) subject to the provisions of Section 5.20, to reimburse itself from the
Collection Account or the Trustee Collection Account for (1) Nonrecoverable
Advances that are not, with respect to aggregate Servicing Advances on any
single Mortgage Loan or REO Property, in excess of the Principal Balance thereof
and (2) for amounts to be reimbursed to the Master Servicer pursuant to Section
5.21;
(h) to withdraw from the Collection Account or the Trustee Collection
Account to pay to the Transferor with respect to each Mortgage Loan the excess,
if any, of (1) interest accrued and unpaid on such Mortgage Loan on the Cut-Off
Date, over (2) interest on such Mortgage Loan from the Due Date for such
Mortgage Loan immediately preceding the Cut-Off Date to the Cut-Off Date;
(i) to transfer funds from the Collection Account into the Trustee
Collection Account and to withdraw funds from the Collection Account and the
Trustee Collection Account necessary to make deposits to the Certificate Account
(which shall include the Trustee Fee) in the amounts and in the manner provided
for in Section 6.1 hereof;
(j) to pay itself any interest earned on or investment income earned with
respect to funds in the Collection Account or Trustee Collection Account; or
(k) to clear and terminate the Collection Account and Trustee Collection
Account upon the termination of this Agreement.
The Master Servicer shall keep and maintain a separate accounting for each
Mortgage Loan for the purpose of accounting for withdrawals from the Collection
Account pursuant to subclause (a).
Section 5.5 PAYMENT OF TAXES, INSURANCE AND OTHER CHARGES. With respect to
each Mortgage Loan, the Master Servicer shall maintain accurate records
reflecting casualty insurance coverage.
With respect to each Mortgage Loan as to which the Master Servicer
maintains escrow accounts, the Master Servicer shall maintain accurate records
reflecting the status of ground rents, taxes, assessments, water rates and other
charges which are or may become a lien upon the Mortgaged Property and the
status of primary mortgage guaranty insurance premiums, if any, and casualty
insurance coverage and shall obtain, from time to time, all bills for the
payment of such charges (including renewal premiums) and shall effect payment
thereof prior to the applicable penalty or termination date and at a time
appropriate for securing maximum discounts allowable, employing for such purpose
deposits of the Mortgagor in any escrow account which shall have been estimated
and accumulated by the Master Servicer in amounts sufficient for such purposes,
as allowed under the terms of the Mortgage. To the extent that a Mortgage does
not provide for escrow payments, the Master Servicer shall, if it has received
notice of a default or deficiency, monitor such payments to determine if they
are made by the Mortgagor.
Section 5.6 MAINTENANCE OF CASUALTY INSURANCE. For each Mortgage Loan, the
Master Servicer shall maintain or cause to be maintained in accordance with the
Master Servicer's loan servicing policies and procedures and to the extent
required by the related Mortgage Loan to be maintained by the Mortgagor, fire
and casualty insurance with a standard mortgagee clause and extended coverage in
an amount which is not less than the replacement value of the improvements
securing such Mortgage Loan or the unpaid principal balance of such Mortgage
Loan, whichever is less. If, upon origination of the Mortgage Loan, the
Mortgaged Property was in an area identified in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards (and flood
insurance has been made available) the Master Servicer will cause to be
maintained in accordance with the Master Servicer's loan servicing policies and
procedures and to the extent required by the related Mortgage Loan to be
maintained by the Mortgagor, a flood insurance policy meeting the requirements
of the current guidelines of the Federal Insurance Administration with a
generally acceptable insurance carrier, in an amount representing coverage not
less than the least of (i) the unpaid principal balance of the Mortgage Loan,
(ii) the full insurable value of the Mortgaged Property or (iii) the maximum
amount of insurance available under the Flood Disaster Protection Act of 1973.
With respect to each Mortgage Loan, the Master Servicer shall in accordance with
the Master Servicer's loan servicing policies and procedures also maintain fire
insurance with extended coverage and, if applicable, flood insurance on REO
Property in an amount which is at least equal to the lesser of (i) the maximum
insurable value of the improvements which are a part of such property and (ii)
the principal balance owing on such Mortgage Loan at the time of such
foreclosure or grant of deed in lieu of foreclosure plus accrued interest and
related Liquidation Expenses. It is understood and agreed that such insurance
shall be with insurers approved by the Master Servicer and that no earthquake or
other additional insurance is to be required of any Mortgagor or to be
maintained on property acquired in respect of a defaulted 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. The parties acknowledge
that the Master Servicer does not monitor maintenance of insurance with respect
to every Mortgage Loan. Pursuant to Section 5.3, any amounts collected by the
Master Servicer under any insurance policies maintained pursuant to this Section
5.6 (other than amounts to be applied to the restoration or repair of the
related Mortgaged Property or released to the Mortgagor in accordance with
Accepted Servicing Practices) shall be deposited into the Collection Account,
subject to withdrawal pursuant to Section 5.4. Any cost incurred by the Master
Servicer in maintaining any such insurance shall be added to the amount owing
under the Mortgage Loan where the terms of the Mortgage Loan so permit;
PROVIDED, HOWEVER, that the addition of any such cost shall not be taken into
account for purposes of calculating the principal amount of the Mortgage Note or
the Mortgage Loan secured by the Mortgage Note or the distributions to be made
to the Certificateholders. Such costs shall be recoverable by the Master
Servicer pursuant to Section 5.4. In the event that the Master Servicer shall
obtain and maintain a blanket policy issued by an insurer that is acceptable to
FNMA or FHLMC, insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligation as set forth in
the first sentence of this Section 5.6, it being understood and agreed that such
policy may contain a deductible clause, in which case the Master Servicer shall,
in the event that there shall not have been maintained on the related mortgaged
or acquired property an insurance policy complying with the first sentence of
this Section 5.6 and there shall have been a loss which would have been covered
by such a policy had it been maintained, be required to deposit from its own
funds into the Collection Account the amount not otherwise payable under the
blanket policy because of such deductible clause.
Section 5.7 MASTER SERVICER ACCOUNT. In addition to the Collection Account,
the Master Servicer shall be permitted to establish and maintain one or more
Master Servicer Accounts (collectively, the "Master Servicer Account"), each of
which shall be an Eligible Account, in which the Master Servicer may deposit all
payments by, and collections from, the Mortgagors received in connection with
the Mortgage Loans prior to the Master Servicer's deposit of all such funds
required to be deposited into the Collection Account. Withdrawals may be made
out of such collections in the Master Servicer Account to reimburse the Master
Servicer for any advances not otherwise required to be made from the Collection
Account or for any refunds made by the Master Servicer of any sums determined to
be overages, or to pay any interest owed to Mortgagors on such account to the
extent required by law, and in order to terminate and clear the Master Servicer
Account upon the termination of this Agreement upon the termination of the Trust
Fund.
Section 5.8 FIDELITY BOND; ERRORS AND OMISSIONS POLICY.
(a) The Master Servicer shall maintain with a responsible company, and at
its own expense, a blanket fidelity bond (a "Fidelity Bond") and an errors and
omissions insurance policy (an "Errors and Omissions Policy"), in a minimum
amount acceptable to FNMA or otherwise in an amount as is commercially available
at a cost that is not generally regarded as excessive by industry standards,
with broad coverage on all officers, employees or other persons acting in any
capacity requiring such persons to handle funds, money, documents or papers
relating to the Mortgage Loans ("Master Servicer Employees"). Any such fidelity
bond and errors and omissions insurance shall protect and insure the Master
Servicer against losses, including losses resulting from forgery, theft,
embezzlement, fraud, errors and omissions and negligent acts of such Master
Servicer Employees. Such fidelity bond shall also protect and insure the Master
Servicer against losses in connection with the release or satisfaction of a
Mortgage Loan without having obtained payment in full of the indebtedness
secured thereby. No provision of this Section 5.8 requiring such fidelity bond
and errors and omissions insurance shall diminish or relieve the Master Servicer
from its duties and obligations as set forth in this Agreement. Upon the request
of the Trustee[, the Certificate Insurer] or any Certificateholder, the Master
Servicer shall cause to be delivered to the Trustee, such Certificateholder [or
the Certificate Insurer] a certified true copy of such fidelity bond and
insurance policy. On the Closing Date, such bond and insurance is maintained
with certain underwriters as may be specified in writing to [the Certificate
Insurer and] the Trustee, from time to time. Any such fidelity bond or insurance
policy shall not be canceled or modified in a materially adverse manner without
written notice to the Trustee [and the Certificate Insurer].
(b) The Master Servicer shall be deemed to have complied with this
provision if one of its respective Affiliates has such a Fidelity Bond and
Errors and Omissions Policy and, by the terms of such fidelity bond and errors
and omission policy, the coverage afforded thereunder extends to the Master
Servicer. The Master Servicer shall cause each and every Subservicer for it to
maintain a policy of insurance covering errors and omissions and a fidelity bond
which would meet the requirements of Section 5.8(a) hereof. Any such Fidelity
Bond and Errors and Omissions Policy shall not be canceled or modified in a
materially adverse manner without written notice to the Certificate Insurer.
Section 5.9 COLLECTION OF TAXES, ASSESSMENTS AND OTHER ITEMS. The Master
Servicer shall deposit all payments by Mortgagors for taxes, assessments,
primary mortgage or hazard insurance premiums or comparable items in the
Collection Account. Withdrawals from the Collection Account may be made to
effect payment of taxes, assessments, primary mortgage or hazard insurance
premiums or comparable items, to reimburse the Master Servicer out of related
collections for any advances made in the nature of any of the foregoing, to
refund to any Mortgagors any sums determined to be overages, or to pay any
interest owed to Mortgagors on such account to the extent required by law. The
Master Servicer shall advance the payments referred to in the first sentence of
this Section 5.9 that are not timely paid by the Mortgagors on the date when the
tax, premium or other cost for which such payment is intended is due, but the
Master Servicer shall be required to so advance only to the extent that such
advances, in the good faith judgment of the Master Servicer, will be recoverable
by the Master Servicer pursuant to Section 5.3 out of Liquidation Proceeds,
Insurance Proceeds or otherwise.
Section 5.10 PERIODIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION;
ADDITIONAL INFORMATION. The Trustee shall prepare or cause to be prepared for
filing with the Commission (other than the Current Report on Form 8-K to be
filed by the Depositor in connection with computational materials and the
initial Current Report on Form 8-K to be filed by the Depositor in connection
with the issuance of the Certificates) any and all reports, statements and
information respecting the Trust Fund and/or the Certificates required to be
filed with the Commission pursuant to the Securities Exchange Act of 1934, and
shall solicit any and all proxies of the Certificateholders whenever such
proxies are required to be solicited pursuant to the Securities Exchange Act of
1934. The Depositor shall promptly file, and exercise its reasonable best
efforts to obtain a favorable response to, no-action requests with, or other
appropriate exemptive relief from, the Commission seeking the usual and
customary exemption from such reporting requirements granted to issuers of
securities similar to the Certificates. Fees and expenses incurred by the
Depositor in connection with this Section shall not be reimbursable from the
Trust Fund.
The Master Servicer and the Depositor each agree to promptly furnish the
Trustee, from time to time upon request, such further information, reports and
financial statements within their respective control related to this Agreement
and the Mortgage Loans as the Trustee reasonably deems appropriate to prepare
and file all necessary reports with the Commission.
Section 5.11 ENFORCEMENT OF DUE-ON-SALE CLAUSES; ASSUMPTION AGREEMENTS. In
any case in which a Mortgaged Property is about to be conveyed by the Mortgagor
(whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains liable thereon) and the Master Servicer has knowledge of such
prospective conveyance, the Master Servicer shall effect assumptions in
accordance with the terms of any due-on-sale provision contained in the related
Mortgage Note or Mortgage. The Master Servicer shall enforce any due-on-sale
provision contained in such Mortgage Note or Mortgage to the extent the
requirements thereunder for an assumption of the Mortgage Loan have not been
satisfied to the extent permitted under the terms of the related Mortgage Note,
unless such provision is not exercisable under applicable law and governmental
regulations or in the Master Servicer's judgment, such exercise is reasonably
likely to result in legal action by the Mortgagor, or such conveyance is in
connection with a permitted assumption of the related Mortgage Loan. Subject to
the foregoing, the Master Servicer is authorized to take or enter into an
assumption agreement from or with the Person to whom such property is about to
be conveyed, pursuant to which such person becomes liable under the related
Mortgage Note and, unless prohibited by applicable state law, the Mortgagor
remains liable thereon, provided that the Mortgage Interest Rate with respect to
such Mortgage Loan shall remain unchanged. The Master Servicer is also
authorized to release the original Mortgagor from liability upon the Mortgage
Loan and substitute the new Mortgagor as obligor thereon. In connection with
such assumption or substitution, the Master Servicer shall apply such
underwriting standards and follow such practices and procedures as shall be
normal and usual for mortgage loans similar to the Mortgage Loans and as it
applies to mortgage loans owned solely by it. The Master Servicer shall notify
the Trustee that any such assumption or substitution agreement has been
completed by forwarding to the Trustee the original copy of such assumption or
substitution agreement, which copy shall be added by the Trustee to the related
Mortgage File and shall, for all purposes, be considered a part of such Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. In connection with any such assumption or substitution agreement,
the Mortgage Interest Rate of the related Mortgage Note and the payment terms
shall not be changed. Any fee collected by the Master Servicer for entering into
an assumption or substitution of liability agreement will be retained by the
Master Servicer as servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Master Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any conveyance by
the Mortgagor of the property subject to the Mortgage or any assumption of a
Mortgage Loan by operation of law which the Master Servicer in good faith
determines it may be restricted by law from preventing, for any reason
whatsoever, or if the exercise of such right would impair or threaten to impair
any recovery under any applicable insurance policy or, in the Master Servicer's
judgment, be reasonably likely to result in legal action by the Mortgagor.
Section 5.12 REALIZATION UPON DEFAULTED MORTGAGE LOANS. Except as provided
in the last two paragraphs of this Section 5.12, the Master Servicer shall, on
behalf of the Trust, foreclose upon or otherwise comparably convert the
ownership of properties securing such of the Mortgage Loans as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 5.1. In connection with
such foreclosure or other conversion, the Master Servicer shall follow Accepted
Servicing Practices. The foregoing is subject to the proviso that the Master
Servicer shall not be required to expend its own funds in connection with any
foreclosure or to restore any damaged property unless it shall determine that
(i) such foreclosure and/or restoration will increase the proceeds of
liquidation of the Mortgage Loan to Certificateholders after reimbursement to
itself for such expenses and (ii) such expenses will be recoverable to it
through Liquidation Proceeds (respecting which it shall reimburse itself for
such expense prior to the deposit in the Collection Account of such proceeds).
The Master Servicer shall be entitled to reimbursement of the Servicing Fee and
other amounts due it, if any, to the extent, but only to the extent, that
withdrawals from the Collection Account and the Trustee Collection Account with
respect thereto are permitted under Section 5.3.
The Master Servicer may foreclose against the Mortgaged Property securing a
defaulted Mortgage Loan either by foreclosure, by sale or by strict foreclosure,
and in the event a deficiency judgment is available against the Mortgagor or any
other person, may proceed for the deficiency.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure (an "REO Property"), the deed or
certificate of sale shall be issued to the Trustee, or to the Master Servicer on
behalf of the Trustee and the Certificateholders. Notwithstanding any such
acquisition of title and cancellation of the related Mortgage Loan, such REO
Mortgage Loan shall be considered to be a Mortgage Loan held in the applicable
REMIC of the Trust Fund until such time as the related Mortgaged Property shall
be sold and such REO Mortgage Loan becomes a Liquidated Mortgage Loan.
Consistent with the foregoing, for purposes of all calculations hereunder, so
long as such REO Mortgage Loan shall be considered to be an Outstanding Mortgage
Loan:
(a) Notwithstanding that the indebtedness evidenced by the related Mortgage
Note shall have been discharged, such Mortgage Note and the related amortization
schedule in effect at the time of any such acquisition of title (after giving
effect to any previous Curtailments and before any adjustment thereto by reason
of any bankruptcy or similar proceeding or any moratorium or similar waiver or
grace period) shall be assumed to remain in effect, except that such schedule
shall be adjusted to reflect the application of Net REO Proceeds received in any
month pursuant to the succeeding clause.
(b) Net REO Proceeds received in any month shall be deemed to have been
received first in payment of the accrued interest that remained unpaid on the
date that such Mortgage Loan became an REO Mortgage Loan of the applicable REMIC
of the Trust Fund, with the excess thereof, if any, being deemed to have been
received in respect of the delinquent principal installments that remained
unpaid on such date. Thereafter, Net REO Proceeds received in any month shall be
applied to the payment of installments of principal and accrued interest on such
Mortgage Loan deemed to be due and payable in accordance with the terms of such
Mortgage Note and such amortization schedule. If such Net REO Proceeds exceed
the then Unpaid REO Amortization, the excess shall be treated as a Curtailment
received in respect of such Mortgage Loan.
(c) The Net REO Proceeds allocated to the payment of a related Servicing
Fee shall be limited to an amount equal to the product of (x) the total amount
of Net REO Proceeds allocable to interest multiplied by (y) the fraction, the
numerator of which is the interest rate at which the Servicing Fee is determined
and the denominator of which is the Mortgage Interest Rate borne by such
Mortgage Loan.
In the event that the 199_ - _ REMIC acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, such Mortgaged Property shall be disposed of by or on behalf of
such 199_ - _ REMIC within three years after its acquisition thereby unless (i)
the Master Servicer shall have provided to the Trustee an Opinion of Counsel to
the effect that the holding by such 199_ - _ REMIC of the Trust Fund of such
Mortgaged Property subsequent to three years after its acquisition (and
specifying the period beyond such three-year period for which the Mortgaged
Property may be held) will not cause such 199_ - _ REMIC to be subject to the
tax on prohibited transactions imposed by Code Section 860F(a)(1), otherwise
subject such 199_ - _ REMIC or the Trust Fund to tax or cause the 199_ - _ REMIC
to fail to qualify as a REMIC at any time that any Certificates are outstanding,
or (ii) the Master Servicer or the Trustee (at the Master Servicer's expense)
shall have applied for, at least 60 days prior to the expiration of such
three-year period, an extension of such three-year period in the manner
contemplated by Code Section 856(e)(3), in which case the three-year period
shall be extended by the applicable period. The Master Servicer shall further
ensure that the Mortgaged Property is administered so that it constitutes
"foreclosure property" within the meaning of Code Section 860G(a)(8) at all
times, that the sale of such property does not result in the receipt by the 199_
- - _ REMIC of any income from non-permitted assets as described in Code Section
860F(a)(2)(B), and that the 199_ - _ REMIC does not derive any "net income from
foreclosure property" within the meaning of Code Section 860G(c)(2) with respect
to such property.
In lieu of foreclosing upon any defaulted Mortgage Loan, the Master
Servicer may, in its discretion, permit the assumption of such Mortgage Loan if,
in the Master Servicer's judgment, such default is unlikely to be cured and if
the assuming borrower satisfies the Master Servicer's underwriting guidelines
with respect to mortgage loans owned by the Master Servicer. In connection with
any such assumption, the Mortgage Interest Rate of the related Mortgage Note and
the payment terms shall not be changed. Any fee collected by the Master Servicer
for entering into an assumption agreement will be retained by the Master
Servicer as servicing compensation. Alternatively, the Master Servicer may
encourage the refinancing of any defaulted Mortgage Loan by the Mortgagor.
Notwithstanding the foregoing, prior to instituting foreclosure proceedings
or accepting a deed-in-lieu of foreclosure with respect to any Mortgaged
Property, the Master Servicer shall make, or cause to be made, inspection of the
Mortgaged Property in accordance with the Accepted Servicing Practices and, with
respect to environmental hazards, such procedures as are required by the
provisions of the FNMA's selling and servicing guide applicable to single-family
homes and in effect on the date hereof. The Master Servicer shall be entitled to
rely upon the results of any such inspection made by others. In cases where the
inspection reveals that such Mortgaged Property is potentially contaminated with
or affected by hazardous wastes or hazardous substances, the Master Servicer
shall promptly give written notice of such fact to [the Certificate Insurer,]
the Trustee and each Class A Certificateholder. The Master Servicer shall not
commence foreclosure proceedings or accept a deed-in-lieu of foreclosure for
such Mortgaged Property [without obtaining the consent of the Certificate
Insurer].
Section 5.13 TRUSTEE TO COOPERATE; RELEASE OF MORTGAGE FILES. Upon the
payment in full of any Mortgage Loan, or the receipt by the Master Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Master Servicer shall (i) immediately deliver to the Trustee
two copies of a notice substantially in the form of the Request for Release
attached hereto as Exhibit H (which request 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 5.3 have
been or shall be so deposited) and executed by a Servicing Officer and (ii)
request delivery to it of the Mortgage File. Upon receipt of such Request for
Release, or in a mutually agreeable electronic format which will, in lieu of a
signature on its face, originate from an Authorized Officer, the Trustee, or the
Custodian on its behalf, shall promptly release the related Mortgage File to the
Master Servicer. Upon any such payment in full, the Master Servicer is
authorized to give, as agent for the Trustee and the mortgagee under the
Mortgage which secured the Mortgage Loan, an instrument of satisfaction (or
assignment of mortgage without recourse) regarding the property subject to such
Mortgage, which instrument of satisfaction or assignment, as the case may be,
shall be delivered to the Person or Persons entitled thereto against receipt
therefor of such payment, it being understood and agreed that no expenses
incurred in connection with such instrument of satisfaction or assignment, as
the case may be, shall be chargeable to the Collection Account. In connection
therewith, the Trustee shall execute and return to the Master Servicer any
required power of attorney provided to the Trustee by the Master Servicer and
other required documentation in accordance with Section 5.1(d). From time to
time and as appropriate for the servicing or foreclosure of any Mortgage Loan
and in accordance with Accepted Servicing Practices, the Trustee shall, upon
request of the Master Servicer and delivery to the Trustee of a Request for
Release signed by a Servicing Officer, release, or cause the Custodian to
release, the related Mortgage File to the Master Servicer and shall execute such
documents as shall be necessary to the prosecution of any such proceedings. Such
Request for Release shall obligate the Master Servicer to return the Mortgage
File to the Trustee when the need therefor by the Master 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 the Request for Release
herein above specified, the Mortgage File shall be delivered by the Trustee to
the Master Servicer.
Section 5.14 SERVICING FEE; SERVICING COMPENSATION.
(a) The Master Servicer shall be entitled, at its election, either (1) to
pay itself the Servicing Fee out of any Mortgagor payment on account of interest
or Net REO Proceeds actually collected prior to the deposit of such payment in
the Collection Account or (2) to withdraw from the Collection Account or Trustee
Collection Account such Servicing Fee pursuant to Section 5.4. The Master
Servicer shall also be entitled, at its election, either (i) to pay itself the
Servicing Fee in respect of each delinquent Mortgage Loanout of Liquidation
Proceeds in respect of such Mortgage Loan or other recoveries with respect
thereto to the extent permitted in Section 5.3(a) or (ii) to withdraw from the
Collection Account the Servicing Fee in respect of each such Mortgage Loan to
the extent of such Liquidation Proceeds or other recoveries, to the extent
permitted by Section 5.4(a).
The aggregate Servicing Fee is reserved for the administration of the Trust
Fund and, in the event of replacement of the Master Servicer as Master Servicer
of the Mortgage Loans, for the payment of other expenses related to such
replacement. The aggregate Servicing Fee shall be offset as provided in Section
5.19. The Master Servicer shall be required to pay all expenses incurred by it
in connection with its servicing activities hereunder (including maintenance of
the hazard insurance required by Section 5.5) and shall not be entitled to
reimbursement therefor except as specifically provided herein.
(b) Servicing compensation in the form of assumption fees, late payment
charges, tax service fees, fees for statement of account or payoff of the
Mortgage Loan (to the extent permitted by applicable law) or otherwise shall be
retained by the Master Servicer and are not required to be deposited in the
Collection Account.
Section 5.15 REPORTS TO THE TRUSTEE; COLLECTION ACCOUNT STATEMENTS. Not
later than 15 days after each Remittance Date, the Master Servicer shall provide
to the Trustee and the Certificate Insurer a statement, certified by a Servicing
Officer, setting forth the status of the Collection Account as of the close of
business on the related Determination Date, stating that all distributions
required by this Agreement to be made by the Master Servicer on behalf of the
Trustee have been made (or if any required distribution has not been made by the
Master Servicer, specifying the nature and status thereof) and showing, for the
period covered by such statement, the aggregate of deposits into and withdrawals
from the Collection Account for each category of deposit specified in Section
5.3 and each category of withdrawal specified in Section 5.4, the allocation of
such amounts between principal and interest collected on the Mortgage Loans and
the aggregate of deposits into the Certificate Account as specified in Section
6.1(c). Such statement shall also state the aggregate unpaid Principal Balance
of all the Mortgage Loans as of the close of business on the last day of the
month preceding the month in which such Remittance Date occurs. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon
request.
Section 5.16 ANNUAL STATEMENT AS TO COMPLIANCE. The Master Servicer will
deliver to the Trustee, [the Certificate Insurer,] _______ and _______ not later
than the last day of the fifth month (as of the Closing Date, May 31st)
subsequent to the end of the Master Servicer's fiscal year, an Officers'
Certificate stating as to each signer thereof, that (i) a review of the
activities of the Master Servicer during the preceding calendar year and of its
performance under this Agreement has been made under such officer's supervision,
and (ii) to the best of such officer's knowledge, based on such review, the
Master Servicer has fulfilled all its obligations under this Agreement
throughout such year, or if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. The first such Officers' Certificate shall be
delivered in _______ 20__. Such Officers' Certificate shall be accompanied by
the statement described in Section 5.17 of this Agreement. Copies of such
statement shall, upon request, be provided to any Certificateholder by the
Master Servicer, or by the Trustee at the Master Servicer's expense if the
Master Servicer shall fail to provide such copies.
Section 5.17 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT. Not
later than the last day of the fifth month (as of the Closing Date, __________)
subsequent to the end of the Master Servicer's fiscal year, the Master Servicer,
at its expense, shall cause a firm of nationally recognized independent public
accountants to furnish a statement to the Trustee, [the Certificate Insurer,]
_______ and _______ to the effect that, on the basis of an examination of
certain documents and records relating to the servicing of the mortgage loans
being serviced by the Master Servicer under pooling and servicing agreements
similar to this Agreement (which agreements shall be described in a schedule to
such statement), conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers, such firm is of the opinion that such
servicing has been conducted in compliance with the Uniform Single Attestation
Program for Mortgage Bankers and that such examination has disclosed no
exceptions or errors relating to the servicing activities of the Master Servicer
(including servicing of Mortgage Loans subject to this Agreement) that, in the
opinion of such firm, are material, except for such exceptions as shall be set
forth in such statement. The first such statement shall be delivered in _______
20__. Copies of such statement shall, upon request, be provided to
Certificateholders by the Master Servicer, or by the Trustee at the Master
Servicer's expense if the Master Servicer shall fail to provide such copies. For
purposes of such statement, such firm may conclusively presume that any pooling
and servicing agreement which governs mortgage pass-through certificates offered
by the Depositor (or any predecessor or successor thereto) in a registration
statement under the Securities Act of 1933, as amended, is similar to this
Agreement, unless such other pooling and servicing agreement expressly states
otherwise. In the event such firm requires the Trustee to agree to the
procedures performed by such firm, the Master Servicer shall direct the Trustee
in writing to agree; it being understood and agreed that the Trustee will
deliver such letter of agreement in conclusive reliance upon the direction of
the Master Servicer, and the Trustee shall not make any independent inquiry or
investigation as to, and shall have no obligation or liability in respect of,
the sufficiency, validity or correctness of such procedures. Delivery of such
reports, information and documents to the Trustee is for informational purposes
only, and the Trustee's receipt of such shall not constitute constructive notice
of any information contained therein or determinable from the information
contained therein, including the Master Servicer's compliance with any of its
covenants hereunder (as to which the Trustee is entitled to rely exclusively on
the Officer's Certificates).
Section 5.18 REPORTS TO BE PROVIDED BY THE MASTER SERVICER.
(a) In connection with the transfer of the Certificates, the Trustee on
behalf of any Certificateholder may request that the Master Servicer make
available to any prospective Certificateholder annual unaudited financial
statements of the Master Servicer (or, upon request, audited annual financial
statements of the Master Servicer's ultimate parent corporation) for one or more
of the most recently completed fiscal years for which such statements are
available, which request shall not be unreasonably denied or unreasonably
delayed. [Such annual unaudited financial statements also shall be made
available to the Certificate Insurer upon request.] In the event such firm
requires the Trustee to agree to the procedures performed by such firm, the
Master Servicer shall direct the Trustee in writing to agree; it being
understood and agreed that the Trustee will deliver such letter of agreement in
conclusive reliance upon the direction of the Master Servicer, and the Trustee
shall not make any independent inquiry or investigation as to, and shall have no
obligation or liability in respect of, the sufficiency, validity or correctness
of such procedures. Delivery of such reports, information and documents to the
Trustee is for informational purposes only, and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from the information contained therein, including the Master
Servicer's compliance with any of its covenants hereunder (as to which the
Trustee is entitled to rely exclusively on the Officer's Certificates).
(b) The Master Servicer also agrees to make available on a reasonable basis
to [the Certificate Insurer,] the Trustee or any prospective Certificateholder a
knowledgeable financial or accounting officer for the purpose of answering
reasonable questions respecting recent developments affecting the Master
Servicer or the financial statements of the Master Servicer and to permit [the
Certificate Insurer or] any prospective Certificateholder to inspect the Master
Servicer's servicing facilities during normal business hours for the purpose of
satisfying [the Certificate Insurer,] the Trustee or such prospective
Certificateholder that the Master Servicer has the ability to service the
Mortgage Loans in accordance with this Agreement.
Section 5.19 ADJUSTMENT OF SERVICING COMPENSATION IN RESPECT OF PREPAID
MORTGAGE LOANS. The aggregate amount of the Servicing Fees that the Master
Servicer shall be entitled to receive with respect to all of the Mortgage Loans
and each Remittance Date shall be offset on such Remittance Date by an amount
equal to the aggregate Prepayment Interest Shortfall with respect to all
Mortgage Loans which were subjects of Principal Prepayments during the Due
Period applicable to such Remittance Date. The amount of any offset against the
aggregate Servicing Fee with respect to any Remittance Date under this Section
5.19 shall be limited to the aggregate amount of the Servicing Fees otherwise
payable to the Master Servicer (without adjustment on account of Prepayment
Interest Shortfalls) with respect to (i) scheduled payments having the Due Date
occurring in the Due Period applicable to such Remittance Date received by the
Master Servicer prior to the Determination Date, and (ii) Principal Prepayments,
Curtailments and Liquidation Proceeds received in the Due Period applicable to
such Remittance Date, and the rights of the Certificateholders to the offset of
the aggregate Prepayment Interest Shortfalls shall not be cumulative.
Section 5.20 PERIODIC ADVANCES. If, on the Business Day prior to any
Determination Date, the Master Servicer determines that any Monthly Payments due
on the Due Date immediately preceding such Determination Date have not been
received as of the close of business on the second Business Day preceding such
Determination Date, the Master Servicer shall determine the amount of any
Periodic Advance required to be made with respect to such unpaid Monthly
Payments on the related Determination Date. The Master Servicer shall, on the
Business Day preceding such Determination Date, certify and deliver a magnetic
tape or diskette to the Trustee indicating the payment status of each Mortgage
Loan as of the second Business Day preceding such Determination Date and shall
cause to be deposited in the Collection Account an amount equal to the Periodic
Advance for the related Determination Date, which deposit may be made in whole
or in part from funds in the Collection Account being held for future
distribution or withdrawal on or in connection with Remittance Dates in
subsequent months. Any funds being held for future distribution to
Certificateholders and so used shall be replaced by the Master Servicer from its
own funds by deposit into the Collection Account on or before the Determination
Date corresponding to any such future Determination Date to the extent that
funds in the Collection Account for such future Determination Date shall
otherwise be less than the amount required to be transferred to the Certificate
Account in respect of payments to Certificateholders required to be made on the
Remittance Date related to such future Determination Date.
The Master Servicer shall designate on its records the specific Mortgage
Loans and related installments (or portions thereof) as to which such Periodic
Advance shall be deemed to have been made, such designation, except in cases of
manifest error, being conclusive for purposes of withdrawals from the Collection
Account or Trustee Collection Account pursuant to Section 5.4.
Section 5.21 INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) Each of the Master Servicer, the Depositor, and the Transferor (solely
for the purpose of this Section 5.21, the "Indemnifying Parties") agrees to
indemnify and to hold each of the Master Servicer, the Depositor, the Trustee,
the Transferor[, the Certificate Insurer] and each Certificateholder (solely for
the purpose of this Section 5.21, the "Indemnified Parties") harmless against
any and all claims, losses, penalties, fines, forfeitures, legal fees and
related costs, judgments, and any other costs, fees and expenses that the
Indemnified Parties may, respectively, sustain in any way related to the failure
of any one or more of the Indemnifying Parties to perform its respective duties
in compliance with the terms of this Agreement. Each Indemnified Party and the
Master Servicer shall promptly notify the other Indemnified Parties if a claim
is made by a third party with respect to this Agreement, and the Master Servicer
shall [with the consent of the Certificate Insurer, such consent not to be
unreasonably withheld,] assume the defense of any such claim and pay all
expenses in connection therewith, including reasonable counsel fees [approved by
the Certificate Insurer], and promptly pay, discharge and satisfy any judgment
or decree which may be entered against the Indemnified Parties in respect of
such claim. The Trustee shall, out of the assets of the Trust Fund, reimburse
the Master Servicer in accordance with Section 5.14 hereof for all amounts
advanced by it pursuant to the preceding sentence except when the claim relates
directly to the failure of the Master Servicer to service and administer the
Mortgages in compliance with the terms of this Agreement; provided, that the
Master Servicer's indemnity hereunder shall not be in any manner conditioned on
the availability of funds for such reimbursement.
(b) The Trustee, at the written request of the Master Servicer (which the
Trustee may conclusively rely on) shall reimburse the Transferor from amounts
otherwise distributable on the Class R Certificates for all amounts advanced by
the Transferor pursuant to the second sentence of Section 4.3 of the Purchase
and Sale Agreement except when the relevant claim relates directly to the
failure of the Transferor to perform its duties in compliance with the terms of
the Purchase and Sale Agreement.
Section 5.22 MAINTENANCE OF CORPORATE EXISTENCE AND LICENSES; MERGER OR
CONSOLIDATION OF THE MASTER SERVICER.
(a) The Master Servicer will keep in full effect its existence, rights and
franchises as a corporation, will obtain and preserve its qualification to do
business as a foreign corporation in each jurisdiction necessary to protect the
validity and enforceability of this Agreement or any of the Mortgage Loans and
to perform its duties under this Agreement and will otherwise operate its
business so as to cause the representations and warranties under Section 3.1 to
be true and correct at all times under this Agreement.
(b) Any Person into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any Person
succeeding to the business of the Master Servicer, shall be an established
mortgage loan servicing institution [acceptable to the Certificate Insurer] that
has a net worth of at least $15,000,000 and is a Permitted Transferee, and in
all events shall be the successor of the Master Servicer 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 Master Servicer
shall send notice of any such merger or consolidation to the Trustee [and the
Certificate Insurer].
Section 5.23 ASSIGNMENT OF AGREEMENT BY MASTER SERVICER; MASTER SERVICER
NOT TO RESIGN. The Master Servicer shall not assign this Agreement nor resign
from the obligations and duties hereby imposed on it except by mutual written
consent of the Master Servicer, the Transferor[, the Certificate Insurer] and
the Trustee or upon the determination that the Master Servicer's duties
hereunder are no longer permissible under applicable law and that such
incapacity cannot be cured by the Master Servicer without the incurrence [, in
the reasonable judgment of the Certificate Insurer,] of unreasonable expense.
Any such determination that the Master Servicer's duties hereunder are no longer
permissible under applicable law permitting the resignation of the Master
Servicer shall be evidenced by a written Opinion of Counsel (who may be counsel
for the Master Servicer) to such effect delivered to the Trustee, the
Transferor, the Depositor [and the Certificate Insurer]. No such resignation
shall become effective until the Trustee or another successor appointed in
accordance with the terms of this Agreement has assumed the Master Servicer's
responsibilities and obligations hereunder in accordance with Section 7.2. The
Master Servicer shall provide the Trustee, _______ and _______ [and the
Certificate Insurer] with 30 days prior written notice of its intention to
resign pursuant to this Section 5.23.
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<PAGE>
ARTICLE VI
DISTRIBUTIONS AND PAYMENTS
Section 6.1 ESTABLISHMENT OF CERTIFICATE ACCOUNT, DEPOSITS TO THE
CERTIFICATE ACCOUNT.
(a) The Trustee shall establish and maintain the Certificate Account which
shall be titled "Certificate Account, ____________________, as trustee for the
registered holders of _______ Home Equity Asset Backed Certificates, Series 199_
- - _, Class A and Class R" and which shall be an Eligible Account. Notice of the
establishment of the Certificate Account shall be promptly provided in writing
to each of the Master Servicer, the Rating Agencies [and the Certificate
Insurer].
(b) The Trustee shall control and receive the income from the investment of
funds in the Certificate Account. The Trustee shall deposit the amount of any
losses incurred in respect of any such investments in the Certificate Account
out of its own funds immediately as realized.
(c) On each Determination Date, the Master Servicer shall cause to be
deposited in the Certificate Account from funds on deposit in the Collection
Account, an amount equal to the Master Servicer Remittance Amount (net of the
amount to be deposited pursuant to clause (ii) below) and (ii) from funds on
deposit in the Collection Account or the Trustee Collection Account, the Net
Foreclosure Profits, if any with respect to the related Remittance Date, minus
any portion thereof payable to the Master Servicer pursuant to Section 5.3.
Section 6.2 PERMITTED WITHDRAWALS FROM THE CERTIFICATE ACCOUNT. The Trustee
shall, in accordance with the Master Servicer's written directions (in the case
of (a), (b), (d) or (e) below) to the Trustee as described in Section 6.5,
withdraw or cause to be withdrawn funds from the Certificate Account for the
following purposes:
(a) to effect the distributions described in Section 6.5(a) and 6.5(b);
(b) to pay to or upon the direction of the Transferor with respect to each
Mortgage Loan or property acquired in respect thereof that has been repurchased
or replaced pursuant to Section 2.4 or 3.3 or to pay to the Master Servicer with
respect to each Mortgage Loan or property acquired in respect thereof that has
been purchased all amounts received thereon deposited in the Certificate Account
that do not constitute property of the Trust Fund;
(c) to pay the Trustee any interest earned on or investment income earned
with respect to funds in the Certificate Account;
(d) to return to the Collection Account any amount deposited in the
Certificate Account that was not required to be deposited therein; and
(e) to clear and terminate the Certificate Account upon termination of the
Trust Fund pursuant to Article VIII.
The Trustee shall keep and maintain a separate accounting for withdrawals
from the Certificate Account pursuant to each of subclauses (a) through (e)
listed above.
Section 6.3 COLLECTION OF MONEY. Except as otherwise expressly provided
herein, the Trustee may demand payment or delivery of all money and other
property payable to or receivable by the Trustee pursuant to this Agreement,
including, but not limited to, (i) all payments due from the Master Servicer or
any Subservicer on the Mortgage Loans in accordance with the respective terms
and conditions of such Mortgage Loans and required to be paid over to the
Trustee by the Master Servicer or by any Subservicer [and (ii) Insured Payments
from the Certificate Insurer]. The Trustee shall hold all such money and
property received by it as part of the Trust Fund and shall apply it as provided
in this Agreement.
[Section 6.4 The Certificate Insurance Policy.
(a) Not later than two Business Days prior to the Remittance Date, the
Trustee, based on the information provided to it by the Master Servicer pursuant
to Section 6.5 hereof, shall determine with respect to the immediately following
Remittance Date the amount to be on deposit in the Certificate Account reduced
by (x) the sum of the amounts described in clauses (i) and (ii) of Section
6.5(a) and the amounts described in clauses (i) and (ii) of Section 6.5(b) for
the related Remittance Date, and further not including (y) any Insured Payment.
(b) Not later than 12:00 noon New York City time on the second Business Day
preceding each Remittance Date, the Trustee shall, if the Trustee, based solely
on information provided by the Master Servicer, determines that the Available
Amount for the related Remittance Date is less than the sum of the Class A-1
Interest Distribution Amount, Class A-2 Interest Distribution Amount, Class A-3
Interest Distribution Amount, Class A-4 Interest Distribution Amount and Class
A-5 Interest Distribution Amount and any Subordination Deficit for such
Remittance Date, complete a Notice in the form of Exhibit A to the Class A
Certificate Insurance Policy, and submit such notice to the Certificate Insurer
and such notice shall serve as a claim for an Insured Payment in an amount equal
to the Insured Payment due with respect to the Class A Certificates for and on
such Remittance Date. The Insured Payment shall be deposited directly into the
Certificate Account in accordance with the Notice and the Certificate Insurance
Policy.
(c) The Trustee shall keep a complete and accurate record of the amount of
interest and principal paid in respect of any Certificate from moneys received
under the Certificate Insurance Policy. The Certificate Insurer shall have the
right to inspect such records at reasonable times during normal business hours
upon one Business Day's prior notice to the Trustee.
(d) In the event that the Trustee has received a certified copy of an order
of the appropriate court that any amount distributed on the Class A
Certificates, including any amounts represented by an Insured Payment, has been
voided in whole or in part as a preference payment under applicable bankruptcy
law, the Trustee shall so notify the Certificate Insurer, shall comply with the
provisions of the Certificate Insurance Policy to obtain payment by the
Certificate Insurer of such voided amount distributed, and shall, at the time it
provides notice to the Certificate Insurer, notify, by mail to
Certificateholders of the affected Certificates that, in the event any
Certificateholder's amount distributed is so recovered, such Certificateholder
will be entitled to payment pursuant to the Certificate Insurance Policy, a copy
of which shall be made available through the Trustee, the Certificate Insurer or
the Certificate Insurer's fiscal agent, if any, and the Trustee shall furnish to
the Certificate Insurer or its fiscal agent, if any, its records evidencing the
payments which have been made by the Trustee and subsequently recovered from
Certificateholders, and dates on which such payments were made.
(e) The Trustee shall promptly notify the Certificate Insurer of any
proceeding or the institution of any action, of which a Responsible Officer of
the Trustee has actual knowledge, seeking the avoidance as a preferential
transfer under applicable bankruptcy, insolvency, receivership or similar law (a
"Preference Claim") of any distribution made with respect to the Certificates.
Each Certificateholder, by its purchase of Certificates, the Master Servicer and
the Trustee agree that, the Certificate Insurer (so long as no Certificate
Insurer Default exists) may at any time during the continuation of any
proceeding relating to a Preference Claim direct all matters relating to such
Preference Claim, including, without limitation, (1) the direction of any appeal
of any order relating to such Preference Claim and (2) the posting of any
surety, supersedes or performance bond pending any such appeal. In addition and
without limitation of the foregoing, the Certificate Insurer shall be subrogated
to, and each Certificateholder, the Master Servicer and the Trustee hereby
delegate and assign to the Certificate Insurer, to the fullest extent permitted
by law, the rights of the Master Servicer, the Trustee and each
Certificateholder in the conduct of any such Preference Claim, including,
without limitation, all rights of any party to any adversary proceeding or
action with respect to any court order issued in connection with any such
Preference Claim.]
Section 6.5 DISTRIBUTIONS. No later than 12:00 noon California time on the
Business Day preceding each Determination Date, the Master Servicer shall
deliver to the Trustee and to the Certificate Insurer a report in a mutually
agreed upon format specifying (x) the outstanding Principal Balances of each of
the Mortgage Loans as of the last day of the calendar month immediately
preceding the Due Period applicable to such Determination Date, (y) such of the
information included in Section 6.7(c) as to the Mortgage Loans as the Trustee
may reasonably require [or the Certificate Insurer may reasonably request] and
(z) such information as to each Mortgage Loan as of the Record Date immediately
preceding such Determination Date and such other information as the Trustee
shall reasonably require [or the Certificate Insurer may reasonably request].
The Master Servicer shall include written direction to the Trustee [(with a copy
delivered to the Certificate Insurer)] specifying the following information
(which need not be in computer-readable form): (i) each amount to be transferred
from the Collection Account to the Certificate Account, including (a) the Master
Servicer Remittance Amount, (b) the Net Foreclosure Profits (net of any portion
payable to the Master Servicer) and (c) the Periodic Advances for the related
Remittance Date; and (ii) instructions to the Trustee specifying the amounts to
be withdrawn from the Certificate Account pursuant to Section 6.2(a) (including
therein an itemization of the amounts to be distributed pursuant to Section
6.2(a)(i) as specified in Sections 6.5(a)(i)-(ix) and 6.5(b)(i)-(ix)). The
information with respect to the Remittance Date provided by the Master Servicer
to the Trustee [and the Certificate Insurer] on the Business Day preceding each
Determination Date shall also include the Class A-1 Pass-Through Rate, the
Premium Percentage, the Class A-1 Principal Balance, the Class A-2 Principal
Balance, the Class A-3 Principal Balance, the Class A-4 Principal Balance, the
Class A-5 Principal Balance, the aggregate Principal Balance of the Mortgage
Loans, the Overcollateralization Deficit; the Overcollateralization Increase
Amount, the Overcollateralization Amount; the Overcollateralization Target
Amount; and any Subordinate Deficit. The Master Servicer shall also calculate
and provide the Available Amount, the Excess Spread, and the amount of any
Insured Payment. Simultaneous with the delivery of the foregoing information to
the Trustee, the Master Servicer shall provide the Trustee [and the Certificate
Insurer] with a report including information specified in each of Sections
6.7(a)(i)-(xi) and in Section 6.7(c)(i)-(vii).
(a) With respect to the Certificate Account (including, if deposited into
such Certificate Account, any Insured Payments), on each Remittance Date, the
Trustee shall make the following allocations, disbursements and transfers in the
following order of priority, in accordance with the information received
pursuant to the immediately preceding paragraph and each such allocation,
transfer and disbursement shall be treated as having occurred only after all
preceding allocations, transfers and disbursements have occurred:
(i)from the Master Servicer Remittance Amount, to the Holders of
the Class R Certificates, any prepayment penalties collected during the
related Due Period with respect to a Mortgage Loan;
(ii) from the Master Servicer Remittance Amount, to the
Certificate Insurer, a Proportional Share of the [Certificate Insurance
Premium Amount];
(iii) from the Master Servicer Remittance Amount Available
Amount, to the Trustee, a Proportional Share of the Trustee Fees then due
to it;
(iv) from the Available Amount plus any Excess Spread plus the
applicable portion of any Insured Payment, to the Class A-1
Certificateholders an amount equal to the Class A-1 Interest Distribution
Amount, to the Class A-2 Certificateholders an amount equal to the Class
A-2 Interest Distribution Amount, to the Class A-3 Certificateholders an
amount equal to the Class A-3 Interest Distribution Amount, to the Class
A-4 Certificateholders an amount equal to the Class A-4 Interest
Distribution Amount and to the Class A-5 Certificateholders and amount
equal to the Class A-5 Interest Distribution Amount, PRO RATA;
(v)from the Available Amount plus any Excess Spread plus the
applicable portion of any Insured Payment, to the Class A-1
Certificateholders an amount equal to the Principal Distribution Amount
net of any Overcollateralization Increase Amount included therein until
the Class A-1 Principal Balance has been reduced to zero, then to the
Class A-2 Certificateholders an amount equal to the Principal Distribution
Amount net of any Overcollateralization Increase Amount included therein
until the Class A-2 Principal Balance has been reduced to zero, then to
the Class A-3 Certificateholders an amount equal to the remaining
Principal Distribution Amount net of any Overcollateralization Increase
Amount included therein until the Class A-3 Principal Balance has been
reduced to zero, to the Class A-4 Certificateholders an amount equal to
the remaining Principal Distribution Amount net of any
Overcollateralization Increase Amount included therein until the Class A-4
Principal Balance has been reduced to zero and finally to the Class A-5
Certificateholders an amount equal to the remaining Principal Distribution
Amount net of any Overcollateralization Increase Amount included therein
until the Class A-5 Principal Balance has been reduced to zero;
(vi) from the Excess Spread to the Class A-1 Certificateholders,
Class A-2 Certificateholders, Class A-3 Certificateholders, Class A-4
Certificateholders or Class A-5 Certificateholders, as applicable, an
amount equal to the excess of (a) the sum of the Class A-1 Interest
Distribution Amount, the Class A-2 Interest Distribution Amount, the Class
A-3 Interest Distribution Amount, the Class A-4 Interest Distribution
Amount, the Class A-5 Interest Distribution Amount and any Principal
Distribution Amount net of any Overcollateralization Increase Amount
included therein over (b) the Available Amount until the Class A-1
Principal Balance, Class A-2 Principal Balance, Class A-3 Principal
Balance, Class A-4 Principal Balance or the Class A-5 Principal Balance,
as applicable, has been reduced to zero;
[(vii) to the Certificate Insurer the lesser of (x) the excess of
(a) the amount in the Certificate Account (excluding Insured Payments)
over (b) the amount of Insured Payments for such Remittance Date and (y)
the outstanding Reimbursement Amount, if any, as of such Remittance Date;]
(viii) from the Excess Spread, first to the Class A-1
Certificateholders an amount equal to any outstanding
Overcollateralization Increase Amount until the Class A-1 Principal
Balance has been reduced to zero, next to the Class A-2 Certificateholders
an amount equal to any outstanding Overcollateralization Increase Amount
until the Class A-2 Principal Balance has been reduced to zero, next to
the Class A-3 Certificateholders an amount equal to any outstanding
Overcollateralization Increase Amount until the Class A-3 Principal
Balance has been reduced to zero, next to the Class A-4 Certificateholders
an amount equal to any outstanding Overcollateralization Increase Amount
until the Class A-4 Principal Balance has been reduced to zero and then to
the Class A-5 Certificateholders an amount equal to any outstanding
Overcollateralization Increase Amount until the Class A-5 Principal
Balance has been reduced to zero; and
(ix) to the Holders of the Class R Certificates, the remaining
Available Amount on deposit in the Certificate Account on such Remittance
Date, if any.
Notwithstanding the foregoing, the aggregate amounts distributed on all
Remittance Dates to the Holders of the Class A-1 Certificates, the Holders of
the Class A-2 Certificates, the Holders of the Class A-3 Certificates, the
Holders of the Class A-4 Certificates and the Holders of the Class A-5
Certificates on account of principal shall not exceed the Original Class A-1
Principal Balance, Original Class A-2 Principal Balance, Original Class A-3
Principal Balance, Original Class A-4 Principal Balance or Original Class A-5
Principal Balance, as applicable.
Section 6.6 INVESTMENT OF ACCOUNTS.
(a) So long as no Event of Default shall have occurred and be continuing,
and consistent with any requirements of the Code, all or a portion of any
Account held by the Trustee may be invested and reinvested by the Trustee, in
one or more Permitted Investments bearing interest or sold at a discount and
maturing not later than the next Remittance Date. [Notwithstanding anything to
the contrary in this Section 6.6(a), all amounts received under the Certificate
Insurance Policy shall remain uninvested.]
If any amounts are needed for disbursement from any Account held by the
Trustee and sufficient uninvested funds are not available to make such
disbursement, the Trustee shall cause to be sold or otherwise converted to cash
a sufficient amount of the investments in such Account. The Trustee shall be
liable for any investment loss or other charge resulting therefrom.
(b) So long as no Event of Default shall have occurred and be continuing,
all net income and gain realized from investment of, and all earnings on, funds
deposited in any Collection Account shall be for the benefit of the Master
Servicer as servicing compensation (in addition to the Servicing Fee). The
Master Servicer shall deposit in the related Account the amount of any loss
incurred in respect of any Permitted Investment held therein which is in excess
of the income and gain thereon immediately upon realization of such loss,
without any right to reimbursement therefor from its own funds.
Section 6.7 REPORTS BY TRUSTEE.
(a) On each Remittance Date the Trustee shall forward a report delivered to
it by the Master Servicer on the Business Day preceding each Determination Date,
as described in Section 6.5 hereof, to each Holder, [to the Certificate
Insurer,] to the Depositor, to the Master Servicer, to _______ and to _______
(the "Trustee Remittance Report"). Such report shall set forth the following
information:
(i)the amount of the distributions made on such Remittance Date
with respect to the Class A-1 Certificates, the Class A-2 Certificates,
the Class A-3 Certificates, the Class A-4 Certificates, the Class A-5
Certificates and the Class R Certificates;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments
or other unscheduled recoveries of principal included therein;
(iii) the amount of such distributions allocable to interest and
the calculation thereof;
(iv) the amount of any Net Liquidation Proceeds included in such
distributions and the calculation thereof;
(v)the principal amount of the Class A-1 Certificates (based on a
Certificate in an original principal amount of $1,000), the principal
amount of the Class A-2 Certificates (based on a Certificate in an
original principal amount of $1,000), the principal amount of the Class
A-3 Certificates (based on a Certificate in an original principal amount
of $1,000), the principal amount of the Class A-4 Certificates (based on a
Certificate in an original principal amount of $1,000) and the principal
amount of the Class A-5 Certificates (based on a Certificate in an
original principal amount of $1,000) then outstanding, and the outstanding
amount of the Principal Balances, after giving effect to any principal
payments made on such Remittance Date;
(vi) the amount of any Insured Payment included in the amounts
distributed to the Class A Certificateholders on such Remittance Date;
(vii) (a) the amount of the Overcollateralization Amount, the
Overcollateralization Target Amount, the Overcollateralization Increase
Amount and (b) any Subordination Deficit on such Remittance
Date;
(viii) the total of any Substitution Adjustments and any Loan
Repurchase Price amounts included in each such distribution; and
(ix) the amounts, if any, of any related Liquidation Loan Losses
for the related Due Period.
Items (i), (ii) and (iii) above shall, with respect to the Class A Certificates,
be presented on the basis of a Certificate having a $1,000 denomination. In
addition, by __________ of each calendar year following any year during which
the Certificates are outstanding, the Trustee shall furnish a report to each
Holder of record if so requested in writing at any time during each calendar
year as to the aggregate of amounts reported pursuant to (i), (ii) and (iii)
with respect to the Certificates for such calendar year.
(b) All distributions made to the Certificateholders according to Class or
type of Certificate on each Remittance Date will be made on a PRO RATA basis
among the Certificateholders as of the next preceding Record Date based on the
proportional beneficial ownership interest in the 199_ - _ REMIC as are
represented by their respective Certificates, and shall be made by wire transfer
of immediately available funds to the account of such Certificateholder at a
bank or other entity having appropriate facilities therefor, if, in the case of
a Class A Certificateholder, such Certificateholder shall own of record
Certificates of the same Class which have denominations aggregating at least
$5,000,000 appearing in the Certificate Register and shall have provided
complete wiring instructions at least five Business Days prior to the Record
Date, and otherwise by check mailed to the address of such Certificateholder
appearing in the Certificate Register.
(c) In addition, on each Remittance Date the Trustee will distribute to
each Holder, [to the Certificate Insurer,] to the Underwriter, to the Depositor,
to _______ and to _______, together with the information described in subsection
(a) preceding, the following information with respect to the Mortgage Loans as
of the close of business on the last Business Day of the prior calendar month
(except as otherwise provided in clause (v) below), which is hereby required to
be prepared by the Master Servicer and furnished to the Trustee for such purpose
on or prior to the related Determination Date:
(i)the total number of Mortgage Loans and the aggregate Principal
Balances thereof, together with the number, aggregate principal balances
of such Mortgage Loans and the percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of the aggregate Principal
Balances of such Mortgage Loans to the aggregate Principal Balance of all
Mortgage Loans (A) 30-59 days Delinquent, (B) 60-89 days Delinquent and
(C) 90 or more days Delinquent;
(ii) the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans in foreclosure
proceedings and the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of any such Mortgage Loans also included in any of the
statistics described in the foregoing clause (i);
(iii) the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans relating to
Mortgagors in bankruptcy proceedings and the number, aggregate Principal
Balances of all Mortgage Loans and percentage (based on the aggregate
Principal Balances of the Mortgage Loans) of any such Mortgage Loans are
also included in any of the statistics described in the foregoing clause
(i);
(iv) the number, aggregate Principal Balances of all Mortgage
Loans and percentage (based on the aggregate Principal Balances of the
Mortgage Loans) of the aggregate Principal Balances of such Mortgage Loans
to the aggregate Principal Balance of all Mortgage Loans relating to REO
Mortgage Loans and the number, aggregate Principal Balances of all
Mortgage Loans and percentage (based on the aggregate Principal Balances
of the Mortgage Loans) of any such Mortgage Loans that are also included
in any of the statistics described in the foregoing clause (i);
(v)the weighted average of the Mortgage Interest Rate for the
Mortgage Loans on the Due Date occurring in the Due Period related to such
Remittance Date;
(vi) the weighted average remaining term to stated
maturity of all Mortgage Loans; and
(vii) the book value of any REO Property.
Section 6.8 ADDITIONAL REPORTS BY TRUSTEE AND BY MASTER SERVICER.
(a) The Trustee shall report to the Depositor, the Master Servicer [and the
Certificate Insurer] with respect to the amount then held in the Certificate
Account (including investment earnings accrued or scheduled to accrue) held by
the Trustee and the identity of the investments included therein, as the
Depositor, the Master Servicer [or the Certificate Insurer] may from time to
time request in writing.
[(b) From time to time, at the request of the Certificate Insurer, the
Trustee shall report to the Certificate Insurer with respect to its actual
knowledge, without independent investigation, of any breach of any of the
representations or warranties relating to individual Mortgage Loans set forth in
the Purchase and Sale Agreement, the Mortgage Loan Sale Agreement or in Section
3.1 or 3.2 hereof.]
(c) On each Remittance Date, the Trustee shall forward to Bloomberg
Financial Markets, L.P. ("BLOOMBERG") and the Underwriter information prepared
by the Master Servicer with respect to the Mortgage Loan and the Certificates as
of such Remittance Date, using a format and media mutually acceptable to the
Trustee, the Underwriter and Bloomberg.
Section 6.9 COMPENSATING INTEREST. Not later than the close of business on
the third Business Day prior to the Remittance Date, the Master Servicer shall
remit to the Trustee (without right or reimbursement therefor) for deposit into
the Certificate Account an amount equal to the lesser of (i) the aggregate of
the Prepayment Interest Shortfalls for the related Remittance Date resulting
from Principal Prepayments during the related Due Period and (ii) its aggregate
Servicing Fees received in the related Due Period (the "COMPENSATING INTEREST").
[Section 6.10 EFFECT OF PAYMENTS BY THE CERTIFICATE INSURER; SUBROGATION.
Anything herein to the contrary notwithstanding, any payment with respect to
principal of or interest on the Certificates which is made with moneys received
pursuant to the terms of the Certificate Insurance Policy shall not be
considered payment of the Certificates from the Trust. The Depositor, the Master
Servicer and the Trustee acknowledge, and each Holder by its acceptance of a
Certificate agrees, that without the need for any further action on the part of
the Certificate Insurer, the Depositor, the Master Servicer, the Trustee or the
Certificate Registrar (i) to the extent the Certificate Insurer makes payments,
directly or indirectly, on account of principal of or interest on the
Certificates to the Holders of such Certificates, the Certificate Insurer will
be fully subrogated to, and each Certificateholder, the Master Servicer and the
Trustee hereby delegate and assign to the Certificate Insurer, to the fullest
extent permitted by law, the rights of such Holders to receive such principal
and interest from the Trust Fund, including, without limitation, any amounts due
to the Certificateholders in respect of securities law violations arising from
the offer and sale of the Certificates, and (ii) the Certificate Insurer shall
be paid such amounts but only from the sources and in the manner provided herein
for the payment of such amounts. The Trustee and the Master Servicer shall
cooperate in all respects with any reasonable request by the Certificate Insurer
for action to preserve or enforce the
<PAGE>
Certificate Insurer's rights or interests under this Agreement without
limiting the rights or affecting the interests of the Holders as otherwise set
forth herein.]
[Remainder of this page intentionally left blank]
<PAGE>
ARTICLE VII
DEFAULT
Section 7.1 EVENTS OF DEFAULT.
(a) In case one or more of the following Events of Default by the Master
Servicer shall occur and be continuing, that is to say:
(i)any failure by the Master Servicer to remit to the Trustee any
payment required to be made by the Master Servicer under the terms of this
Agreement or to deliver the report required by Section 6.5 of this
Agreement;
(ii) the failure by the Master Servicer to make any
required Servicing Advance or Periodic Advance;
(iii) any failure on the part of the Master Servicer duly to
observe or perform in any material respect any other of the covenants or
agreements on the part of the Master Servicer contained in this Agreement,
or the breach of any representation and warranty made pursuant to Section
3.1 to be true and correct which continues unremedied for a period of 30
days after the date on which written notice of such failure or breach,
requiring the same to be remedied, shall have been given to the Master
Servicer, as the case maybe, by the Depositor or the Trustee or to the
Master Servicer and the Trustee by any Certificateholder [or the
Certificate Insurer];
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in an involuntary case under any present or
future federal or state bankruptcy, insolvency or similar law or for the
appointment of a conservator or receiver or liquidator 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 Master Servicer and such decree or order
shall have remained in force, undischarged or unstayed for a period of 60
days;
(v) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Master Servicer or of or relating to all or substantially
all of the Master Servicer's property;
(vi) the Master Servicer shall admit in writing its inability to
pay its debts 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;
(vii) the continuation of a Master Servicer Termination
Delinquency Rate Trigger or a Master Servicer Termination Loss Trigger;
then, and in each and every such case, so long as an Event of Default shall not
have been remedied with respect to (i) - (viii) above, the Trustee shall, but
only at the direction of the Certificate Insurer or the Majority
Certificateholders with the consent of the Certificate Insurer, by notice in
writing to the Master Servicer and a Responsible Officer of the Trustee, (x)
remove the Master Servicer, (y) terminate all the rights and obligations of the
Master Servicer under this Agreement and in and to the Mortgage Loans and the
proceeds thereof, as Master Servicer; and (z) with respect to clauses (vii) and
(viii) above, the Trustee shall[, but only at the direction of the Certificate
Insurer,] after notice in writing to the Master Servicer and a Responsible
Officer of the Trustee, terminate all the rights and obligations of the Master
Servicer under this Agreement and in and to the Mortgage Loans and the proceeds
thereof, as Master Servicer. Upon receipt by the Master Servicer and the Trustee
of such written notice, all authority and power of the Master Servicer under
this Agreement, whether with respect to the Mortgage Loans or otherwise, shall,
subject to Section 7.2, pass to and be vested in the Trustee or its designee
[approved by the Certificate Insurer] and the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Master Servicer, as
attorney-in-fact or otherwise, at the expense of the Master Servicer, any and
all documents and other instruments and do or cause to be done all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, including, but not limited to, the transfer and endorsement or
assignment of the Mortgage Loans and related documents. The Master Servicer
agrees to cooperate (and pay any related costs and expenses) with the Trustee in
effecting the termination of the Master Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Trustee or its
designee for administration by it of all amounts which shall at the time be
credited by the Master Servicer to the Collection Account or thereafter received
with respect to the Mortgage Loans. The Trustee shall promptly notify [the
Certificate Insurer,] _______ and _______ upon receiving notice of, or its
discovery of, the occurrence of an Event of Default.
Section 7.2 TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR.
(a) On and after the time the Master Servicer receives a notice of
termination pursuant to Section 7.1, or the Trustee [and the Certificate
Insurer] receive the resignation of the Master Servicer evidenced by an Opinion
of Counsel pursuant to Section 5.23, or the Master Servicer is removed as Master
Servicer pursuant to Article VII, in which event the Trustee shall promptly
notify [the Certificate Insurer] and _______ and _______, except as otherwise
provided in Section 7.1, the Trustee or its designee shall be the successor in
all respects to the Master Servicer in its capacity as Master Servicer under
this 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 Master Servicer by the terms and provisions hereof arising on or
after the date of succession; PROVIDED, HOWEVER, that the Trustee shall not be
liable for any actions or the representations and warranties of any Master
Servicer prior to it and including, without limitation, the obligations of the
Master Servicer set forth in Sections 2.4 and 3.3. The parties hereto
acknowledge that during a period not to exceed 90 days, the successor Master
Servicer will not be able to fully service the Mortgage Loans until the
transition of servicing is complete. Such 90-day period shall be extended as
necessary in the event that the Master Servicer does not cooperate with such
successor or the data provided by the Master Servicer is incomplete or faulty.
The Trustee, as Successor Master Servicer, or any other successor Master
Servicer shall be obligated to pay Compensating Interest pursuant to Section 6.9
hereof; the Trustee, as Successor Master Servicer is obligated to make advances
pursuant to Section 5.20 unless, and only to the extent the Trustee, as
Successor Master Servicer determines reasonably and in good faith that such
advances would not be recoverable pursuant to Sections 5.4(b), 5.4(g) or 5.4(j),
such determination to be evidenced by a certification of a Responsible Officer
of the Trustee, as Successor Master Servicer [delivered to the Certificate
Insurer].
(b) Notwithstanding the above, the Trustee may, if it shall be unwilling to
so act, or shall, if it is unable to so act or if the Majority
Certificateholders [with the consent of the Certificate Insurer or the
Certificate Insurer] so requests in writing to the Trustee, appoint, pursuant to
the provisions set forth in paragraph (c) below, or petition a court of
competent jurisdiction to appoint, any established mortgage loan servicing
institution [acceptable to the Certificate Insurer] that has a net worth of not
less than $15,000,000 as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder.
(c) Any Successor Master Servicer shall be entitled to the Servicing
Compensation (including a fee not to exceed the Servicing Fee) and other funds
pursuant to Section 5.14 hereof as the Master Servicer if the Master Servicer
had continued to act as Master Servicer hereunder.
(d) The Trustee and such successor shall take such action, consistent with
this Agreement, as shall be necessary to effectuate any such succession. The
Master Servicer agrees to cooperate with the Trustee and any successor Master
Servicer in effecting the termination of the Master Servicer's servicing
responsibilities and rights hereunder and shall promptly provide the Trustee or
such successor Master Servicer, as applicable, at the Master Servicer's cost and
expense, all documents and records reasonably requested by it to enable it to
assume the Master Servicer's functions hereunder and shall promptly also
transfer to the Trustee or such successor Master Servicer, as applicable, all
amounts that then have been or should have been deposited in the Collection
Account by the Master Servicer or that are thereafter received with respect to
the Mortgage Loans. Any collections received by the Master Servicer after such
removal or resignation shall be endorsed by it to the Trustee and remitted
directly to the Trustee or, at the direction of the Trustee, to the successor
Master Servicer. Neither the Trustee nor any other successor Master Servicer
shall be held liable by reason of any failure to make, or any delay in making,
any distribution hereunder or any portion thereof caused by (1) the failure of
the Master Servicer to deliver, or any delay in delivering, cash, documents or
records to it, or (2) restrictions imposed by any regulatory authority having
jurisdiction over the Master Servicer hereunder. No appointment of a successor
to the Master Servicer hereunder shall be effective until the Trustee [and the
Certificate Insurer] shall have consented thereto, and written notice of such
proposed appointment shall have been provided by the Trustee [to the Certificate
Insurer and] to each Certificateholder. The Trustee shall not resign as Master
Servicer until a successor Master Servicer [reasonably acceptable to the
Certificate Insurer] has been appointed.
(e) Pending appointment of a successor to the Master Servicer hereunder,
the Trustee shall act in such capacity as herein above provided. In connection
with such appointment and assumption, the Trustee may make such arrangements for
the compensation of such successor out of payments on Mortgage Loans as it and
such successor shall agree; PROVIDED, HOWEVER, that no such compensation shall
be in excess of that permitted the Master Servicer pursuant to Section 5.14,
together with other Servicing Compensation. The Master Servicer, the Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession.
Section 7.3 WAIVER OF DEFAULTS. The [Certificate Insurer or the] Majority
Certificateholders may, on behalf of all Certificateholders, [and subject to the
consent of the Certificate Insurer,] waive any events permitting removal of the
Master Servicer as Master Servicer pursuant to this Article VII; PROVIDED,
HOWEVER, that the Majority Certificateholders may not waive a default in making
a required distribution on a Certificate without the consent of the holder of
such Certificate. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Trustee to _______ and _______.
Section 7.4 MORTGAGE LOANS, TRUST FUND AND ACCOUNTS HELD FOR BENEFIT OF THE
CERTIFICATE INSURER.
[(a) The Trustee shall hold the Trust Fund and the Mortgage Files for the
benefit of the Certificateholders and the Certificate Insurer and all references
in this Agreement and in the Certificates to the benefit of Holders of the
Certificates shall be deemed to include the Certificate Insurer. The Trustee
shall cooperate in all reasonable respects with any reasonable request by the
Certificate Insurer for action to preserve or enforce the Certificate Insurer's
rights or interests under this Agreement and the Certificates unless, as stated
in an Opinion of Counsel addressed to the Trustee and the Certificate Insurer,
such action is adverse to the interests of the Certificateholders or diminishes
the rights of the Certificateholders or imposes additional burdens or
restrictions on the Certificateholders.
(b) The Master Servicer hereby acknowledges and agrees that it shall
service the Mortgage Loans for the benefit of the Certificateholders and for the
benefit of the Certificate Insurer, and all references in this Agreement to the
benefit of or actions on behalf of the Certificateholders shall be deemed to
include the Certificate Insurer.]
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<PAGE>
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION.
(a) This Agreement shall terminate upon written notice to the Trustee of
either: (1) the later of the distribution to Certificateholders of the final
payment or collection with respect to the last Mortgage Loan (or Periodic
Advances of same by the Master Servicer), or the disposition of all funds with
respect to the last Mortgage Loan and the remittance of all funds due hereunder
and the payment of all amounts due and payable to [the Certificate Insurer and]
the Trustee or (2) mutual consent of the Master Servicer[, the Certificate
Insurer] and all Certificateholders in writing; PROVIDED, HOWEVER, that in no
event shall the Trust established by this Agreement terminate later than
twenty-one years after the death of the last survivor of the descendants of John
D. Rockefeller, alive as of the date hereof.
(b) In addition, the Master Servicer may, at its option and at its sole
cost and expense [(or, if the Master Servicer does not exercise this option, the
Certificate Insurer may, at its sole cost and expense)], repurchase all of the
Mortgage Loans on the Optional Termination Date, on the next succeeding
Remittance Date, at a price equal to the sum of (1) the greater of (i) 100% of
the Principal Balance of each outstanding Mortgage Loan and each REO Mortgage
Loan, and (ii) the fair market value (disregarding accrued interest) of the
Mortgage Loans and REO Properties, determined as the average of three written
bids (copies of which shall be delivered to the Trustee [and the Certificate
Insurer] by the Master Servicer and the reasonable cost of which may be deducted
from the final purchase price) made by nationally recognized dealers and based
on a valuation process which would be used to value comparable mortgage loans
and REO property, plus (2) the aggregate amount of accrued and unpaid interest
on the Mortgage Loans through the related Due Period and 30 days' interest
thereon at a rate equal to the weighted average of the Mortgage Interest Rates
for the Mortgage Loans, net of the Servicing Fee, plus (3) [any unreimbursed
amounts due to the Certificate Insurer under this Agreement or the Certificate
Insurer Agreement or] any Trustee Fee then due (the "Termination Price"). Any
such purchase shall be accomplished by deposit into the Certificate Account the
Termination Price. [No such termination is permitted without the prior written
consent of the Certificate Insurer (i) if it would result in a draw on the
Certificate Insurance Policy, or (ii) unless the Master Servicer shall have
delivered to the Certificate Insurer an Opinion of Counsel reasonably
satisfactory to the Certificate Insurer stating that no amounts paid hereunder
are subject to recapture as preferential transfers under the United States
Bankruptcy Code, 11 U.S.C. Sections 101 ET SEQ., as amended.]
(c) If on any Remittance Date, the Master Servicer determines that there
are no outstanding Mortgage Loans and no other funds or assets in the Trust Fund
other than funds in the Certificate Account, the Master Servicer shall send a
final distribution notice promptly to each such Certificateholder in accordance
with paragraph (d) below.
(d) Notice of any termination, specifying the Remittance Date upon which
the Trust Fund and the 199_ - _ REMIC will terminate and the Certificateholders
shall surrender their Certificates to the Trustee for payment of the final
distribution and cancellation, shall be given promptly by the Master Servicer by
letter to each of the Certificateholders identified to the Master Servicer by
the Trustee as the Certificateholders of record as of the most recent Record
Date, and shall be mailed during the month of such final distribution before the
Determination Date in such month, specifying (1) the Remittance Date upon which
final payment of such Certificates will be made upon presentation and surrender
of Certificates at the office of the Trustee therein designated, (2) the amount
of any such final payment and (3) that the Record Date otherwise applicable to
such Remittance Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office of the Trustee
therein specified. The Master Servicer shall give such notice to the Trustee
therein specified. The Master Servicer shall give such notice to the Trustee at
the time such notice is given to Certificateholders. [The obligations of the
Certificate Insurer hereunder shall terminate upon the deposit by the Master
Servicer with the Trustee of a sum sufficient to purchase all of the Mortgage
Loans and REO Properties as set forth above and when the Class A-1 Principal
Balance, Class A-2 Principal Balance, Class A-3 Principal Balance, Class A-4
Principal Balance and Class A-5 Principal Balance has been reduced to zero.]
(e) In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the time specified
in the above-mentioned written notice, the Master Servicer shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within six months after the second notice, all of the affected
Certificates shall not have been surrendered for cancellation, the Trustee 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 which remain subject hereto. If within nine months after the second
notice all the affected Certificates shall not have been surrendered for
cancellation, the Class R Certificateholders shall be entitled to all unclaimed
funds and other assets which remain subject hereto and the Trustee upon transfer
of such funds shall be discharged of any responsibility for such funds and the
Certificateholders shall look only to the Class R Certificateholders for
payment. Such funds shall remain uninvested.
Section 8.2 ADDITIONAL TERMINATION REQUIREMENTS.
(a) In the event that the Master Servicer exercises its purchase option as
provided in Section 8.1, the 199_ - _ REMIC shall be terminated in accordance
with the following additional requirements, unless the Trustee has been
furnished with an Opinion of Counsel (which shall not be an expense of the
Trustee) to the effect that the failure of the 199_ - _ REMIC (or of any other
REMIC of the Trust Fund) to comply with the requirements of this Section 8.3
will not (1) result in the imposition of taxes on "prohibited transactions" of
such REMIC as defined in Section 860F of the Code or (2) cause such REMIC to
fail to qualify as a REMIC at any time that any Class A Certificates are
outstanding:
(i) Within 90 days prior to the final Remittance Date the Master
Servicer shall adopt and the Trustee shall sign, a plan of complete
liquidation of the 199_ - _ REMIC (or the applicable REMIC of the Trust
Fund) meeting the requirements of a "Qualified Liquidation" under Section
860F of the Code and any regulations thereunder;
(ii) At or after the time of adoption of such a plan of complete
liquidation, which plan shall include a description of the method for such
liquidation and the price to be conveyed for all of the assets of the 199_
- _ REMIC at the time of such liquidation, and at or prior to the final
Remittance Date, the Trustee shall sell all of the assets of the 199_ - _
REMIC (or the applicable REMIC of the Trust Fund) to the Master Servicer
for cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to be
distributed or credited (a) to the Class A Certificateholders the
Certificate Principal Balance, plus one month's interest thereon at the
related Class A Pass-Through Rate, and (b) to the Class R
Certificateholders, all of such REMIC's cash on hand after such payment to
the Class A Certificateholders (other than cash retained to meet claims)
and the 199_ - _ REMIC shall terminate at such time.
(b) By their acceptance of the Certificates, the Holders thereof hereby
agree to appoint the Master Servicer as their attorney in fact to: (1) adopt
such a plan of complete liquidation (and the Certificateholders hereby appoint
the Trustee as their attorney in fact to sign such plan) as appropriate or upon
the written request of the Certificate Insurer and (2) to take such other action
in connection therewith as may be reasonably required to carry out such plan of
complete liquidation all in accordance with the terms hereof.
Section 8.3 ACCOUNTING UPON TERMINATION OF MASTER SERVICER. Upon
termination of the Master Servicer, the Master Servicer shall, at its expense:
(a) deliver to its successor or, if none shall yet have been appointed, to
the Trustee, the funds in any Account;
(b) deliver to its successor or, if none shall yet have been appointed, to
the Trustee all Mortgage Files and related documents and statements held by it
hereunder and a Mortgage Loan portfolio computer tape;
(c) deliver to its successor or, if none shall yet have been appointed, to
the Trustee and, upon request, to the Certificateholders a full accounting of
all funds, including a statement showing the Monthly Payments collected by it
and a statement of monies held in trust by it for the payments or charges with
respect to the Mortgage Loans; and
(d) execute and deliver such instruments and perform all acts reasonably
requested in order to effect the orderly and efficient transfer of servicing of
the Mortgage Loans to its successor and to more fully and definitively vest in
such successor all rights, powers, duties, responsibilities, obligations and
liabilities of the "MASTER SERVICER" under this Agreement.
<PAGE>
ARTICLE IX
THE TRUSTEE
Section 9.1 DUTIES OF TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in this
Agreement. If an Event of Default has occurred and has not been cured or waived,
the Trustee shall exercise such of the rights and power vested in it by this
Agreement, and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform on their face to the requirements of this Agreement; PROVIDED, HOWEVER,
that the Trustee shall not be responsible for the accuracy or content of any
resolution, certificate, statement, opinion, report, document, order or other
instrument furnished by the Master Servicer or the Transferor hereunder. If any
such instrument is found not to conform on its face to the requirements of this
Agreement, the Trustee shall take action as it deems appropriate to have the
instrument corrected [and, if the instrument is not corrected to the Trustee's
satisfaction, the Trustee will, at the expense of the Master Servicer notify the
Certificate Insurer and request written instructions as to the action it deems
appropriate to have the instrument corrected, and if the instrument is not so
corrected, the Trustee will provide notice thereof to the Certificate Insurer
who shall then direct the Trustee as to the action, if any, to be taken.]
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct; PROVIDED, HOWEVER, that:
(i) Prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default which may have occurred, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith
on the part of the Trustee, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or other officers of
the Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(iii) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith [in
accordance with the direction of the Certificate Insurer or with the
consent of the Certificate Insurer,] any Class of the Class A
Certificateholders holding Class A Certificates evidencing Percentage
Interests of such Class of at least 25%, relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Agreement;
(iv) The Trustee shall not be required to take notice or be
deemed to have notice or actual knowledge of any default or Event of
Default (except an Event of Default with respect to the nonpayment of any
amount described in Section 7.1(a)), unless a Responsible Officer of the
Trustee shall have received written notice thereof. In the absence of
receipt of such notice, the Trustee may conclusively assume that there is
no default or Event of Default (except a failure to make a Periodic
Advance);
(v) The Trustee shall not be required to expend or risk its own
funds or otherwise incur financial liability for the performance of any of
its duties hereunder or the exercise of any of its rights or powers if
there is reasonable ground for believing that the repayment of such funds
or adequate indemnity against such risk or liability is not reasonably
assured to it and none of the provisions contained in this Agreement shall
in any event require the Trustee to perform, or be responsible for the
manner of performance of, any of the obligations of the Master Servicer
under this Agreement except during such time, if any, as the Trustee shall
be the successor to, and be vested with the rights, duties powers and
privileges of, the Master Servicer in accordance with the terms of this
Agreement; and
(vi) Subject to the other provisions of this Agreement and
without limiting the generality of this Section, the Trustee shall have no
duty (a) to see to any recording, filing, or depositing of this Agreement
or any agreement referred to herein or any financing statement or
continuation statement evidencing a security interest, or to see to the
maintenance of any such recording or filing or depositing or to any
rerecording, refiling or redepositing of any thereof, (b) to see to any
insurance, (c) to see to the payment or discharge of any tax, assessment,
or other governmental charge or any lien or encumbrance of any kind owing
with respect to, assessed or levied against, any part of the Trust, the
Trust Fund, the Certificateholders or the Mortgage Loans, (d) to confirm
or verify the contents of any reports or certificates of the Master
Servicer delivered to the Trustee pursuant to this Agreement believed by
the Trustee to be genuine and to have been signed or presented by the
proper party or parties.
(d) It is intended that the 199_ - _ REMIC formed hereunder shall
constitute, and that the affairs of the 199_ - _ REMIC shall be conducted so as
to qualify it as, a REMIC as defined in and in accordance with the REMIC
Provisions. In furtherance of such intention, the Trustee covenants and agrees
that it shall act as agent (and the Trustee is hereby appointed to act as agent)
and as Tax Matters Person on behalf of the 199_ - _ REMIC, and that in such
capacities it shall:
(i)prepare, sign and file, or cause to be prepared and filed, in
a timely manner, a U.S. Real Estate Mortgage Investment Conduit Income Tax
Return (Form 1066) and any other Tax Return required to be filed by the
199_ - _ REMIC, using a calendar year as the taxable year for the 199_ - _
REMIC;
(ii) make, or cause to be made, an election, on behalf of the
199_ - _ REMIC, to be treated as a REMIC on the federal tax return of the
199_ - _ REMIC for its first taxable year;
(iii) prepare and forward, or cause to be prepared and forwarded,
to the Trustee, the Certificateholders and to the Internal Revenue Service
and any other relevant governmental taxing authority all information
returns or reports as and when required to be provided to them in
accordance with the REMIC Provisions;
(iv) to the extent that the affairs of the 199_ - _ REMIC are
within its control, conduct such affairs of the 199_ - _ REMIC at all
times that any Certificates are outstanding so as to maintain the status
of the 199_ - _ REMIC as a REMIC under the REMIC Provisions and any other
applicable federal, state and local laws, including, without limitation,
information reports relating to "original issue discount," as defined in
the Code, based upon the Prepayment Assumption and calculated by using the
issue price of the Certificates;
(v)not knowingly or intentionally take any action or omit to take
any action that would cause the termination of the REMIC status of the
199_ - _ REMIC;
(vi) pay the amount of any and all federal, state, and local
taxes imposed on the Trust Fund, prohibited transaction taxes as defined
in Section 860F of the Code, other than any amount due as a result of a
transfer or attempted or purported transfer in violation of Section 4.2,
imposed on the Trust Fund when and as the same shall be due and payable
(but such obligation shall not prevent the Trustee or any other
appropriate Person from contesting any such tax in appropriate proceedings
and shall not prevent the Trustee from withholding payment of such tax, if
permitted by law, pending the outcome of such proceedings). The Trustee
shall be entitled to reimbursement in accordance with Sections 9.1(c) and
9.5 hereof;
(vii) ensure that any such returns or reports filed on behalf of
the Trust Fund by the Trustee are properly executed by the appropriate
person and submitted in a timely manner;
(viii) represent the Trust Fund in any administrative or judicial
proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to any taxable year of
the Trust Fund, enter into settlement agreements with any governmental
taxing agency, extend any statute of limitations relating to any item of
the Trust Fund and otherwise act on behalf of the Trust Fund in relation
to any tax matter involving the Trust Fund;
(ix) as provided in Section 5.18 hereof, make available
information necessary for the computation of any tax imposed (1) on
transferors of residual interests to transferees that are not Permitted
Transferees or (2) on pass-through entities, any interest in which is held
by an entity which is not a Permitted Transferee. The Trustee covenants
and agrees that it will cooperate with the Master Servicer in the
foregoing matters and that it will sign, as Trustee, any and all Tax
Returns required to be filed by the Trust Fund. Notwithstanding the
foregoing, at such time as the Trustee becomes the successor Master
Servicer, the holder of the largest percentage of the Class R Certificates
shall serve as Tax Matters Person until such time as an entity is
appointed to succeed the Trustee as Master Servicer;
(x)make available to the Internal Revenue Service and those
Persons specified by the REMIC Provisions all information necessary to
compute any tax imposed (A) as a result of the Transfer of an Ownership
Interest in a Class R Certificate to any Person who is not a Permitted
Transferee, including the information described in Treasury regulations
sections 1.860D-1(b)(5) and 1.860E-2(a)(5) with respect to the "excess
inclusions" of such Class R Certificate and (B) as a result of any
regulated investment company, real estate investment trust, common trust
fund, partnership, trust, estate or organization described in Section 1381
of the Code that holds an Ownership Interest in a Class R Certificate
having as among its record holders at anytime any Person that is not a
Permitted Transferee. Reasonable compensation for providing such
information may be accepted by the Trustee;
(xi) pay out of its own funds, without any right of reimbursement
from the assets of the Trust Fund, any and all tax related expenses of the
Trust Fund (including, but not limited to, tax return preparation and
filing expenses and any professional fees or expenses related to audits or
any administrative or judicial proceedings with respect to the Trust Fund
that involve the Internal Revenue Service or state tax authorities), other
than the expense of obtaining any Opinion of Counsel required pursuant to
Sections 3.3, 5.12 and 8.2 and other than taxes except as specified
herein;
(xii) upon filing with the Internal Revenue Service, the Trustee
shall furnish to the Holders of the Class R Certificates the Form 1066 and
each Form 1066Q and shall respond promptly to written requests made not
more frequently than quarterly by any Holder of Class R Certificates with
respect to the following matters:
(1) the original projected principal and interest cash flows
on the Closing Date on the regular and residual interests created
hereunder and on the Mortgage Loans, based on the Prepayment
Assumption;
(2) the projected remaining principal and interest cash flows
as of the end of any calendar quarter with respect to the regular
and residual interests created hereunder and the Mortgage Loans,
based on the Prepayment Assumption;
(3) the Prepayment Assumption and any interest rate
assumptions used in determining the projected principal and interest
cash flows described above;
(4) the original issue discount (or, in the case of the
Mortgage Loans, market discount) or premium accrued or amortized
through the end of such calendar quarter with respect to the regular
or residual interests created hereunder and with respect to the
Mortgage Loans, together with each constant yield to maturity used
in computing the same;
(5) the treatment of losses realized with respect to the
Mortgage Loans or the regular interests created hereunder, including
the timing and amount of any cancellation of indebtedness income of
the 199_ - _ REMIC with respect to such regular interests or bad
debt deductions claimed with respect to the Mortgage Loans;
(6) the amount and timing of any non-interest expenses of the
199_ - _ REMIC; and
(7) any taxes (including penalties and interest) imposed on
the 199_ - _ REMIC, including, without limitation, taxes on
"prohibited transactions," "contributions" or "net income from
foreclosure property" or state or local income or franchise taxes;
and
(xiii) make any other required reports in respect of interest
payments in respect of the Mortgage Loans and acquisitions and
abandonments or Mortgaged Property to the Internal Revenue Service and/or
the borrowers, as applicable.
In the event that any tax is imposed on "prohibited transactions" of the
REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the REMIC as defined in Section 860G(c) of the Code, on
any contribution to the REMIC after the Startup Date pursuant to Section 860G(d)
of the Code, or any other tax is imposed, such tax shall be paid by (i) the
Trustee, if such tax arises out of or results from a breach by the Trustee of
any of its obligations under this Agreement, (ii) the Master Servicer, if such
tax arises out of or results from a breach by the Master Servicer of any of its
obligations under this Agreement, or otherwise (iii) the holders of the Class R
Certificates in proportion to their undivided beneficial ownership interest in
the related REMIC as are represented by such Class R Certificates. To the extent
such tax is chargeable against the holders of the Class R Certificates,
notwithstanding anything to the contrary contained herein, the Trustee is hereby
authorized to retain from amounts otherwise distributable to the Holders of the
Class R Certificates on any Remittance Date sufficient funds to reimburse the
Trustee for the payment of such tax (to the extent that the Trustee has paid the
tax and not been previously reimbursed or indemnified therefor).
Section 9.2 CERTAIN MATTERS AFFECTING THE TRUSTEE.
(a) Except as otherwise provided in Section 9.1:
(i)the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate, Opinion
of Counsel, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(ii) the Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such opinion of counsel;
(iii) the Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to institute,
conduct or defend by litigation hereunder or in relation hereto at the
request, or direction of the Certificate Insurer or any of the
Certificateholders, pursuant to the provisions of this Agreement, unless
such Certificateholders [or the Certificate Insurer, as applicable,] shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or thereby;
(iv) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement;
(v)prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default which may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other
paper or document, unless requested in writing to do so by [the
Certificate Insurer or] Holders of any Class of Class A Certificates
evidencing Percentage Interests aggregating not less than 25% of such
class; PROVIDED, HOWEVER, that if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the opinion of the Trustee,
not reasonably assured to the Trustee by the security afforded to it by
the terms of this Agreement, the Trustee may require reasonable indemnity
against such expense or liability as a condition to taking any such
action. The reasonable expense of every such examination shall be paid by
the Master Servicer or, if paid by the Trustee, shall be repaid by the
Master Servicer upon demand from the Master Servicer's own funds;
(vi) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act;
(vii) the Trustee shall not be required to give any bond or
surety in respect of the execution of the Trust created hereby or the
powers granted hereunder; and
(viii) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys.
(b) Following the Startup Date, the Trustee shall not knowingly accept any
contribution of assets to the Trust Fund, unless the Trustee shall have received
an Opinion of Counsel (at the expense of the Master Servicer) to the effect that
the inclusion of such assets in the Trust Fund will not cause the 199_ - _ REMIC
to fail to qualify as a REMIC at any time that any Certificates are outstanding
or subject the 199_ - _ REMIC to any tax under the REMIC Provisions or other
applicable provisions of federal, state and local law or ordinances. The Trustee
agrees to indemnify the Trust Fund and the Master Servicer for any taxes and
costs, including any attorney's fees, imposed or incurred by the Trust Fund or
the Master Servicer as a result of the breach of the Trustee's covenants set
forth within this subsection (b).
Section 9.3 NOT LIABLE FOR CERTIFICATES OR MORTGAGE LOANS. The recitals
contained herein (other than the certificate of authentication on the
Certificates) shall be taken as the statements of the Transferor or the Master
Servicer, as the case may be, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement or of any Mortgage Loan or related document. The
Trustee shall not be accountable for the use or application of any funds paid to
the Master Servicer in respect of the Mortgage Loans or deposited in or
withdrawn from the Collection Account by the Master Servicer. The Trustee shall
not be responsible for the legality or validity of the Agreement or the
validity, priority, perfection or sufficiency of the security for the
Certificates issued or intended to be issued hereunder.
Section 9.4 TRUSTEE MAY OWN CERTIFICATES. The Trustee in its individual or
any other capacity may become the owner or pledgor of Certificates with the same
rights it would have if it were not Trustee, and may otherwise deal with the
parties hereto.
Section 9.5 TRUSTEE'S FEES AND EXPENSES; INDEMNITY.
(a) The Trustee acknowledges that in consideration of the performance of
its duties hereunder it is entitled to receive the Trustee Fee in accordance
with the provision of Section 6.5(a) and Section 6.5(b). The Trustee shall not
be entitled to compensation for any expense, disbursement or advance as may
arise from its negligence or bad faith, and, prior to the occurrence of an Event
of Default, the Trustee shall have no lien on the Trust Fund for the payment of
its fees and expenses.
(b) The Trust Fund, the Trustee and any director, officer, employee or
agent of the Trustee shall be indemnified by the Master Servicer and held
harmless against any loss, liability, claim, damage or expense arising out of,
or imposed upon the Trust or the Trustee, other than any loss, liability or
expense incurred by reason of (i) the acts of the Trustee not authorized or
required pursuant to this Agreement or taken pursuant to written instructions
received from the Master Servicer[, [the Certificate Insurer] or the Majority
Holders, or (ii) by reason of the Trustee's reckless disregard of obligations
and duties hereunder. The obligation of the Master Servicer under this Section
9.5 arising prior to any resignation or termination of the Master Servicer
hereunder shall survive termination of the Master Servicer and payment of the
Certificates, and shall extend to any co-trustee appointed pursuant to this
Article IX.
Section 9.6 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee hereunder
shall at all times be (a) a banking association organized and doing business
under the laws of any state or the United States of America subject to
supervision or examination by federal or state authority, (b) authorized under
such laws to exercise corporate trust powers, including taking title to the
Trust Fund assets on behalf of the Certificateholders (c) having a combined
capital and surplus of at least $50,000,000, (d) whose long-term deposits, if
any, shall be rated at least ____ by _______ and ____ by _______ (except as
provided herein) or such lower long-term deposit [rating as may be approved in
writing by the Certificate Insurer,] [and (e) reasonably acceptable to the
Certificate Insurer.] If such banking association publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 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 Trustee shall cease to
be eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 9.7.
Section 9.7 RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Master Servicer[, the
Certificate Insurer] and to all Certificateholders. Upon receiving such notice
of resignation, the Master Servicer shall promptly appoint a successor trustee
by written instrument, in duplicate, which instrument shall be delivered to the
resigning Trustee and to the successor trustee. A copy of such instrument shall
be delivered to the Depositor, the Certificateholders[, the Certificate Insurer]
and the Transferor by the Master Servicer. Unless a successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.6 and shall fail to resign after written
request therefor by the Master Servicer or the Certificate Insurer, or if at any
time the Trustee shall become incapable of acting, or shall be adjudged bankrupt
or insolvent, or a receiver of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Master Servicer [or the Certificate Insurer] may remove
the Trustee, and the Master Servicer shall, within 30 days after such removal,
appoint[, subject to the approval of the Certificate Insurer, which approval
shall not be unreasonably delayed,] a successor trustee by written instrument,
in duplicate, which instrument shall be delivered to the Trustee so removed and
to the successor trustee. A copy of such instrument shall be delivered to the
Depositor, the Certificateholders[, the Certificate Insurer] and the Transferor
by the Master Servicer.
(c) If the Trustee fails to perform in accordance with the terms of this
Agreement, the Majority Certificateholders [or the Certificate Insurer] may
remove the Trustee and appoint a successor trustee [acceptable to the
Certificate Insurer] by written instrument or instruments, in triplicate, signed
by such Holders or their attorneys-in-fact duly authorized, one complete set of
which instruments shall be delivered to the Master Servicer, one complete set to
the Trustee so removed and one complete set to the successor Trustee so
appointed.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 9.8.
Section 9.8 SUCCESSOR TRUSTEE. Any successor trustee appointed as provided
in Section 9.7 shall execute, acknowledge and deliver to the Depositor[, the
Certificate Insurer], the Transferor, the Master Servicer and to its predecessor
trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements held by it hereunder, and
the Master Servicer and the predecessor trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations. No successor trustee shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor trustee shall be eligible under the provisions of Section 9.6.
Upon acceptance of appointment by a successor trustee as provided in this
Section, the Master Servicer shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register and to _______ and _______. If the Master Servicer fails to
mail such notice within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Master Servicer.
Section 9.9 MERGER OR CONSOLIDATION OF TRUSTEE. Any Person into which the
Trustee may be merged or converted or with which it may be consolidated or any
corporation or national banking association resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation or national banking association succeeding to the business of the
trustee, shall be the successor of the Trustee hereunder, provided such
corporation or national banking association shall be eligible under the
provisions of Section 9.6, 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.
Section 9.10 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE. Notwithstanding
any other provisions hereof, at any time, for the purpose of meeting any legal
requirements of any jurisdiction in which any part of the Trust Fund or property
securing the same may at the time be located, the Master Servicer and the
Trustee acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Trustee to act as
co-trustee or co-trustees, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust Fund, and to vest in such
Person or Persons, in such capacity, such title to the Trust Fund, or any part
thereof, and, subject to the other provisions of this Section 9.10, such powers,
duties, obligations, rights and trusts as the Master Servicer and the Trustee
may consider necessary or desirable. If the Master Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
so to do, or in case an Event of Default shall have occurred and be continuing,
the Trustee alone shall have the power to make such appointment. No co-trustee
or separate trustee hereunder shall be required to meet the terms of eligibility
as a successor trustee under Section 9.6 hereunder, and no notice to Holders of
Certificates of the appointment of co-trustee(s) or separate trustee(s) shall be
required under Section 9.8 hereof.
(a) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 9.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the 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 Fund or any
portion thereof in any such jurisdiction) shall be exercised and performed by
such separate trustee or co-trustee at the direction of the Trustee.
(b) Any notice, request or other writing given to the 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 IX. 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 Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
(c) Any separate trustee or co-trustee may, at any time, constitute the
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. The Trustee shall not be responsible
for any action or inaction of any such separate trustee or co-trustee, provided
that the Trustee appointed such separate trustee or co-trustee with due care. 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 Trustee, to the extent permitted by law, without
the appointment of a new or successor trustee.
Section 9.11 TAX RETURNS; OID INTEREST REPORTING. The Master Servicer and
the Depositor, as applicable, upon request, will promptly furnish the Trustee
with all such information as may be reasonably required in connection with the
Trustee's preparation of all Tax Returns of the Trust Fund (including all such
loan level information as the Trustee may reasonably request) or for the purpose
of the Trustee responding to reasonable requests for information made by
Certificateholders in connection with tax matters, and, upon request within
seven (7) Business Days after its receipt thereof, the Master Servicer shall (i)
sign on behalf of the Trust Fund any Tax Return that the Master Servicer is
required to sign pursuant to applicable federal, state or local tax laws, and
(ii) cause such Tax Return to have been returned to the Trustee for filing and
for distribution to Certificateholders if required.
[Section 9.12 RETIREMENT OF CERTIFICATES. The Trustee shall, upon the
retirement of the Certificates pursuant hereto or otherwise, furnish to the
Certificate Insurer a notice of such retirement, and, upon retirement of the
Certificates and the expiration of the term of the Certificate Insurance Policy,
shall surrender the Certificate Insurance Policy to the Certificate Insurer for
cancellation.]
[Remainder of this page intentionally left blank]
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 LIMITATION ON LIABILITY OF THE DEPOSITOR AND THE MASTER
SERVICER. Neither the Depositor nor the Master Servicer nor any of the
directors, officers, employees or agents of the Depositor or the Master Servicer
shall be under any liability to the Trust, the Certificateholders [or the
Certificate Insurer] for any action taken, or for refraining from the taking of
any action, in good faith pursuant to this Agreement, or for errors in judgment;
PROVIDED, HOWEVER, that this provision shall not protect the Depositor or the
Master Servicer or any such Person against any breach of warranties or
representations made herein, or against any specific liability imposed on each
such party pursuant to this Agreement or against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
or duties hereunder. The Depositor or the Master Servicer and any director,
officer, employee or agent of the Depositor or the Master Servicer may rely in
good faith on any document of any kind which, prima facie, is properly executed
and submitted by any appropriate Person respecting any matters arising
hereunder.
Section 10.2 ACTS OF CERTIFICATEHOLDERS; CERTIFICATEHOLDERS' RIGHTS.
(a) Except as otherwise specifically provided herein, whenever
Certificateholder action, consent or approval is required under this Agreement,
such action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Certificateholders if the Majority
Certificateholders [or the Certificate Insurer] agrees to take such action or
give such consent or approval.
(b) The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representatives or heir to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(c) No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof or thereof.
(d) The rights of the Certificateholders of Series 199_ - _ will be
determined pursuant to this Agreement. The rights of the Holders of any
certificates or other instruments which may be issued by the Trustee pursuant to
Section 4.2 of this Agreement shall be determined by a supplement with respect
thereto. Such supplement may provide for any other agreements between the
parties hereto as long as such agreements do not violate, as to any Certificate,
certificates or other instruments, Section 10.3.
Section 10.3 AMENDMENT OR SUPPLEMENT.
(a) This Agreement may be amended or supplemented from time to time by the
Master Servicer, the Depositor and the Trustee by written agreement[, upon the
prior written consent of the Certificate Insurer (which consent shall not be
withheld if, in the Opinion of Counsel addressed to the Trustee and the
Certificate Insurer, failure to amend would adversely affect the interests of
the Certificateholders and such consent would not adversely affect the interests
of the Certificate Insurer),] without notice to or consent of the
Certificateholders to cure any ambiguity, to correct or supplement any
provisions herein, to comply with any changes in the Code, or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement; PROVIDED,
HOWEVER, that such action shall not, as evidenced by an Opinion of Counsel, at
the expense of the party requesting the change, delivered to the Trustee [and
the Certificate Insurer], adversely affect in any material respect the interests
of any Certificateholder, adversely affect the status of the 199_ - _ REMIC as a
REMIC or cause a tax to be imposed on such REMIC; and PROVIDED, FURTHER, that no
such amendment shall reduce in any manner the amount of, or delay the timing of,
payments received on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the Holder of such Certificate, or change the
rights or obligations of any other party hereto without the consent of such
party; and provided, finally, that any such amendment shall, as evidenced by an
Opinion of Counsel, at the expense of the party requesting the change, delivered
to the Trustee [and the Certificate Insurer], comply with the terms of this
Agreement. The Trustee shall give prompt written notice to _______ and _______
of any amendment made pursuant to this Section 10.3 or pursuant to Section 6.10
of the Purchase and Sale Agreement.
(b) This Agreement may be amended or supplemented from time to time by the
Master Servicer, the Depositor and the Trustee [with the consent of the
Certificate Insurer] (which consent shall not be withheld if, in the Opinion of
Counsel addressed to the Trustee [and the Certificate Insurer,] failure to amend
would adversely affect the interests of the Certificateholders and such consent
would not adversely affect the interests of the Certificate Insurer),the
Majority Certificateholders and the Holders of the majority of the undivided
beneficial ownership interest in the 199_ - _ REMIC as is represented by the
Class R Certificates for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders; PROVIDED, HOWEVER, that no
such amendment shall be made unless the Trustee [and the Certificate Insurer]
receive an Opinion of Counsel, at the expense of the party requesting the
change, that such change will not adversely affect the status of the 199_ - _
REMIC as a REMIC or cause a tax to be imposed on such REMIC; and PROVIDED,
FURTHER, that no such amendment shall reduce in any manner the amount of, or
delay the timing of, payments received on Mortgage Loans which are required to
be distributed on any Certificate without the consent of the Holder of such
Certificate or reduce the percentage for the Holders of which are required to
consent to any such amendment without the consent of the Holders of 100% of
Certificates affected thereby; and provided, finally, that any such amendment
shall, as evidenced by an Opinion of Counsel, at the expense of the party
requesting the change, delivered to the Trustee [and the Certificate Insurer],
comply with the terms of this Agreement.
(c) It shall not be necessary for the consent of Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent shall approve the substance thereof.
Section 10.4 RECORDATION OF AGREEMENT. To the extent permitted by
applicable law, this Agreement, or a memorandum thereof if permitted under
applicable law, is subject to recordation in all appropriate public offices for
real property records in all of the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Master Servicer at the Certificateholders' expense on
direction and at the expense of Majority Certificateholders requesting such
recordation, but only when accompanied by an Opinion of Counsel to the effect
that such recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.
Section 10.5 DURATION OF AGREEMENT. This Agreement shall
continue in existence and effect until terminated as herein provided.
Section 10.6 NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
to (i) in the case of the Master Servicer,
________________________________________________________, with a copy to
_______________________________________________________________ (with copies to
the Transferor), (ii) in the case of the Transferor, _____________________
_________________________________, with an additional copy of such notice
simultaneously delivered to the Master Servicer, (iii) in the case of the
Trustee, ________________________
___________________________________________________, _______ Home Equity Trust
199_ - _, (iv) in the case of the Certificateholders, as set forth in the
Certificate Register, (v) in the case of _______,
_______________________________________________________________, (vi) in the
case of _____________________________________________________________, [(vii) in
the case of the Certificate Insurer, ______________________________________
______________, (viii) in the case of PaineWebber Mortgage Acceptance
Corporation IV, 1285 Avenue of the Americas, 18th Floor, New York, New York
10019, Attention: John Fearey, Esq. Any such notices shall be deemed to be
effective with respect to any party hereto upon the receipt of such notice by
such party, except that notices to the Certificateholders shall be effective
upon mailing or personal delivery.
Section 10.7 SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other covenants, agreements, provisions or terms of this
Agreement.
Section 10.8 NO PARTNERSHIP. Nothing herein contained shall be deemed or
construed to create a co-partnership or joint venture between the parties hereto
and the services of the Master Servicer shall be rendered as an independent
contractor and not as agent for the Certificateholders.
Section 10.9 COUNTERPARTS. This Agreement 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 agreement.
Section 10.10 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the Master Servicer, the Depositor, the Trustee
and the Certificateholders and their respective successors and permitted
assigns.
Section 10.11 HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
[Section 10.12 THE CERTIFICATE INSURER DEFAULT. Any right conferred to the
Certificate Insurer shall be suspended during any period in which a Certificate
Insurer Default exists. At such time as the Certificates are no longer
outstanding hereunder, and no amounts owed to the Certificate Insurer hereunder
remain unpaid, the Certificate Insurer's rights hereunder shall terminate.]
Section 10.13 THIRD PARTY BENEFICIARY. The parties agree that each of the
Transferor [and the Certificate Insurer] is intended and shall have all rights
of a third-party beneficiary of this Agreement.
Section 10.14 INTENT OF THE PARTIES. It is the intent of the Depositor and
Certificateholders that, for federal income taxes, state and local income or
franchise taxes and other taxes imposed on or measured by income, the
Certificates will be treated as evidencing beneficial ownership interests in a
REMIC. The parties to this Agreement and the holder of each Certificate, by
acceptance of its Certificate, and each beneficial owner thereof, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates in accordance with the preceding sentence for purposes of federal
income taxes, state and local income and franchise taxes and other taxes imposed
on or measured by income.
Section 10.15 APPOINTMENT OF TAX MATTERS PERSON. The Holders of the Class R
Certificates hereby appoint the Trustee to act as the Tax Matters Person for the
199_ - _ REMIC for all purposes of the Code. The Tax Matters Person will
perform, or cause to be performed, such duties and take, or cause to be taken,
such actions as are required to be performed or taken by the Tax Matters Person
under the code. The Holders of the Class R Certificates may hereafter appoint a
different entity as their agent, or may appoint one of the Class R
Certificateholders to be the Tax Matters Person.
Section 10.16 GOVERNING LAW CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF
NEW YORK.
(b) THE MASTER SERVICER AND THE TRUSTEE HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND EACH
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET
FORTH IN SECTION 10.6 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE
PREPAID. THE DEPOSITOR, THE MASTER SERVICER AND THE TRUSTEE EACH HEREBY WAIVE
ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION
SHALL AFFECT THE RIGHT OF THE DEPOSITOR, THE MASTER SERVICER OR THE TRUSTEE TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ANY OF THEIR
RIGHTS TO BRING ANY ACTION OR PROCEEDING IN THE COURTS OF ANY OTHER
JURISDICTION.
(c) THE DEPOSITOR, THE MASTER SERVICER AND THE TRUSTEE EACH HEREBY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
[End of Agreement - Signature Pages Follow]
<PAGE>
EXHIBIT B-2
(FORM OF CLASS A-1 CERTIFICATE)
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
Certificate No.:
Cut-off Date:
First Distribution Date:
Pass-Through Rate:
Initial Certificate Principal Balance of this
Certificate ("Denomination"): $
Initial Certificate Principal Balances of all
Certificates of this Class: $
CUSIP:
<PAGE>
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Home Equity Asset Backed Certificates, Series 199_-_
Class A-1
evidencing a percentage interest in the distributions allocable to
the Certificates of the above-referenced Class with respect to a
Trust Fund consisting primarily of a pool of residential loans (the
"MORTGAGE LOANS") secured by [first liens on one- to four-family
residential properties].
PaineWebber Mortgage Acceptance Corporation IV, as
Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Certificate Principal Balance at any time may be
less than the Certificate Principal Balance as set forth herein. This
Certificate does not evidence an obligation of, or an interest in, and is not
guaranteed by the Depositor, the Servicer or the Trustee referred to below or
any of their respective affiliates. Neither this Certificate nor the Loans are
guaranteed or insured by any governmental agency or instrumentality.
This certifies that is the registered owner of the Percentage Interest
evidenced by this Certificate (obtained by dividing the Denomination of this
Certificate by the aggregate initial Class Principal Balances of all
Certificates of the Class to which this Certificate belongs) in certain monthly
distributions with respect to a Trust Fund consisting primarily of the Mortgage
Loans deposited by PaineWebber Mortgage Acceptance Corporation IV (the
"DEPOSITOR"). The Trust Fund was created pursuant to a Pooling and Servicing
Agreement dated as of the Cut-off Date specified above (the "AGREEMENT") among
the Depositor, _______________________, as originator and servicer (the
"SERVICER"), and ______________________________, as trustee (the "TRUSTEE"). To
the extent not defined herein, the capitalized terms used herein have the
meanings assigned in the Agreement. This Certificate is issued under and is
subject to the terms, provisions and conditions of the Agreement, to which
Agreement the Holder of this Certificate by virtue of the acceptance hereof
assents and by which such Holder is bound.
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.
This Certificate shall not be entitled to any benefit under the Agreement
or be valid for any purpose unless manually countersigned by an authorized
signatory of the Trustee.
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: ____________, 19__
________________________, as Trustee
By:____________________________________
Countersigned:
By: ________________________________
Authorized Signatory of
_______________________________,
as Trustee
<PAGE>
(Form of Reverse of Certificates)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Home Equity Asset Backed Certificates, Series 199_-_
This Certificate is one of a duly authorized issue of Certificates
designated as PaineWebber Mortgage Acceptance Corporation IV Mortgage
Pass-Through Certificates, of the Series specified on the face hereof (herein
collectively called the "CERTIFICATES"), and representing a beneficial ownership
interest in the Trust Fund created by the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees that
it will look solely to the funds on deposit in the Distribution Account for
payment hereunder and that the Trustee is not liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the interests, rights and limitations of rights,
benefits, obligations and duties evidenced thereby, and the rights, duties and
immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on the
__th day of each month or, if such __th day is not a Business Day, the Business
Day immediately following (the "DISTRIBUTION DATE"), commencing on the first
Distribution Date specified on the face hereof, to the Person in whose name this
Certificate is registered at the close of business on the applicable Record Date
in an amount equal to the product of the Percentage Interest evidenced by this
Certificate and the amount required to be distributed to Holders of Certificates
of the Class to which this Certificate belongs on such Distribution Date
pursuant to the Agreement. The Record Date applicable to each Distribution Date
is the last Business Day of the month next preceding the month of such
Distribution Date.
Distributions on this Certificate shall be made by wire transfer of
immediately available funds to the account of the Holder hereof at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder shall satisfy the
conditions to receive such form of payment set forth in the Agreement, or, if
not, by check mailed by first class mail to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Office of the Trustee or such other
location specified in the notice to Certificateholders of such final
distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Depositor, the Servicer and the Trustee with the consent of the Holders
of Certificates affected by such amendment evidencing the requisite Percentage
Interest, as provided in the Agreement. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange therefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the Holders of
any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set
forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the Office of the Trustee or the office or agency maintained by the
Trustee in New York, New York, accompanied by a written instrument of transfer
in form satisfactory to the Trustee and 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 the same Class in authorized
denominations and evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Depositor, the Servicer, and the Trustee and any agent of the Depositor
or the Trustee may treat the Person in whose name this Certificate is registered
as the owner hereof for all purposes, and neither the Depositor, the Trustee,
nor any such agent shall be affected by any notice to the contrary.
On any Distribution Date on which the Pool Principal Balance is less than
10% of the aggregate Cut-off Date Principal Balances of the Mortgage Loans, the
Servicer will have the option to repurchase, in whole, from the Trust Fund all
remaining Mortgage Loans and all property acquired in respect of the Mortgage
Loans at a purchase price determined as provided in the Agreement. In the event
that no such optional termination occurs, the obligations and responsibilities
created by the Agreement will terminate upon the later of the maturity or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund or the disposition of all property in respect
thereof and the distribution to Certificateholders of all amounts required to be
distributed pursuant to the Agreement. In no event, however, will the trust
created by the Agreement continue beyond the expiration of 21 years from the
death of the last survivor of the descendants living at the date of the
Agreement of a certain person named in the Agreement.
Any term used herein that is defined in the Agreement shall have the
meaning assigned in the Agreement, and nothing herein shall be deemed
inconsistent with that meaning.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust Fund.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:
Dated:
______________________________________
Signature by or on behalf of assignor
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds to _____________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
for the account of ____________________________________________________________,
account number ______________, or, if mailed by check, to _____________________.
Statements should be mailed to _________________________________________________
________________________________________________________________________________
________________________________________________________________________________
This information is provided by ________________________________________,
the assignee named above, or __________________________________________________,
as its agent.
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the day of _______, 19 before me, a notary public in and for said State,
personally appeared ___________________________________, known to me who, being
by me duly sworn, did depose and say that he executed the foregoing instrument.
______________________________________
Notary Public
[Notarial Seal]
<PAGE>
EXHIBIT B-6
(FORM OF CLASS R CERTIFICATE)
FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE PROPOSED TRANSFEREE DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN
ACCORDANCE WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS
THE TRANSFEREE DELIVERS TO THE TRUSTEE EITHER A REPRESENTATION LETTER TO THE
EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, OR A PLAN SUBJECT
TO SECTION 4975 OF THE CODE, OR AN OPINION OF COUNSEL IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO
THE CONTRARY HEREIN, ANY PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF
OF AN EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE OPINION
OF COUNSEL SATISFACTORY TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF
NO EFFECT.
Certificate No.:
Cut-off Date:
First Distribution Date:
Pass-Through Rate:
Initial Certificate Principal Balance of this
Certificate ("Denomination"): $
Initial Certificate Principal Balances of all
Certificates of this Class: $
CUSIP:
<PAGE>
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Home Equity Asset Backed Certificates, Series 199_-_ evidencing the
distributions allocable to the Class R Certificates with respect to
a Trust Fund consisting primarily of a pool of residential loans
(the "MORTGAGE LOANS") secured by [first liens on one- to
four-family residential properties].
PaineWebber Mortgage Acceptance Corporation IV, as Depositor
Principal in respect of this Certificate is distributable monthly as set
forth herein. Accordingly, the Certificate Principal Balance at any time may be
less than the Certificate Principal Balance as set forth herein. This
Certificate does not evidence an obligation of, or an interest in, and is not
guaranteed by the Depositor, the Servicer, or the Trustee referred to below or
any of their respective affiliates. Neither this Certificate nor the Mortgage
Loans are guaranteed or insured by any governmental agency or instrumentality.
This certifies that is the registered owner of the Percentage Interest
(obtained by dividing the Denomination of this Certificate by the aggregate
initial Class Principal Balances of all Certificates of the Class to which this
Certificate belongs) in certain monthly distributions with respect to a Trust
Fund consisting of the Mortgage Loans deposited by PaineWebber Mortgage
Acceptance Corporation IV (the "DEPOSITOR"). The Trust Fund was created pursuant
to a Pooling and Servicing Agreement dated as of the Cut-off Date specified
above (the "AGREEMENT") among the Depositor, _______________________, as
originator and servicer (the "SERVICER"), and ____________________, as trustee
(the "TRUSTEE"). To the extent not defined herein, the capitalized terms used
herein have the meanings assigned in the Agreement. This Certificate is issued
under and is subject to the terms, provisions and conditions of the Agreement,
to which Agreement the Holder of this Certificate by virtue of the acceptance
hereof assents and by which such Holder is bound.
Any distribution of the proceeds of any remaining assets of the Trust Fund
will be made only upon presentment and surrender of this Class R Certificate at
the Office of the Trustee or the office or agency maintained by the Trustee in
New York, New York.
No transfer of a Class R Certificate shall be made unless the Trustee shall
have received either (i) a representation letter from the transferee of such
Certificate, acceptable to and in form and substance satisfactory to the
Trustee, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA or Section 4975 of the Code, nor a person acting
on behalf of any such plan, which representation letter shall not be an expense
of the Trustee or the Servicer, or (ii) in the case of any such Class R
Certificate presented for registration in the name of an employee benefit plan
subject to 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 acting
on behalf of any such plan, an Opinion of Counsel satisfactory to the Trustee
and the Servicer to the effect that the purchase or holding of such Class R
Certificate will not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee or the Servicer to any obligation in
addition to those undertaken in this Agreement, which Opinion of Counsel shall
not be an expense of the Trustee or the Servicer. Notwithstanding anything else
to the contrary herein, any purported transfer of a Class R Certificate to or on
behalf of an employee benefit plan subject to ERISA or to the Code without the
opinion of counsel satisfactory to the Trustee as described above shall be void
and of no effect.
Each Holder of this Class R Certificate will be deemed to have agreed to be
bound by the restrictions of the Agreement, including but not limited to the
restrictions that (i) each person holding or acquiring any Ownership Interest in
this Class R Certificate must be a Permitted Transferee, (ii) no Ownership
Interest in this Class R Certificate may be transferred without delivery to the
Trustee of (a) a transfer affidavit of the proposed transferee and (b) a
transfer certificate of the transferor, each of such documents to be in the form
described in the Agreement, (iii) each person holding or acquiring any Ownership
Interest in this Class R Certificate must agree to require a transfer affidavit
and to deliver a transfer certificate to the Trustee as required pursuant to the
Agreement, (iv) each person holding or acquiring an Ownership Interest in this
Class R Certificate must agree not to transfer an Ownership Interest in this
Class R Certificate if it has actual knowledge that the proposed transferee is
not a Permitted Transferee and (v) any attempted or purported transfer of any
Ownership Interest in this Class R Certificate in violation of such restrictions
will be absolutely null and void and will vest no rights in the purported
transferee.
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.
This Certificate shall not be entitled to any benefit under the Agreement
or be valid for any purpose unless manually countersigned by an authorized
signatory of the Trustee.
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.
Dated: ____________, 19__
_________________________, as Trustee
By:____________________________________
Countersigned:
By: _____________________________
Authorized Signatory of
____________________________,
as Trustee
<PAGE>
(Form of Reverse of Certificates)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
Home Equity Asset Backed Certificates, Series 199_-_
This Certificate is one of a duly authorized issue of Certificates
designated as _________ Home Equity Trust, Home Equity Asset Backed
Certificates, of the Series specified on the face hereof (herein collectively
called the "CERTIFICATES"), and representing a beneficial ownership interest
in the Trust Fund created by the Agreement.
The Certificateholder, by its acceptance of this Certificate, agrees that
it will look solely to the funds on deposit in the Distribution Account for
payment hereunder and that the Trustee is not liable to the Certificateholders
for any amount payable under this Certificate or the Agreement or, except as
expressly provided in the Agreement, subject to any liability under the
Agreement.
This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the interests, rights and limitations of rights,
benefits, obligations and duties evidenced thereby, and the rights, duties and
immunities of the Trustee.
Pursuant to the terms of the Agreement, a distribution will be made on the
__th day of each month or, if such __th day is not a Business Day, the Business
Day immediately following (the "DISTRIBUTION DATE"), commencing on the first
Distribution Date specified on the face hereof, to the Person in whose name this
Certificate is registered at the close of business on the applicable Record Date
in an amount equal to the product of the Percentage Interest evidenced by this
Certificate and the amount required to be distributed to Holders of Certificates
of the Class to which this Certificate belongs on such Distribution Date
pursuant to the Agreement. The Record Date applicable to each Distribution Date
is the last Business Day of the month next preceding the month of such
Distribution Date.
Distributions on this Certificate shall be made by wire transfer of
immediately available funds to the account of the Holder hereof at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder shall satisfy the
conditions to receive such form of payment set forth in the Agreement, or, if
not, by check mailed by first class mail to the address of such
Certificateholder appearing in the Certificate Register. The final distribution
on each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Office of the Trustee or such other
location specified in the notice to Certificateholders of such final
distribution.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the Depositor, the Servicer and the Trustee with the consent of the Holders
of Certificates affected by such amendment evidencing the requisite Percentage
Interest, as provided in the Agreement. Any such consent by the Holder of this
Certificate shall be conclusive and binding on such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange therefor or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the Holders of
any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set
forth, the transfer of this Certificate is registrable in the Certificate
Register of the Trustee upon surrender of this Certificate for registration of
transfer at the Office of the Trustee or the office or agency maintained by the
Trustee in New York, New York, accompanied by a written instrument of transfer
in form satisfactory to the Trustee and 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 the same Class in authorized
denominations and evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.
The Certificates are issuable only as registered Certificates without
coupons in denominations specified in the Agreement. As provided in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized denominations
and evidencing the same aggregate Percentage Interest, as requested by the
Holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Depositor, the Servicer, and the Trustee and any agent of the Depositor
or the Trustee may treat the Person in whose name this Certificate is registered
as the owner hereof for all purposes, and neither the Depositor, the Trustee,
nor any such agent shall be affected by any notice to the contrary.
On any Distribution Date on which the Pool Principal Balance is less than
10% of the aggregate Cut-off Date Principal Balances of the Mortgage Loans, the
Servicer will have the option to repurchase, in whole, from the Trust Fund all
remaining Mortgage Loans and all property acquired in respect of the Mortgage
Loans at a purchase price determined as provided in the Agreement. In the event
that no such optional termination occurs, the obligations and responsibilities
created by the Agreement will terminate upon the later of the maturity or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund or the disposition of all property in respect
thereof and the distribution to Certificateholders of all amounts required to be
distributed pursuant to the Agreement. In no event, however, will the trust
created by the Agreement continue beyond the expiration of 21 years from the
death of the last survivor of the descendants living at the date of the
Agreement of a certain person named in the Agreement.
Any term used herein that is defined in the Agreement shall have the
meaning assigned in the Agreement, and nothing herein shall be deemed
inconsistent with that meaning.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
the Percentage Interest evidenced by the within Certificate and hereby
authorizes the transfer of registration of such Percentage Interest to assignee
on the Certificate Register of the Trust Fund.
I (We) further direct the Trustee to issue a new Certificate of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:
Dated:
_____________________________________
Signature by or on behalf of assignor
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for purposes of distribution:
Distributions shall be made, by wire transfer or otherwise, in immediately
available funds to _____________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
for the account of ____________________________________________________________,
account number ______________, or, if mailed by check, to _____________________.
Statements should be mailed to _________________________________________________
________________________________________________________________________________
________________________________________________________________________________
This information is provided by ________________________________________,
the assignee named above, or __________________________________________________,
as its agent.
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the day of _______, 19 before me, a notary public in and for said State,
personally appeared ___________________________________, known to me who, being
by me duly sworn, did depose and say that he executed the foregoing instrument.
______________________________________
Notary Public
[Notarial Seal]
OWNER TRUST AGREEMENT
among
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV,
as Depositor,
_________________________________________,
as the Company,
_________________________________________,
as Owner Trustee
_________________________________________,
as Paying Agent
Dated as of __________ 1, 199___
_______________ HOME LOAN OWNER TRUST 199__-__
Home Loan Asset Backed Notes, Series 199__-__
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
SECTION 1.1 Capitalized Terms
SECTION 1.2 Other Definitional Provisions
ARTICLE II
ORGANIZATION
SECTION 2.1 Name
SECTION 2.2 Office
SECTION 2.3 Purposes and Powers
SECTION 2.4 Appointment of Owner Trustee
SECTION 2.5 Initial Capital Contribution of Trust Estate
SECTION 2.6 Declaration of Trust
SECTION 2.7 Title to Trust Property
SECTION 2.8 Sites of Trust
SECTION 2.9 Representations and Warranties of the Depositor and the
Company; Covenants of the Company
ARTICLE III
RESIDUAL INTEREST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1 Initial Ownership
SECTION 3.2 The Residual Interest Certificates
SECTION 3.3 Execution, Authentication and Delivery of Residual
Interest Certificates
SECTION 3.4 Registration of Transfer and Exchange of Residual
Interest Certificates
SECTION 3.5 Mutilated, Destroyed, Lost or Stolen Residual Interest
Certificates
SECTION 3.6 Persons Deemed Owners
SECTION 3.7 Access to List of Owners' Names and Addresses
SECTION 3.8 Maintenance of Office or Agency
SECTION 3.9 Appointment of Paying Agent
SECTION 3.10 Restrictions on Transfer of Residual Interest
Certificates
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 Prior Notice to Owners with Respect to Certain Matters;
Covenants
SECTION 4.2 Action by Owners with Respect to Certain Matters
SECTION 4.3 Action by Owners with Respect to Bankruptcy
SECTION 4.4 Restrictions on Owners' Power
SECTION 4.5 Majority Control
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1 Establishment of Trust Account
SECTION 5.2 Application Of Trust Funds
SECTION 5.3 Method of Payment
SECTION 5.4 Segregation of Moneys; No Interest
SECTION 5.5 Accounting and Reports to the Certificateholder, Owners,
the Internal Revenue Service and Others
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1 General Authority
SECTION 6.2 General Duties
SECTION 6.3 Action upon Instruction
SECTION 6.4 No Duties Except as Specified in this Agreement, the
Basic Documents or in Instructions
SECTION 6.5 No Action Except Under Specified Documents or
Instructions
SECTION 6.6 Restrictions
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 Acceptance of Trusts and Duties
SECTION 7.2 Furnishing of Documents
SECTION 7.3 Representations and Warranties
SECTION 7.4 Reliance; Advice of Counsel
SECTION 7.5 Not Acting in Individual Capacity
SECTION 7.6 Owner Trustee Not Liable for Residual Interest
Certificates or Home Loans
SECTION 7.7 Owner Trustee May Own Residual Interest Certificates and
Notes
SECTION 7.8 Licenses
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE AND PAYING AGENT
SECTION 8.1 Fees and Expenses
SECTION 8.2 Indemnification
SECTION 8.3 Payments to the Owner Trustee and Paying Agent
ARTICLE IX
TERMINATION OF OWNER TRUST AGREEMENT
SECTION 9.1 Termination of Owner Trust Agreement
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 Eligibility Requirements for Owner Trustee
SECTION 10.2 Resignation or Removal of Owner Trustee
SECTION 10.3 Successor Owner Trustee
SECTION 10.4 Merger or Consolidation of Owner Trustee
SECTION 10.5 Appointment of Co-Owner Trustee or Separate Owner
Trustee
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Supplements and Amendments
SECTION 11.2 No Legal Title to Trust Estate in Owners
SECTION 11.3 Limitations on Rights of Others
SECTION 11.4 Notices
SECTION 11.5 Severability
SECTION 11.6 Separate Counterparts
SECTION 11.7 Successors and Assigns
SECTION 11.8 No Petition
SECTION 11.9 No Recourse
SECTION 11.10 Headings
SECTION 11.11 GOVERNING LAW
SECTION 11.12 Residual Interest Transfer Restrictions
SECTION 11.13 Third-Party Beneficiary
EXHIBIT A Form of Residual Interest Certificate
EXHIBIT B Form of Certificate of Trust
<PAGE>
THIS OWNER TRUST AGREEMENT, dated as of _________, 199__ ("AGREEMENT"),
among PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV, a Delaware corporation, as
Depositor (the "DEPOSITOR"), _________________________, a ____________________
(the "COMPANY"), _________________________, a ____________________, as Owner
Trustee (the "OWNER TRUSTEE") and _________________________, a
____________________ (the "PAYING AGENT").
WITNESSETH:
In consideration of the mutual agreements and covenants herein contained,
the Depositor, the Company, the Paying Agent and the Owner Trustee hereby agree
for the benefit of each of them and the holders of the Residual Interest
Certificates as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CAPITALIZED TERMS. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"ADMINISTRATION AGREEMENT" shall mean the Administration Agreement, dated
as of ____________, 199__, among the Issuer, the Company, as the Company and the
Master Servicer, and _____________________________, as Administrator, as the
same may be amended from time to time.
"ADMINISTRATOR" shall mean ______________________, or any successor in
interest thereto, in its capacity as Administrator under the Administration
Agreement.
"AGREEMENT" shall mean this Owner Trust Agreement, as the same may be
amended and supplemented from time to time.
"BASIC DOCUMENTS" shall mean the Certificate of Owner Trust, this
Agreement, the Indenture, the Sale and Servicing Agreement, the Administration
Agreement, [the Insurance Agreement,] the Indemnification Agreement, the
Custodial Agreement, the Note Depository Agreement, the Notes, the Home Loan
Purchase Agreement, the Servicing Agreement and other documents and certificates
delivered in connection herewith or therewith.
"BENEFIT PLAN INVESTOR" shall have the meaning assigned to such term in
SECTION 3.10(B).
"BUSINESS TRUST STATUTE" shall mean Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code ss. 3801 eT Seq., as the same may be amended from time to
time.
"CERTIFICATE DISTRIBUTION ACCOUNT" shall have the meaning assigned to such
term in SECTION 5.1.
"CERTIFICATE OF TRUST" shall mean the Certificate of Trust in the form of
Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the Business
Trust Statute.
"CERTIFICATE REGISTER" and "CERTIFICATE REGISTRAR" shall mean the register
mentioned and the registrar appointed pursuant to SECTION 3.4.
"CERTIFICATEHOLDER" or "HOLDER" shall mean a Person in whose name a
Residual Interest Certificate is registered.
"CORPORATE TRUST OFFICE" shall mean, with respect to the Trust, the
principal corporate trust office of the Trust located at ___________ Home Loan
Owner Trust 199__-__ c/o ______________________________________________________,
Attention: Corporate Trust Administration; or at such other address in the State
of Delaware as the Owner Trustee may designate by notice to the Owners, the
Securities Insurer and the Company, or the principal corporate trust office of
any successor Owner Trustee (the address (which shall be in the State of
Delaware) of which the successor owner trustee will notify the Owners, the
Securities Insurer and the Company).
"DEFINITIVE CERTIFICATE" means a certificated form of security that
represents a Residual Interest Certificate.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXPENSES" shall have the meaning assigned to such term in SECTION 8.2.
"INDEMNIFICATION AGREEMENT" shall mean the Indemnification Agreement, dated
as of ___________, 199__, among the Securities Insurer, the Company, the Issuer,
the Depositor, PaineWebber Incorporated, _________________________ and
_________________________.
"INDENTURE" shall mean the Indenture, dated as of __________, 199__, by and
between the Issuer and the Indenture Trustee, as the same may be amended or
supplemented from time to time.
"INDENTURE TRUSTEE" means _______________, as Indenture Trustee under the
Indenture.
"ISSUER" shall mean ____________ Home Loan Owner Trust 199__-__, the
Delaware business trust created pursuant to this Agreement.
"MAJORITY RESIDUAL INTERESTHOLDERS" shall mean the Holders of more than an
aggregate 50% Percentage Interest of the Residual Interest.
"OWNER" shall mean each holder of a Residual Interest Certificate.
"OWNER TRUSTEE" shall mean _________________________, a ________________,
not in its individual capacity but solely as owner trustee under this Agreement,
and any successor owner trustee hereunder.
"PAYING AGENT" shall mean the Indenture Trustee or any successor in
interest thereto or any other paying agent or co-paying agent appointed pursuant
to SECTION 3.9 hereunder and authorized by the Issuer to make payments to and
distributions from the Certificate Distribution Account.
"PERCENTAGE INTEREST" shall mean with respect to each Residual Interest
Certificate, the percentage portion of all of the Residual Interest evidenced
thereby as stated on the face of such Residual Interest Certificate.
"PROSPECTIVE OWNER" shall have the meaning set forth in SECTION 3.10(A).
"RATING AGENCY CONDITION" means, with respect to any action to which a
Rating Agency Condition applies, that each Rating Agency shall have been given
___ days (or such shorter period as is acceptable to each Rating Agency) prior
notice thereof and that each of the Depositor, the Servicer, the Master
Servicer, [the Securities Insurer,] the Owner Trustee and the Issuer shall have
been notified by the Rating Agencies in writing that such action will not result
in a reduction, withdrawal or qualification of the then current internal ratings
assigned to the Notes by each of the Rating Agencies without respect to the
Securities Insurer.
"RECORD DATE" shall mean as to each Payment Date the last Business Day of
the month immediately preceding the month in which such Payment Date occurs.
"RESIDUAL INTEREST" shall mean the right to receive distributions of Excess
Spread, if any, and certain other funds, if any, on each Payment Date, pursuant
to Section 5.2 of this Agreement, Sections 5.01(e) and 5.02(b) of the Sale and
Servicing Agreement and Section 5.04(b) of the Indenture.
"RESIDUAL INTEREST CERTIFICATE" shall mean a certificate substantially in
the form attached as EXHIBIT A hereto and evidencing the Residual Interest.
"RESIDUAL INTERESTHOLDER" shall mean any Holder of a Percentage Interest of
the Residual Interest.
"SALE AND SERVICING AGREEMENT" shall mean the Sale and Master Servicing
Agreement dated as of the date hereof, among the Owner Trust as Issuer,
PaineWebber Mortgage Acceptance Corporation IV, as Depositor, _________________,
as Indenture Trustee and the Company, as Transferor and Master Servicer, as the
same may be amended or supplemented from time to time.
"SECRETARY OF STATE" shall mean the Secretary of State of the State of
Delaware.
["SECURITIES INSURER" shall mean _________________________]
"SERVICER" shall mean _______________________, a ____________ corporation,
or any successor in interest thereto.
"SERVICING AGREEMENT" shall mean the Servicing Agreement incorporating by
reference the Agreement Regarding Standard Servicing Terms, each dated as of the
date hereof, between the Company and the Servicer, as the same may be amended or
supplemented from time to time.
"TRUST" shall mean the trust established by this Agreement.
"U.S. PERSON" shall mean a citizen or resident of the United States, a
corporation or partnership (except as provided in applicable Treasury
regulations) created or organized in or under the laws of the United States, any
state or the District of Columbia, including any entity treated as a corporation
or partnership for federal income tax purposes an estate that is subject to U.S.
federal income tax regardless of the source of its income, or a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more such U.S. Persons have authority to
control all substantial decisions of the trust (or, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996 which are
eligible to be treated as U.S. Persons).
SECTION 1.2 OTHER DEFINITIONAL PROVISIONS.
(a) Capitalized terms used herein and not otherwise defined herein have the
meanings assigned to them in the Sale and Servicing Agreement or, if not defined
therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in any such certificate or other document, and accounting terms
partly defined in this 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 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 Agreement or in any
such certificate or other document shall control.
(d) The words "hereof", "herein", "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section and Exhibit references
contained in this Agreement are references to Sections and Exhibits in or to
this Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation".
(e) The definitions contained in this 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.
(f) 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.
ARTICLE II
ORGANIZATION
SECTION 2.1 NAME. The Trust created hereby shall be known as
"____________ Home Loan Owner Trust 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 2.2 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 Owners, [the
Securities Insurer] and the Company.
SECTION 2.3 PURPOSES AND POWERS. (a) The purpose of the Trust is to
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and to sell such
Notes;
(ii) with the proceeds of the sale of the Notes, to pay the
organizational, start-up and transactional expenses of the Trust and to pay
the balance to the Depositor and the Company, as their interests may appear
pursuant to the Sale and Servicing Agreement;
(iii) to purchase, hold, assign, grant, transfer, pledge, mortgage and
convey the Trust Estate pursuant to the Indenture and to hold, manage and
distribute to the Owners pursuant to the terms of the Sale and Servicing
Agreement any portion of the Trust Estate 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;
(vi) subject to compliance with the Basic Documents, to engage in such
other activities as may be required in connection with conservation of the
Trust Estate and the making of distributions to the Owners and the
Noteholders; and
(vii) to issue the Residual Interest Certificates pursuant to this
Agreement.
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 Agreement or the Basic
Documents.
SECTION 2.4 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.
SECTION 2.5 INITIAL CAPITAL CONTRIBUTION OF TRUST ESTATE. The Depositor
hereby sells, assigns, transfers, conveys and sets over to the Owner Trustee, 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 Trust Estate and shall be
deposited in the Certificate Distribution Account. The Depositor or the Company
shall pay reasonable organizational expenses of the Trust as they may arise or
shall, upon the request of the Owner Trustee, promptly reimburse the Owner
Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6 DECLARATION OF TRUST. The Owner Trustee hereby declares that
it will hold the Trust Estate in trust upon and subject to the conditions set
forth herein for the use and benefit of the Owners, 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 Agreement constitute the governing instrument of such
business trust. It is the intention of the parties hereto that, solely for
federal, state and local income and franchise tax purposes (i) so long as there
is a sole Owner, the Trust shall be treated as a security arrangement, with the
assets of the Trust being the Home Loans and the other assets held by the Trust,
the owner of the Home Loans being the sole Owner and the Notes being
non-recourse debt of the sole Owner, and (ii) if there is more than one Owner,
the Trust shall be treated as a partnership, with the assets of the partnership
being the Home Loans and other assets held by the Trust, the partners of the
partnership being the holders of the Home Loans and the Notes being non-recourse
debt of the partnership. The Trust shall not elect to be treated as an
association under Treasury Regulations Section 301.7701-3(a) for federal income
tax purposes. The parties agree that, unless otherwise required by appropriate
tax authorities, the sole Owner or 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 provided in the second preceding sentence 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 2.7 TITLE TO TRUST PROPERTY.
(a) Subject to the Indenture, legal title to all the 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 Trust
Estate to be vested in a trustee or trustees, in which case title shall be
deemed to be vested in the Owner Trustee and/or a separate trustee, as the case
may be.
(b) The Owners shall not have legal title to any part of the Trust Estate.
No transfer by operation of law or otherwise of any interest of the Owners shall
operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or to the transfer to it of any part of the Trust
Estate.
SECTION 2.8 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
New York,] except with respect to accounts maintained by the Indenture Trustee
on behalf of the Owner Trustee. The Trust shall not have any employees;
provided, however, that nothing herein shall restrict or prohibit the Owner
Trustee from having employees within or without the State of Delaware. Payments
will be received by the Trust only in Delaware [or New York,] and payments will
be made by the Trust only from Delaware [or New York,] except with respect to
payments made by the Indenture Trustee on behalf of the Owner Trustee. The only
offices of the Trust will be at the Corporate Trust Office in Delaware.
SECTION 2.9 REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR AND THE
COMPANY; COVENANTS OF THE COMPANY.
(a) The Depositor hereby represents and warrants to the Owner Trustee [and
the Securities Insurer] that:
(i) The Depositor is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware and has all
licenses necessary to carry on its business as now being conducted. The
Depositor has the power and authority to execute and deliver this Agreement
and to perform in accordance herewith; the execution, delivery and
performance of this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by the Depositor and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by all necessary action of the Depositor; this Agreement
evidences the valid, binding and enforceable obligation of the Depositor;
and all requisite action has been taken by the Depositor to make this
Agreement valid, binding and enforceable upon the Depositor in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium and other, similar laws relating to or affecting
creditors' rights generally or the application of equitable principles in
any proceeding, whether at law or in equity;
(ii) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of any terms or provisions of
the Certificate of Incorporation or Bylaws of the Depositor, (ii) the
breach of any term or provision of, or conflict with or constitute a
default under or result in the acceleration of any obligation under, any
material agreement, indenture or loan or credit agreement or other material
instrument to which the Depositor, or its property is subject, or (iii) the
violation of any law, rule, regulation, order, judgment or decree to which
the Depositor or its respective property is subject;
(iii) The Depositor 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 other governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or otherwise) or operations of the Depositor or its properties
or might have consequences that would materially and adversely affect its
performance hereunder.
(b) The Company hereby represents and warrants to the Owner Trustee and the
Securities Insurer that:
(i) The Company is duly organized and validly existing as a California
industrial loan company in good standing under the laws of the State of
California, 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 Company 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 property
or the conduct of its business shall require such qualifications.
(iii) The Company has the power and authority to execute and deliver
this Agreement and to carry out its terms; and the execution, delivery and
performance of this Agreement has been duly authorized by the Company by
all necessary corporate action.
(iv) The consummation of the transactions contemplated by this
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 certificate
of incorporation or by-laws of the Company, or any indenture, agreement or
other instrument to which the Company 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 Company's knowledge, any order, rule or
regulation applicable to the Company of any court or of any Federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company or its properties.
(v) There are no proceedings or investigations pending or, to the
Company's best knowledge, threatened, before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties: (i) asserting the
invalidity of this Agreement, (ii) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or (iii) seeking any
determination or ruling that might materially and adversely affect the
performance by the Company of its obligations under, or the validity or
enforceability of, this Agreement.
(vi) The Company is not (A) an "employee benefit plan" within the
meaning of Section 3(3) of ERISA, or (B) a "plan" within the meaning of
Section 4975(e)(1) of the Code or (C) an entity, including an insurance
company separate account or general account, whose underlying assets
include plan assets by reason of a plan's investment in the entity (each, a
"BENEFIT PLAN INVESTOR") and is not directly or indirectly purchasing such
Residual Interest Certificate on behalf of, as investment manager of, as
named fiduciary of, as trustee of, or with the assets of a Benefit Plan
Investor.
(vii) The Company is a U.S. Person.
(c) The Company covenants with the Owner Trustee that during the
continuance of this Agreement it will comply in all respects with the provisions
of its Certificate of Incorporation in effect from time to time.
ARTICLE III
RESIDUAL INTEREST CERTIFICATES AND TRANSFER OF INTERESTS
SECTION 3.1 INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to SECTION 2.5 and until the issuance of
the Residual Interest Certificates, the Depositor shall be the sole Owner of the
Trust.
SECTION 3.2 THE RESIDUAL INTEREST CERTIFICATES. The Residual Interest
Certificates shall not be issued with a principal amount. The Residual Interest
Certificates shall be executed on behalf of the Trust by manual or facsimile
signature of a Trust Officer of the Owner Trustee. Residual Interest
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 valid and binding obligations of the Trust,
notwithstanding that such individuals or any of them shall have ceased to be so
authorized prior to the authentication and delivery of such Residual Interest
Certificates or did not hold such offices at the date of authentication and
delivery of such Residual Interest Certificates.
A transferee of a Residual Interest Certificate shall become an Owner, and
shall be entitled to the rights and subject to the obligations of an Owner
hereunder and under the Sale and Servicing Agreement, upon such transferee's
acceptance of a Residual Interest Certificate duly registered in such
transferee's name pursuant to SECTION 3.4.
SECTION 3.3 EXECUTION, AUTHENTICATION AND DELIVERY OF RESIDUAL INTEREST
CERTIFICATES. Concurrently with the initial sale of the Home Loans to the Trust
pursuant to the Sale and Servicing Agreement, the Owner Trustee on behalf of the
Trust shall cause the Residual Interest Certificates representing 100% of the
Percentage Interests of the Residual Interest to be executed, 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 Residual Interest
Certificate shall entitle its holder to any benefit under this Agreement, or
shall be valid for any purpose, unless there shall appear on such Residual
Interest Certificate a certificate of authentication substantially in the form
set forth in EXHIBIT A, executed by the Owner Trustee or the Administrator, as
the Owner Trustee's authenticating agent, by manual or facsimile signature; such
authentication shall constitute conclusive evidence that such Residual Interest
Certificate shall have been duly authenticated and delivered hereunder. All
Residual Interest Certificates shall be dated the date of their authentication.
No Certificates, except the Residual Interest Certificates, shall be issued by
the Trust without the prior written consent of the Securities Insurer.
SECTION 3.4 REGISTRATION OF TRANSFER AND EXCHANGE OF RESIDUAL INTEREST
CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to SECTION 3.8 a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Residual Interest Certificates and
of transfers and exchanges of Residual Interest Certificates as herein provided.
The Administrator shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Residual Interest
Certificate at the office or agency maintained pursuant to SECTION 3.8, the
Owner Trustee shall execute, authenticate and deliver (or shall cause the
Administrator as its authenticating agent to authenticate and deliver), in the
name of the designated transferee or transferees, one or more new Residual
Interest Certificates in authorized denominations of a like aggregate amount
dated the date of authentication by the Owner Trustee or any authenticating
agent, PROVIDED that prior to such execution, authentication and delivery, the
Owner Trustee, the Administrator, the Securities Insurer and the Certificate
Registrar shall have received an Opinion of Counsel to the effect that the
proposed transfer will not cause the Trust to be characterized as an association
(or a publicly traded partnership) taxable as a corporation or alter the tax
characterization of the Notes for federal income tax or California state law
purposes. At the option of an Owner, Residual Interest Certificates may be
exchanged for other Residual Interest Certificates of authorized denominations
of a like aggregate amount upon surrender of the Residual Interest Certificates
to be exchanged at the office or agency maintained pursuant to SECTION 3.8.
Every Residual Interest Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the Owner or his attorney duly authorized
in writing. In addition, each Residual Interest Certificate presented or
surrendered for registration of transfer and exchange must be accompanied by a
letter from the Prospective Owner certifying as to the representations set forth
in SECTIONS 3.10(A) AND (B). Each Residual Interest Certificate surrendered for
registration of transfer or exchange shall be in substantially the form attached
hereto as Exhibit A and shall be canceled and disposed of by the Owner Trustee
or the Certificate Registrar in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Residual Interest 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 Residual Interest Certificates.
The preceding provisions of this Section notwithstanding, the Owner Trustee
shall not make and the Certificate Registrar shall not register transfers or
exchanges of Residual Interest Certificates for a period of 15 days preceding
the due date for any payment with respect to the Residual Interest Certificates.
SECTION 3.5 MUTILATED, DESTROYED, LOST OR STOLEN RESIDUAL INTEREST
CERTIFICATES. If (a) any mutilated Residual Interest 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
Residual Interest 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
that such Residual Interest Certificate shall have been acquired by a bona fide
purchaser, the Owner Trustee on behalf of the Trust shall execute and the Owner
Trustee, or the Administrator as the Owner Trustee's authenticating agent, shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Residual Interest Certificate, a new Residual Interest
Certificate of like tenor and denomination. In connection with the issuance of
any new Residual Interest Certificate under this Section, 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 Residual Interest Certificate issued pursuant to this
Section shall constitute conclusive evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Residual
Interest Certificate shall be found at any time.
SECTION 3.6 PERSONS DEEMED OWNERS. Prior to due presentation of a
Residual Interest Certificate for registration of transfer, the Owner Trustee or
the Certificate Registrar may treat the Person in whose name any Residual
Interest Certificate shall be registered in the Certificate Register as the
owner of such Residual Interest Certificate for the purpose of receiving
distributions pursuant to SECTION 5.2 and for all other purposes whatsoever, and
neither the Owner Trustee nor the Certificate Registrar shall be bound by any
notice to the contrary.
SECTION 3.7 ACCESS TO LIST OF OWNERS' NAMES AND ADDRESSES. The Owner
Trustee shall furnish or cause to be furnished to the Master Servicer, the
Servicer, the Depositor, [the Securities Insurer] and the Indenture Trustee,
within ___ days after receipt by the Owner Trustee of a request therefor from
the Master Servicer, the Servicer, the Depositor, [the Securities Insurer] or
the Indenture Trustee in writing, a list, in such form as the Master Servicer,
the Servicer, the Depositor, [the Securities Insurer] or the Indenture Trustee
may reasonably require, of the names and addresses of the Owners as of the most
recent Record Date. If a Certificateholder applies in writing to the Owner
Trustee, and such application states that the applicant desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Residual Interest Certificates and such application is accompanied
by a copy of the communication that such applicants propose to transmit, then
the Owner Trustee shall, within __________ Business Days after the receipt of
such application, afford such applicants access during normal business hours to
the current list of Certificateholders. Each Owner, by receiving and holding a
Residual Interest Certificate, shall be deemed to have agreed not to hold any of
the Depositor, the Company, the Certificate Registrar, [the Securities Insurer]
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 3.8 MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee shall
maintain an office or offices or agency or agencies where Residual Interest
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
Residual Interest Certificates and the Basic Documents may be served. The Owner
Trustee initially designates the Administrator's office in the city of
_____________________ as its principal corporate trust office for such purposes.
The Owner Trustee shall give prompt written notice to the Company, [the
Securities Insurer] and to the Certificateholders of any change in the location
of the Certificate Register or any such office or agency.
SECTION 3.9 APPOINTMENT OF PAYING AGENT. The Owner Trustee hereby
appoints the Indenture Trustee as Paying Agent under this Agreement. The Owner
Trustee hereby appoints the Paying Agent to establish and maintain the
Certificate Distribution Account. The Paying Agent shall make distributions to
Residual Interestholders from the Certificate Distribution Account pursuant to
SECTION 5.2 hereof and SECTION 5.02 of the Sale and Servicing Agreement and
shall report the amounts of such distributions to the Owner Trustee. The Paying
Agent shall have the revocable power to withdraw funds from the Certificate
Distribution Account for the purpose of making the distributions referred to
above. In the event that the Indenture Trustee shall no longer be the Paying
Agent hereunder, the Owner Trustee shall appoint a successor to act as Paying
Agent (which shall be a bank or trust company) acceptable to the Securities
Insurer. The Owner Trustee shall cause such successor Paying Agent or any
additional Paying Agent appointed by the Owner Trustee to execute and deliver to
the Owner Trustee an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Owner Trustee that as Paying Agent,
such successor Paying Agent or additional Paying Agent will hold all sums, if
any, held by it for payment to the Owners in trust for the benefit of the
Residual Interestholders entitled thereto until such sums shall be paid to such
Owners. The Paying Agent shall return all unclaimed funds to the Owner Trustee,
and upon removal of a Paying Agent, such Paying Agent shall also return all
funds in its possession to the Owner Trustee. The provisions of SECTIONS 7.1,
7.3, 7.4 AND 8.1 shall apply to the Indenture Trustee also in its role as Paying
Agent, for so long as the Indenture Trustee shall act as Paying Agent and, to
the extent applicable, to any other paying agent appointed hereunder. Any
reference in this Agreement to the Paying Agent shall include any co-paying
agent unless the context requires otherwise. Notwithstanding anything herein to
the contrary, the Paying Agent shall be the same entity as the Indenture Trustee
under the Indenture and the Sale and Servicing Agreement, [unless the Securities
Insurer consents to a different Paying Agent or a Securities Insurer Default has
occurred and is continuing.] [Notwithstanding any other provision, if a
Securities Insurer Default occurs, then the Securities Insurer's consent or
direction is not required.] If the Paying Agent ceases to be the same entity as
the Indenture Trustee under the Indenture and the Sale and Servicing Agreement,
then, unless the Securities Insurer otherwise consents, the Paying Agent shall
resign and the Owner Trustee shall assume the duties and obligations of the
Paying Agent hereunder and under the Sale and Servicing Agreement.
SECTION 3.10 RESTRICTIONS ON TRANSFER OF RESIDUAL INTEREST Certificates.
(a) Each prospective purchaser and any subsequent transferee of a Residual
Interest Certificate (each, a "PROSPECTIVE OWNER"), other than the Company,
shall represent and warrant, in writing, to the Owner Trustee, [the Securities
Insurer] and the Certificate Registrar and any of their respective successors
that:
(i) Such Person is (A) a "qualified institutional buyer" as defined in
Rule 144A under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), and is aware that the seller of the Residual Interest Certificate
may be relying on the exemption from the registration requirements of the
Securities Act provided by Rule 144A and is acquiring such Residual
Interest Certificate for its own account or for the account of one or more
qualified institutional buyers for whom it is authorized to act, or (B) an
institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act (an
"INSTITUTIONAL ACCREDITED INVESTOR") that is acquiring the Residual
Interest Certificate for its own account, or for the account of such an
Institutional Accredited Investor, for investment purposes and not with a
view to, or for offer or sale in connection with any distribution in
violation of the Securities Act.
(ii) Such Person understands that the Residual Interest Certificate
have not been and will not be registered under the Securities Act and may
be offered, sold or otherwise transferred only to a person whom the seller
reasonably believes is (A) a qualified institutional buyer or (B) an
Institutional Accredited Investor, and in accordance with the terms hereof
and any applicable securities laws of any state of the United States.
(iii) Such Person understands that the Residual Interest Certificates
bear a legend to the following effect:
"THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS
RESIDUAL INTEREST CERTIFICATE HAS NOT BEEN AND WILL NOT
BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS
RESIDUAL INTEREST CERTIFICATE MAY BE DIRECTLY OR
INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF BY
THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE
ACT, IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE ACT PURSUANT
TO RULE 144A OR (II) AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE ACT (INCLUDING,
BUT NOT LIMITED TO, ____________________) IN A
TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS.
NO PERSON IS OBLIGATED TO REGISTER THIS RESIDUAL
INTEREST CERTIFICATE UNDER THE ACT OR ANY STATE
SECURITIES LAWS."
(iv) Such Person shall comply with the provisions of SECTION 3.10(B),
as applicable, relating to the ERISA restrictions with respect to the
acceptance or acquisition of such Residual Interest Certificate.
(b) Each Prospective Owner shall either:
(i) represent and warrant, in writing, to the Owner Trustee, [the
Securities Insurer] and the Certificate Registrar and any of their
respective successors that the Prospective Owner is not (A) an "employee
benefit plan" within the meaning of Section 3(3) of ERISA, or (B) a "plan"
within the meaning of Section 4975(e)(1) of the Code or (C) an entity,
including an insurance company separate account or general account, whose
underlying assets include plan assets by reason of a plan's investment in
the entity (each, a "BENEFIT PLAN INVESTOR") and is not directly or
indirectly purchasing such Residual Interest Certificate on behalf of, as
investment manager of, as named fiduciary of, as trustee of, or with the
assets of a Benefit Plan Investor; or
(ii) furnish to the Owner Trustee, [the Securities Insurer] and the
Certificate Registrar and any of their respective successors an opinion of
counsel acceptable to such persons that (A) the proposed transfer of the
Residual Interest Certificate to such Prospective Owner will not cause any
assets of the Trust to be deemed "plan assets" within the meaning of United
States Department of Labor Regulation Section 2510.3-101, or (B) the
proposed transfer of the Residual Interest Certificate will not give rise
to a transaction described in Section 406 of ERISA or Section 4975(c)(1) of
the Code for which a statutory or administrative exemption is unavailable.
(c) The Residual Interest Certificates shall bear an additional legend
referring to the foregoing restrictions contained in paragraph (b) above.
(d) Each Prospective Owner, other than the Company, shall represent and
warrant, in writing, to the Owner Trustee, [the Securities Insurer] and the
Certificate Registrar and any of their respective successors that it is a person
who is either (A)(i) a citizen or resident of the United States, (ii) a
corporation or partnership organized in or under the laws of the United States,
any state or the District of Columbia, including any entity treated as a
corporation or partnership for federal income tax purposes or (iii) a person not
described in (A)(i) or (ii) whose ownership of the Residual Interest Certificate
is effectively connected with such person's conduct of a trade or business
within the United States (within the meaning of the Code) and its ownership of
any interest in a Residual Interest Certificate will not result in any
withholding obligation with respect to any payments with respect to the Residual
Interest Certificates by any person (other than withholding, if any, under
Section 1446 of the Code) or (B) an estate the income of which is subject to
United States federal income tax, regardless of source, or a trust if a court
within the United States is able to exercise primary supervision over the
administration of such trust and one or more persons described in this paragraph
have the authority to control all substantial decisions of such trust (a person
described in (A)(i), (A)(ii), or B, a "U.S. PERSON"). It agrees that it will
provide a certification of non-foreign status signed under penalties of perjury
and, alternatively, that if it is a person described in clause (A)(iii) above,
it will furnish to the Administrator a properly executed IRS Form 4224 (or
successor form thereto) and a new IRS Form 4224 (or successor form thereto) upon
the expiration or obsolescence of any previously delivered form (and such other
certifications, representations or opinions of counsel as may be requested by
the Company).
(e) Each Certificateholder that is not a U.S. Person agrees that,
subsequent to delivery to the Owner Trustee, [the Securities Insurer] and the
Certificate Registrar of IRS Form 4224 or appropriate successor forms required
to evidence that the Certificateholder holds its Residual Interest
Certificate(s) in connection with a U.S. trade or business (within the meaning
of the Code), it will deliver to the Company and the Owner Trustee further
copies of the said IRS Form 4224 or such appropriate successor forms or other
manner of certification, as the case may be, on or before the date that any such
form expires or becomes obsolete or after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the Company and
the Owner Trustee, and such extensions or renewals thereof as may reasonably be
requested by the Company and the Owner Trustee. Further, each Certificateholder
that is not a U.S. Person covenants as a condition to acquiring its Residual
Interest Certificate that for so long as it shall hold such Residual Interest
Certificate it shall be held in such manner that the income therefrom shall be
effectively connected with the conduct of a U.S. trade or business. In the event
that any Certificateholder shall breach the certifications, representations,
warranties or covenants set forth in this Article III, such Certificateholder
shall indemnify the Company, the Owner Trustee and the Trust for any amounts
(including interest and penalties thereon) payable by the Company, the Owner
Trustee or the Trust as a result of such breach.
ARTICLE IV
ACTIONS BY OWNER TRUSTEE
SECTION 4.1 PRIOR NOTICE TO OWNERS WITH RESPECT TO CERTAIN MATTERS;
COVENANTS. (a) With respect to the following matters, the Owner Trustee shall
not take action, and the Owners shall not direct the Owner Trustee to take any
action, unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Owners [and the Securities Insurer] in writing
of the proposed action and [(i) the Securities Insurer shall have consented
thereto and] (ii) the Owners shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such Owners have
withheld consent or the Owners have provided alternative direction (any
direction by the Owners shall require the prior consent of the Securities
Insurer):
(i) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of the Home Loans)
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 the Home Loans);
(ii) 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);
(iii) the amendment or other change to this Agreement or any Basic
Document in circumstances where the consent of any Noteholder or the
Securities Insurer is required;
(iv) the appointment pursuant to the Indenture of a successor Note
Registrar, Paying Agent or Indenture Trustee or pursuant to this Agreement
of a successor Certificate Registrar, or the consent to the assignment by
the Note Registrar, Paying Agent or Indenture Trustee or Certificate
Registrar of its obligations under the Indenture or this Agreement, as
applicable;
(v) the consent to the calling or waiver of any default of any Basic
Document;
(vi) the consent to the assignment by the Indenture Trustee, the
Master Servicer or Servicer of their respective obligations under any Basic
Document;
(vii) except as provided in Article IX hereof, dissolve, terminate or
liquidate the Trust in whole or in part;
(viii) merge or consolidate the Trust with or into any other entity,
or convey or transfer all or substantially all of the Trust's assets to any
other entity;
(ix) cause the Trust to incur, assume or guaranty any indebtedness
other than as set forth in this Agreement;
(x) do any act that conflicts with any other Basic Document;
(xi) do any act which would make it impossible to carry on the
ordinary business of the Trust;
(xii) confess a judgment against the Trust;
(xiii) possess Trust assets, or assign the Trust's right to property,
for other than a Trust purpose;
(xiv) cause the Trust to lend any funds to any entity; or
(xv) change the Trust's purpose and powers from those set forth in
this Owner Trust Agreement.
(b) Notwithstanding any provision of Section 4.1(a), the Owner Trustee on
behalf of the Trust agrees to abide by the following restrictions:
(i) Other than as contemplated by the Basic Documents and related
documentation, the Trust shall not incur any indebtedness.
(ii) Other than as contemplated by the Basic Documents and related
documentation, the Trust shall not engage in any dissolution, liquidation,
consolidation, merger or sale of assets.
(iii) The Trust shall not engage in any business activity in which it
is not currently engaged other as contemplated by the Basic Documents and
related documentation.
(iv) The Trust shall not form, or cause to be formed, any subsidiaries
and shall not own or acquire any asset other than as contemplated by the
Basic Documents and related documentation.
(v) Other than as contemplated by the Basic Documents and related
documentation, the Trust shall not follow the directions or instructions of
the Company.
(c) The Owner Trustee on behalf of the Trust shall:
(i) Maintain the Trust's books and records separate from any other
person or entity.
(ii) Maintain the Trust's bank accounts separate from any other person
or entity.
(iii) Not commingle the Trust's assets with those of any other person
or entity.
(iv) Conduct the Trust's own business in its own name.
(v) Other than as contemplated by the Basic Documents and related
documentation, pay the Trust's own liabilities and expenses only out of its
own funds.
(vi) Observe all formalities required under the Business Trust
Statute.
(vii) Enter into transactions with Affiliates or the Company only if
each such transaction is intrinsically fair, commercially reasonable, and
on the same terms as would be available in an arm's length transaction with
a person or entity that is not an Affiliate.
(viii) Not guarantee or become obligated for the debts of any other
entity or person.
(ix) Not hold out the Trust's credit as being available to satisfy the
obligation of any other person or entity.
(x) Not acquire the obligations or securities of the Trust's
Affiliates or the Company.
(xi) Other than as contemplated by the Basic Documents and related
documentation, not make loans to any other person or entity or buy or hold
evidence of indebtedness issued by any other person or entity.
(xii) Other than as contemplated by the Basic Documents and related
documentation, not pledge the Trust's assets for the benefit of any other
person or entity.
(xiii) Hold the Trust out as a separate entity and conduct any
business only in its own name.
(xiv) Correct any known misunderstanding regarding the Trust's
separate identity.
(xv) Not identify the Trust as a division of any other person or
entity.
(xvi) Maintain appropriate minutes or other records of appropriate
actions and shall maintain its office separate from the office of the
Company, the Depositor and the Master Servicer.
So long as the Notes or any other amounts owed under the Indenture remain
outstanding, the Trust shall not amend this Section 4.1 without the prior
written consent of 100% of the Voting Interests of the Notes and the consent of
each Rating Agency, in addition to the requirements under Section 11.1.
(d) The Owner Trustee shall not have the power, except upon the direction
of the Owners [with the consent of the Securities Insurer or upon the direction
of the Securities Insurer,] and, subject to Section 11.18 of the Indenture, 100%
of the Noteholders, and to the extent otherwise consistent with the Basic
Documents, to (i) remove or replace the Servicer, the Master Servicer or the
Indenture Trustee, (ii) institute proceedings to have the Trust declared or
adjudicated a bankrupt or insolvent, (iii) consent to the institution of
bankruptcy or insolvency proceedings against the Trust, (iv) file a petition or
consent to a petition seeking reorganization or relief on behalf of the Trust
under any applicable federal or state law relating to bankruptcy, (v) consent to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or
any similar official) of the Trust or a substantial portion of the property of
the Trust, (vi) make any assignment for the benefit of the Trust's creditors,
(vii) cause the Trust to admit in writing its inability to pay its debts
generally as they become due or (viii) take any action, or cause the Trust to
take any action, in furtherance of any of the foregoing (any of the above, a
"BANKRUPTCY ACTION"). So long as the Indenture and the Insurance Agreement
remain in effect [and no Securities Insurer Default exists,] no
Certificateholder shall have the power to take, and shall not take, any
Bankruptcy Action with respect to the Trust or direct the Owner Trustee to take
any Bankruptcy Action with respect to the Trust.
SECTION 4.2 ACTION BY OWNERS WITH RESPECT TO CERTAIN MATTERS. The Owner
Trustee shall not have the power, except upon the direction of the Owners [and
with the consent of the Securities Insurer or upon the direction of the
Securities Insurer,] to (a) remove the Administrator under the Administration
Agreement pursuant to Section 9 thereof, (b) appoint a successor Administrator
pursuant to Section 9 of the Administration Agreement, (c) remove the Master
Servicer under the Sale and Servicing Agreement pursuant to Section 10.01
thereof or (d) sell the Home Loans 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 Owners [and, so long as no Securities
Insurer Default exists, only after obtaining the consent of the Securities
Insurer.]
SECTION 4.3 ACTION BY OWNERS WITH RESPECT TO BANKRUPTCY. The Owner
Trustee shall not have the power to commence a voluntary Bankruptcy Action
relating to the Trust unless the conditions specified in Section 4.1(d) are
satisfied and the Trust is insolvent.
SECTION 4.4 RESTRICTIONS ON OWNERS' POWER. The Owners shall not direct
the Owner Trustee to take or refrain from taking any action if such action or
inaction would be contrary to any obligation of the Trust or the Owner Trustee
under this Agreement or any of the Basic Documents or would be contrary to
SECTION 2.3 nor shall the Owner Trustee be obligated to follow any such
direction, if given.
SECTION 4.5 MAJORITY CONTROL. Except as expressly provided herein, any
action that may be taken by the Owners under this Agreement may be taken by the
Majority Residual Interestholders. Except as expressly provided herein, any
written notice of the Owners delivered pursuant to this Agreement shall be
effective if signed by the Majority Residual Interestholders at the time of the
delivery of such notice.
ARTICLE V
APPLICATION OF TRUST FUNDS; CERTAIN DUTIES
SECTION 5.1 ESTABLISHMENT OF TRUST ACCOUNT. The Owner Trustee shall
cause the Master Servicer, for the benefit of the Owners, the Noteholders [and
the Securities Insurer,] to establish and maintain with the Indenture Trustee
for the benefit of the Owner Trustee one or more Eligible Accounts which, so
long as the Indenture Trustee holds such Trust Account on behalf of the Owner
Trustee, shall be entitled "Certificate Distribution Account,
_________________________, as Indenture Trustee on behalf of the Owner Trustee,
the Owners, the Noteholders [and the Securities Insurer,] in trust for the
____________ Home Loan Owner Trust 199__-__". Funds shall be deposited in the
Certificate Distribution Account as required by the Sale and Servicing
Agreement.
All of the right, title and interest of the Owner Trustee and the Paying
Agent in all funds on deposit from time to time in the Certificate Distribution
Account and in all proceeds thereof shall be held for the benefit of the Owners
and such other persons entitled to distributions therefrom. Except as otherwise
expressly provided herein or in the Sale and Servicing Agreement, the
Certificate Distribution Account shall be under the sole dominion and control of
the Owner Trustee or Paying Agent for the benefit of the Owners, the Securities
Insurer and the Noteholders.
In addition to the foregoing, the Certificate Distribution Account is a
Trust Account under the Sale and Servicing Agreement and constitutes part of the
Trust Estate pledged by the Trust to the Indenture Trustee under the Indenture.
The Certificate Distribution Account shall be subject to and established and
maintained in accordance with the applicable provisions of the Sale and
Servicing Agreement and the Indenture, including, without limitation, the
provisions of Section 5.02(b) of the Sale and Servicing Agreement regarding
distributions from the Certificate Distribution Account.
The Company agrees to direct and shall have the sole authority to direct
the Owner Trustee or Indenture Trustee or their successor in interest, as to the
Permitted Investments in which the funds on deposit in the Trust Accounts (as
such term is defined in the Sale and Servicing Agreement) may be invested.
SECTION 5.2 APPLICATION OF TRUST FUNDS.
(a) On each Payment Date, the Owner Trustee or Indenture Trustee, on behalf
of the Owner Trustee, shall direct the Paying Agent to distribute to the Master
Servicer and the Residual Interestholders from amounts on deposit in the
Certificate Distribution Account the distributions as provided in Section
5.02(b) of the Sale and Servicing Agreement with respect to such Payment Date.
(b) On each Payment Date, the Owner Trustee shall cause the Paying Agent to
send to each Residual Interestholder the statement provided to the Owner Trustee
by the Master Servicer pursuant to Section 6.01 of the Sale and Servicing
Agreement with respect to such Payment Date.
(c) In the event that any withholding tax is imposed on the Trust's payment
(or allocations of income) to an Owner, such tax shall reduce the amount
otherwise distributable to the Owner in accordance with this Section. The Owner
Trustee is hereby authorized and directed to retain from amounts otherwise
distributable to the Owners 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 an Owner
shall be treated as cash distributed to such Owner at the time it is withheld by
the Trust and remitted to the appropriate taxing authority. In the event of any
claimed overwithholding, Owners shall have no claim for recovery against the
Trust or other Owners. If the amount withheld was not withheld from actual
distributions, the Trust may, at its option, (i) require the Owner to reimburse
the Trust for such withholding (and each Owner agrees to reimburse the Trust
promptly following such request) or (ii) reduce any subsequent distributions by
the amount of such withholding. If the Owner Trustee determines that a
withholding tax is payable with respect to a distribution (such as a
distribution to an Owner (or any other beneficial owner of the Owner Trust) that
is not a U.S. Person and that has not established an applicable exemption from
withholding (such as an effective Form W-8, Form 1001 or Form 4224), the Owner
Trustee shall in its sole discretion withhold such amounts as it determines are
required to be withheld in accordance with this paragraph (c). In the event that
an Owner wishes to apply for a refund of any such withholding tax, the Owner
Trustee shall reasonably cooperate with such owner in making such claim so long
as such Owner agrees to reimburse the Owner Trustee for any out-of-pocket
expenses incurred.
SECTION 5.3 METHOD OF PAYMENT. Subject to SECTION 3.10, distributions
required to be made to Owners on any Payment Date shall be made to each Owner
of, record on the preceding Record Date either by wire transfer, in immediately
available funds, to the account of such Holder at a bank or other entity having
appropriate facilities therefor, if such Owner 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 Owner at
the address of such holder appearing in the Certificate Register.
SECTION 5.4 SEGREGATION OF MONEYS; NO INTEREST. Subject to SECTIONS 4.1,
5.1 AND 5.2, moneys received by the Owner Trustee hereunder and deposited into
the Certificate Distribution Account will be segregated except to the extent
required otherwise by law or the Sale and Servicing Agreement and shall be
invested in Permitted Investments at the direction of the Company. The Owner
Trustee shall not be liable for payment of any interest in respect of such
moneys.
SECTION 5.5 ACCOUNTING AND REPORTS TO THE CERTIFICATEHOLDER, OWNERS, THE
INTERNAL REVENUE SERVICE AND OTHERS. The Owner Trustee shall deliver to each
Owner [and the Securities Insurer,] as may be required by the Code and
applicable Treasury Regulations, or as may be requested by such Owner [and the
Securities Insurer,] such information, reports or statements as may be necessary
to enable each Owner to prepare its federal and state income tax returns.
Consistent with the Trust's characterization for tax purposes as a security
arrangement for the issuance of non-recourse debt so long as the Company or any
other Person is the sole Owner, no federal income tax return shall be filed on
behalf of the Trust unless either (i) the Owner Trustee [and the Securities
Insurer] shall receive an Opinion of Counsel that, based on a change in
applicable law occurring after the date hereof, or as a result of a transfer by
the Company permitted by SECTION 3.4, the Code requires such a filing or (ii)
the Internal Revenue Service shall determine that the Trust is required to file
such a return. In the event that there shall be two or more beneficial owners of
the Trust, the Owner Trustee shall inform the Indenture Trustee [and the
Securities Insurer] in writing of such event, (x) the Owner Trustee shall
prepare or shall cause to be prepared federal and, if applicable, state or local
partnership tax returns required to be filed by the Trust and shall remit such
returns to the Company (or if the Company no longer owns any Residual Interest
Certificates, the Owner designated for such purpose by the Company to the Owner
Trustee in writing) at least (5) days before such returns are due to be filed,
and (y) capital accounts shall be maintained for each Owner (or beneficial
owner) in accordance with the Treasury Regulations under Section 704(b) of the
Code reflecting each such Owner's (or beneficial owner's) share of the income,
gains, deductions, and losses of the Trust and/or guaranteed payments made by
the Trust and contributions to, and distributions from, the Trust. The Company
(or such designee Owner, as applicable) shall promptly sign such returns and
deliver such returns after signature to the Owner Trustee and such returns shall
be filed by the Owner Trustee with the appropriate tax authorities. In the event
that a "tax matters partner" (within the meaning of Code Section 6231(a)(7)) is
required to be appointed with respect to the Trust, the Company is hereby
designated as tax matters partner or, if the Company is not an Owner, the Owner
selected by a majority of the Owners (by Percentage Interest) shall be
designated as tax matters partner. In no event shall the Owner Trustee or the
Company (or such designee Owner, as applicable) be liable for any liabilities,
costs or expenses of the Trust or the Noteholders arising out of the application
of any tax law, including federal, state, foreign or local income or excise
taxes or any other tax imposed on or measured by income (or any interest,
penalty or addition with respect thereto or arising from a failure to comply
therewith) except for any such liability, cost or expense attributable to any
act or omission by the Owner Trustee or the Company (or such designee Owner, as
applicable), as the case may be, in breach of its obligations under this
Agreement.
ARTICLE VI
AUTHORITY AND DUTIES OF OWNER TRUSTEE
SECTION 6.1 GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver or cause to be executed and delivered the Notes,
the Residual Interest Certificates and 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 in Article III, in each
case, in such form as the Company shall approve, as evidenced conclusively by
the Owner Trustee's execution thereof, and, on behalf of the Trust, to direct
the Indenture Trustee to authenticate and deliver the Notes in the aggregate
principal amount of $_____________. 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.
SECTION 6.2 GENERAL DUTIES. It shall be the duty of the Owner Trustee:
(a) to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and the Basic Documents to which the
Trust is a party and to administer the Trust in the interest of the Owners,
subject to the Basic Documents and in accordance with the provisions of this
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 or the Indenture Trustee has agreed in
the Administration Agreement or this Agreement, respectively, to perform any act
or to discharge any duty 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 or the Indenture Trustee to carry out
its obligations under the Administration Agreement or this Agreement,
respectively; and
(b) to obtain and preserve, the Issuer's qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes, the
Collateral and each other instrument and agreement included in the Trust Estate.
SECTION 6.3 ACTION UPON INSTRUCTION.
(a) Subject to the terms of this Agreement and in accordance with the terms
of the Basic Documents, the Owners may by written instruction direct the Owner
Trustee in the management of the Trust but only to the extent consistent with
the limited purpose of the Trust. Such direction may be exercised at any time by
written instruction of the Owners pursuant to Article IV.
(b) 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 Agreement or under
any Basic Document, the Owner Trustee shall promptly give notice (in such form
as shall be appropriate under the circumstances) to the Owners [and the
Securities Insurer requesting instruction from the Owners] [and the Securities
Insurer] 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
Securities Insurer, or with the prior consent of the Securities Insurer,] the
Owners received, the Owner Trustee shall not be liable on account of such action
to any Person. [Upon the occurrence of a Securities Insurer Default no consent,
approval or direction of the Securities Insurer shall be required.] 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 Agreement or the Basic Documents, as it shall deem to be in the best
interests of the Owners, and shall have no liability to any Person for such
action or inaction.
(d) In the event that the Owner Trustee is unsure as to the application of
any provision of this 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 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 may give notice (in such form as
shall be appropriate under the circumstances) to [the Securities Insurer and]
the Owners requesting instruction and, to the extent that the Owner Trustee acts
or refrains from acting in good faith [in accordance with any such instruction
received from the Securities Insurer,] [or with the prior consent of the
Securities Insurer,] from the Owners, the Owner Trustee shall not be liable, on
account of such action or inaction, 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
Agreement or the Basic Documents, as it shall deem to be in the best interests
of the Owners, and shall have no liability to any Person for such action or
inaction.
(e) [Notwithstanding anything in this Agreement to the contrary, upon the
occurrence of a Securities Insurer Default no consent, approval or direction of
the Securities Insurer shall be required for any action otherwise permitted
hereunder.]
SECTION 6.4 NO DUTIES EXCEPT AS SPECIFIED IN THIS AGREEMENT, THE BASIC
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 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 by the terms of this Agreement, any Basic Document or in any document
or written instruction received by the Owner Trustee pursuant to SECTION 6.3;
and no implied duties or obligations shall be read into this 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
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 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 Trust Estate.
SECTION 6.5 NO ACTION EXCEPT UNDER SPECIFIED DOCUMENTS OR Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Trust Estate except (i) in accordance with the powers
granted to and the authority conferred upon the Owner Trustee pursuant to this
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 6.3.
SECTION 6.6 RESTRICTIONS. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in SECTION 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes. The
Owners shall not direct the Owner Trustee to take action that would violate the
provisions of this Section.
ARTICLE VII
CONCERNING THE OWNER TRUSTEE
SECTION 7.1 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 Agreement and the Basic
Documents. The Owner Trustee also agrees to disburse all moneys actually
received by it constituting part of the Trust Estate upon the terms of the Basic
Documents and this 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 or gross negligence or (ii) in the
case of the inaccuracy of any representation or warranty contained in SECTION
7.3 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 for any error of judgment made by
a responsible officer of the Owner Trustee;
(b) 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 Owners;
(c) no provision of this 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 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;
(d) 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;
(e) the Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Agreement or for the due execution hereof by the
Depositor or the Company or for the form, character, genuineness, sufficiency,
value or validity of any of the Trust Estate or for or in respect of the
validity or sufficiency of the Basic Documents, other than the certificate of
authentication on the Residual Interest Certificates, and the Owner Trustee
shall in no event assume or incur any liability, duty, or obligation to any
Noteholder or to any Owner, other than as expressly provided for herein and in
the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or misconduct of
the Administrator, the Depositor, the Company, the Indenture Trustee, the Master
Servicer 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 Agreement or the Basic Documents that are required to be
performed by the Administrator under the Administration Agreement, the Indenture
Trustee under the Indenture or the Master Servicer or Servicer under the Sale
and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct or
defend any litigation under this Agreement or otherwise or in relation to this
Agreement or any Basic Document, at the request, order or direction of any of
the Owners, unless such Owners 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 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 gross negligence or willful misconduct in the
performance of any such act provided, that the Owner Trustee shall be liable for
its negligence or willful misconduct in the event that it assumes the duties and
obligations of the Indenture Trustee under the Sale and Servicing Agreement
pursuant to SECTION 10.5.
SECTION 7.2 FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish (a)
to the Owners [and the Securities Insurer] promptly upon receipt of a written
request therefor, duplicates or copies of all reports, notices, requests,
demands, certificates, financial statements and any other instruments furnished
to the Owner Trustee under the Basic Documents and (b) to Noteholders promptly
upon written request therefor, copies of the Sale and Servicing Agreement, the
Administration Agreement and the Owner Trust Agreement.
SECTION 7.3 REPRESENTATIONS AND WARRANTIES.
(a) The Owner Trustee hereby represents and warrants to the Depositor, [the
Securities Insurer] and the Company, for the benefit of the Owners, that:
(i) It is a ____________________ duly organized and validly existing
in good standing under the laws of the State of _________________. It has
all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement.
(ii) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to
execute and deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this 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 _________________ 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 by-laws or any indenture, mortgage, contract, agreement or
instrument to which it is a party or by which any of its properties may be
bound.
(b) The Paying Agent hereby represents and warrants to the Depositor, [the
Securities Insurer] and the Company that:
(i) It is a ________________________ duly organized and validly
existing in good standing under the laws of the United States. It has all
requisite power and authority to execute, deliver and perform its
obligations under this Agreement.
(ii) It has taken all action necessary to authorize the execution and
delivery by it of this Agreement, and this Agreement will be executed and
delivered by one of its officers who is duly authorized to execute and
deliver this Agreement on its behalf.
(iii) Neither the execution nor the delivery by it of this 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 State law, governmental rule or regulation governing the
banking or trust powers of the Paying Agent or any judgment or order
binding on it, or constitute any default under its charter documents or
by-laws or any indenture, mortgage, contract, agreement or instrument to
which it is a party or by which any of its properties may be bound.
SECTION 7.4 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 the 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 Agreement or the Basic
Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys 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 or
attorneys if such agents or attorneys shall 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 opinion or advice of any such counsel,
accountants or other such persons and not contrary to this Agreement or any
Basic Document.
SECTION 7.5 NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in
this Agreement, 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 Agreement or any
Basic Document shall look only to the Trust Estate for payment or satisfaction
thereof.
SECTION 7.6 OWNER TRUSTEE NOT LIABLE FOR RESIDUAL INTEREST CERTIFICATES
OR HOME LOANS. The recitals contained herein and in the Residual Interest
Certificates (other than the signature and countersignature of the Owner Trustee
on the Residual Interest Certificates) shall be taken as the statements of the
Depositor and the Company, 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 Agreement, of any Basic Document or of the
Residual Interest Certificates (other than the signature and countersignature of
the Owner Trustee on the Residual Interest Certificates and as specified in
Section 7.3) or the Notes, or of any Home Loans or related documents. The Owner
Trustee shall at no time have any responsibility or liability for or with
respect to the legality, validity and enforceability of any Home Loan, or the
perfection and priority of any security interest created by any Home Loan or the
maintenance of any such perfection and priority, or for or with respect to the
sufficiency of the Trust Estate or its ability to generate the payments to be
distributed to Owners under this Agreement or the Noteholders under the
Indenture, including, without limitation: the existence, condition and ownership
of any Mortgaged Property; the existence and enforceability of any insurance
thereon; the existence and contents of any Home Loan on any computer or other
record thereof, the validity of the assignment of the Home Loans to the Trust or
of any intervening assignment; the completeness of any Home Loan; the
performance or enforcement of any Home Loan; the compliance by the Depositor,
the Company, the Master Servicer or the Servicer 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 Indenture Trustee, the Master Servicer or the Servicer or any
subservicer taken in the name of the Owner Trustee.
SECTION 7.7 OWNER TRUSTEE MAY OWN RESIDUAL INTEREST CERTIFICATES AND
NOTES. The Owner Trustee in its individual or any other capacity may become the
owner or pledgee of Residual Interest Certificates or Notes and may deal with
the Depositor, the Company, the Administrator, the Indenture Trustee and the
Master Servicer in banking transactions with the same rights as it would have if
it were not Owner Trustee.
SECTION 7.8 LICENSES. The Owner Trustee shall cause the Trust to use its
best efforts to obtain and maintain the effectiveness of any licenses required
in connection with this Agreement and the Basic Documents and the transactions
contemplated hereby and thereby until such time as the Trust shall terminate in
accordance with the terms hereof.
ARTICLE VIII
COMPENSATION OF OWNER TRUSTEE AND PAYING AGENT
SECTION 8.1 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 between the Company and the Owner Trustee, and the
Owner Trustee shall be entitled to be reimbursed by the Company for its other
reasonable expenses hereunder, including the reasonable compensation, expenses
and disbursements of such agents, representatives, experts and counsel as the
Owner Trustee may employ in connection with the exercise and performance of its
rights and its duties hereunder. The Paying Agent shall receive as compensation
for its services hereunder such fees, if any, as have been separately agreed
upon before the date hereof between the Company and the Paying Agent.
SECTION 8.2 INDEMNIFICATION. The Company shall be liable as primary
obligor, and the Master Servicer as secondary obligor pursuant to the
Administration Agreement, for, and shall indemnify the Owner Trustee, the Paying
Agent and their 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 Agreement, the
Basic Documents, the Trust Estate, the administration of the Trust Estate or the
action or inaction of the Owner Trustee or the Paying Agent hereunder. The
indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's or Paying Agent's choice of legal
counsel shall be subject to the approval of the Company, which approval shall
not be unreasonably withheld.
SECTION 8.3 PAYMENTS TO THE OWNER TRUSTEE AND PAYING AGENT. Any amounts
paid to the Owner Trustee and/or Paying Agent pursuant to this Article VIII
shall be deemed not to be a part of the Trust Estate immediately after such
payment.
ARTICLE IX
TERMINATION OF OWNER TRUST AGREEMENT
SECTION 9.1 TERMINATION OF OWNER TRUST AGREEMENT.
(a) This Agreement (other than Article VIII) and the Trust shall terminate
and be of no further force or effect on the earlier of: (i) the satisfaction and
discharge of the Indenture pursuant to Section 4.01 of the Indenture and the
termination of the Sale and Servicing Agreement and the Insurance Agreement; and
(ii) the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy (the late ambassador of the United States to
the Court of St. James's) alive on the date hereof. The bankruptcy, liquidation,
dissolution, death or incapacity of any Owner shall not (x) operate to terminate
this Agreement or the Trust, nor (y) entitle such Owner'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 Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) The Residual Interest Certificates shall be subject to an early
redemption or termination at the option of the Majority Residual
Interestholders, [the Securities Insurer] or the Master Servicer in the manner
and subject to the provisions of Section 11.02 of the Sale and Servicing
Agreement.
(c) Except as provided in SECTIONS 9.1(A) AND (B) above, none of the
Depositor, the Company, the Securities Insurer nor any Owner shall be entitled
to revoke or terminate the Trust.
(d) Notice of any termination of the Trust, specifying the Payment Date
upon which the Certificateholders shall surrender their Residual Interest
Certificates to the Paying Agent for payment of the final distributions and
cancellation, shall be given by the Owner Trustee to the Certificateholders,
[the Securities Insurer] and the Rating Agencies mailed within _________
Business Days of receipt by the Owner Trustee of notice of such termination
pursuant to SECTION 9.1(A) or (B) above, which notice given by the Owner Trustee
shall state (i) the Payment Date upon or with respect to which final payment of
the Residual Interest Certificates shall be made upon presentation and surrender
of the Residual Interest Certificates at the office of the 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 Residual Interest Certificates
at the office of the Paying Agent therein specified. The Owner Trustee shall
give such notice to the Certificate Registrar (if other than the Owner Trustee)
and the Paying Agent at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Residual Interest Certificates, the
Paying Agent shall cause to be distributed to Certificateholders amounts
distributable on such Payment Date pursuant to Section 5.02 of the Sale and
Servicing Agreement.
In the event that all of the Certificateholders shall not surrender their
Residual Interest Certificates for cancellation within six months after the date
specified in the above mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Residual Interest Certificates for cancellation and receive the final
distribution with respect thereto. If within one year after the second notice
all the Residual Interest Certificates shall not have been surrendered for
cancellation, the Owner Trustee may take appropriate steps, or may appoint an
agent to take appropriate steps, to contact the remaining Certificateholders
concerning surrender of their Residual Interest Certificates, and the cost
thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Paying Agent to the Residual
Interestholders on a pro rata basis.
(e) Upon the winding up of the Trust and its termination, the Owner Trustee
shall cause the Certificate of Trust to be canceled by filing a certificate of
cancellation with the Secretary of State in accordance with the provisions of
Section 3820 of the Business Trust Statute.
ARTICLE X
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
SECTION 10.1 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 powers
having a combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or state authorities; having (or having a
parent which has) a long-term rating of at least "___" by _____________ and
______________ [and being acceptable to the Securities Insurer]. 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, the Owner Trustee shall resign immediately in the manner and with
the effect specified in Section 10.2.
SECTION 10.2 RESIGNATION OR REMOVAL OF OWNER TRUSTEE . The Owner Trustee
may at any time resign and be discharged from the trusts hereby created by
giving written notice thereof to the Administrator, [the Securities Insurer] and
the Indenture Trustee. Upon receiving such notice of resignation, the
Administrator shall promptly appoint a successor Owner Trustee [(acceptable to
the Securities Insurer)] by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy 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 [or the Securities Insurer]
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 10.1 and shall fail to resign after written
request therefor by the Administrator or the Securities Insurer, 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 Securities Insurer, or] the Administrator
[with the consent of the Securities Insurer,] may remove the Owner Trustee. If
the [Securities Insurer or] the Administrator shall remove the Owner Trustee
under the authority of the immediately preceding sentence, [the Securities
Insurer, or] the Administrator [with the prior consent of the Securities
Insurer,] 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 payment
of 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 10.3, [Securities Insurer provides written approval
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 [and the Securities Insurer.]
SECTION 10.3 SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Administrator, [the Securities Insurer] and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee (if acceptable to the Securities Insurer),
without any further act, deed or conveyance, shall become fully vested with all
the rights, powers, duties, and obligations of its predecessor under this
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 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 unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to SECTION 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section, the Administrator shall mail notice of the successor of such Owner
Trustee to all Owners, the Indenture Trustee, the Noteholders, [the Securities
Insurer] and the Rating Agencies. If the Administrator fails to mail such notice
within 10 days after acceptance of appointment by the successor Owner Trustee,
the successor Owner Trustee shall cause such notice to be mailed at the expense
of the Administrator.
SECTION 10.4 MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any corporation
into which the Owner Trustee 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 Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, PROVIDED
such corporation shall be eligible pursuant to SECTION 10.1, 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
FURTHER that the Owner Trustee shall mail notice of such merger or consolidation
to [the Securities Insurer and] the Rating Agencies.
SECTION 10.5 APPOINTMENT OF CO-OWNER TRUSTEE OR SEPARATE OWNER Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Estate or any Mortgaged Property may at the time be located, and
for the purpose of performing certain duties and obligations of the Owner
Trustee with respect to the Trust and the Residual Interest Certificates under
the Sale and Servicing Agreement, 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 Owner Trustee [and acceptable to the
Securities Insurer] to act as co-owner trustee, jointly with the Owner Trustee,
or separate trustee or separate trustees, of all or any part of the 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[, the
Securities Insurer] and the Owner Trustee may consider necessary or desirable.
If the Administrator shall not have joined in such appointment within 25 days
after the receipt by it of a request so to do, the Owner Trustee [(with the
consent of the Securities Insurer)] shall have the power to make such
appointment. No co-owner trustee or separate owner trustee under this Agreement
shall be required to meet the terms of eligibility as a successor trustee
pursuant to SECTION 10.1 and no notice of the appointment of any co-trustee or
separate owner trustee shall be required pursuant to SECTION 10.3 except that
notice to, and the written consent of, the Securities Insurer shall be required
for the appointment of a co-trustee.
Each separate owner trustee and co-owner trustee shall, to the extent
permitted by law, be appointed and act subject to the following provision and
conditions:
(i) 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 owner trustee or co-owner trustee
jointly (it being understood that such separate owner trustee or co-owner
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 Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
owner trustee or co-owner trustee, but solely at the direction of the Owner
Trustee; PROVIDED that Paying Agent, in performing its duties and
obligations under the Sale and Servicing Agreement, may act separately in
its capacity as Indenture Trustee without the Owner Trustee joining in such
Acts;
(ii) no owner trustee under this Agreement shall be personally liable
by reason of any act or omission of any other owner trustee under this
Agreement; and
(iii) the Administrator and the Owner Trustee acting jointly may at
any time accept the resignation of or remove any separate owner trustee or
co-owner trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to the separate owner trustees and co-owner trustees,
as if given to each of them. Every instrument appointing any separate owner
trustee or co-owner trustee, other than this Agreement, shall refer to this
Agreement and to the conditions of this Article. Each separate owner trustee and
co-owner trustee, upon its acceptance of appointment, shall be vested with the
estates 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 Agreement, specifically including every provision of this
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 owner trustee or co-owner 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 Agreement on its behalf and in its name. If any separate owner trustee or
co-owner 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 trustee.
The Indenture Trustee, in its capacity as Paying Agent, shall not have any
rights, duties or obligations except as expressly provided in this Agreement and
the Sale and Servicing Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 SUPPLEMENTS AND AMENDMENTS. This Agreement may be amended by
the Depositor, the Company and the Owner Trustee, [with the prior consent of the
Securities Insurer and] with prior written notice to the Rating Agencies, but
without the consent of any of the Noteholders or the Owners or the Indenture
Trustee, to cure any ambiguity, to correct or supplement any provisions in this
Agreement or for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions in this Agreement or of modifying in
any manner the rights of the Noteholders or the Owners PROVIDED, HOWEVER, that
such action shall not adversely affect in any material respect the interests of
any Noteholder or Owner, or, without its consent, the Paying Agent. An amendment
described above shall be deemed not to adversely affect in any material respect
the interests of any Noteholder or Owner if (i) an opinion of counsel is
obtained to such effect, and (ii) the party requesting the amendment satisfies
the Rating Agency Condition with respect to such amendment.
This Agreement may also be amended from time to time by the Depositor, the
Company and the Owner Trustee, with the prior written consent of the Rating
Agencies, the Securities Insurer and with the prior written consent of the
Indenture Trustee, the Holders (as defined in the Indenture) of Notes evidencing
more than 50% of the Outstanding Amount of the Notes and the Majority Residual
Interestholders, and if affected thereby, the Paying Agent, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Noteholders or the Owners; PROVIDED, HOWEVER, that no such amendment shall (a)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the Home Loans or distributions that shall
be required to be made for the benefit of the Noteholders or the
Certificateholders or (b) reduce the aforesaid percentage of the Outstanding
Amount of the Notes or the Percentage Interests required to consent to any such
amendment, in either case of clause (a) or (b) without the consent of the
holders of all the outstanding Notes, and in the case of clause (b) without the
consent of the holders of all the outstanding Residual Interest Certificates.
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 Securities
Insurer] and each of the Rating Agencies.
It shall not be necessary for the consent of Owners, the Noteholders or the
Indenture Trustee pursuant to this Section 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 Owners provided for in this 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.
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.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement. The Owner Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.2 NO LEGAL TITLE TO TRUST ESTATE IN OWNERS. The Owners shall
not have legal title to any part of the Trust Estate. The Owners shall be
entitled to receive distributions with respect to their undivided ownership
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 Owners to
and in their ownership interest in the Trust Estate shall operate to terminate
this 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 Trust
Estate.
SECTION 11.3 LIMITATIONS ON RIGHTS OF OTHERS. The provisions of this
Agreement are solely for the benefit of the Owner Trustee, the Depositor, the
Company, the Owners, the Administrator, the Paying Agent, the Securities Insurer
and, to the extent expressly provided herein, the Indenture Trustee and the
Noteholders, and nothing in this Agreement, whether express or implied, shall be
construed to give to any other Person any legal or equitable right, remedy or
claim in the Trust Estate or under or in respect of this Agreement or any
covenants, conditions or provisions contained herein.
SECTION 11.4 NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing, mailed by
certified mail, postage prepaid, return receipt requested, and shall be deemed
given upon actual receipt by the intended recipient, at the following addresses:
(i) if to the Owner Trustee, its Corporate Trust Office; (ii) if to the
Depositor, PaineWebber Mortgage Acceptance Corporation IV, 1285 Avenue of the
Americas, New York, New York 10019, Attention: John Fearey, Esq., General
Counsel; (iii) if to the Company, _____________________________________________
(iv) ___________________________________________________________________________
________________________________________________________________________________
[(v) if to the Securities Insurer ______________________________________________
_______________________________________________________________________________]
or, as to each such 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 an Owner shall be given
by first-class mail, postage prepaid, at the address of such Owner as shown in
the Certificate Register. Any notice so mailed within the time prescribed in
this Agreement shall be conclusively presumed to have been duly given, whether
or not the Owner receives such notice.
SECTION 11.5 SEVERABILITY. Any provision of this 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 11.6 SEPARATE COUNTERPARTS. This 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 11.7 SUCCESSORS AND ASSIGNS. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, the
Depositor, the Company, the Securities Insurer, the Owner Trustee and its
successors and each owner and its successors and permitted assigns, all as
herein provided. Any request, notice, direction, consent, waiver or other
instrument or action by an Owner shall bind the successors and assigns of such
Owner.
SECTION 11.8 NO PETITION. The Owner Trustee, by entering into this
Agreement, each Owner, by accepting a Residual Interest Certificate, the
Depositor, the Company and the Indenture Trustee and each Noteholder by
accepting the benefits of this Agreement, hereby covenant and agree that they
will not at any time institute against the Company, the Depositor or the Trust,
as the case may be, or join in any institution against the Company or the Trust
of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States Federal or state
bankruptcy or law in connection with any obligations relating to the Residual
Interest Certificates, the Notes, this Agreement or any of the Basic Documents.
SECTION 11.9 NO RECOURSE. Each Owner by accepting a Residual Interest
Certificate acknowledges that such Residual Interest Certificate represents a
beneficial interest in the Trust only and does not represent an interest in or
an obligation of the Company, the Master Servicer, the Depositor, the
Administrator, the Owner Trustee, the Indenture Trustee, [the Securities
Insurer] or any Affiliate thereof and no recourse may be had against such
parties or their assets, except as may be expressly set forth or contemplated in
this Agreement, the Residual Interest Certificates or the Basic Documents.
SECTION 11.10 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 11.11 GOVERNING LAW. THIS 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 11.12 RESIDUAL INTEREST TRANSFER RESTRICTIONS. The Residual
Interest may not be acquired by or for the account of a Benefit Plan Investor.
By accepting and holding a Residual Interest Certificate, the Owner thereof
shall be deemed to have represented and warranted that it is not a Benefit Plan
Investor.
SECTION 11.13 [THIRD-PARTY BENEFICIARY. The parties hereto acknowledge
that the Securities Insurer is an express third party beneficiary hereof
entitled to enforce any rights reserved to it hereunder as if it were actually a
party hereto.]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS OF, the parties hereto have caused this Owner Trust Agreement to
be duly executed by their respective officers hereunto duly authorized, as of
the day and year first above written.
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV,
Depositor
By: ___________________________________
Name:
Title:
_______________________________________,
Transferor
By: ___________________________________
Name:
Title:
_______________________________________,
not in its individual capacity but
solely as Owner Trustee
By: ___________________________________
Name:
Title:
________________________________, not in
its individual capacity but solely as
Paying Agent
By: ___________________________________
Name:
Title:
<PAGE>
EXHIBIT A
TO THE OWNER TRUST AGREEMENT
FORM OF RESIDUAL INTEREST CERTIFICATE
THE RESIDUAL INTEREST IN THE TRUST REPRESENTED BY THIS RESIDUAL INTEREST
CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS. THIS RESIDUAL
INTEREST CERTIFICATE MAY BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE
DISPOSED OF BY THE HOLDER HEREOF ONLY TO (I) A "QUALIFIED INSTITUTIONAL BUYER"
AS DEFINED IN RULE 144A UNDER THE ACT, IN A TRANSACTION THAT IS REGISTERED UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF THE ACT PURSUANT TO RULE 144A OR (II) AN
INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (A)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE ACT (INCLUDING, BUT NOT LIMITED TO,
_________________________) IN A TRANSACTION THAT IS REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR THAT IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND SUCH LAWS. NO PERSON IS OBLIGATED TO REGISTER THIS
RESIDUAL INTEREST UNDER THE ACT OR ANY STATE SECURITIES LAWS.
EXCEPT AS PROVIDED IN SECTION 3.10(B) OF THE OWNER TRUST AGREEMENT, NO TRANSFER
OF THIS RESIDUAL INTEREST CERTIFICATE OR ANY BENEFICIAL INTEREST HEREIN SHALL BE
MADE UNLESS THE OWNER TRUSTEE HAS RECEIVED A CERTIFICATE FROM THE TRANSFEREE TO
THE EFFECT THAT SUCH TRANSFEREE (I) IS NOT (A) AN "EMPLOYEE BENEFIT PLAN" WITHIN
THE MEANING OF SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF
1974, AS AMENDED, (B) A "PLAN" WITHIN THE MEANING OF SECTION 4975(E)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED, OR (C) AN ENTITY WHOSE UNDERLYING
ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY (EACH,
A "BENEFIT PLAN INVESTOR"), AND (II) IS NOT DIRECTLY OR INDIRECTLY PURCHASING
SUCH RESIDUAL INTEREST CERTIFICATE ON BEHALF OF, AS INVESTMENT MANAGER OF, AS
NAMED FIDUCIARY OF, AS TRUSTEE OF, OR WITH THE ASSETS OF A BENEFIT PLAN
INVESTOR.
<PAGE>
________________ HOME LOAN OWNER TRUST 199__-__
RESIDUAL INTEREST CERTIFICATE
No. ____
THIS CERTIFIES THAT _______________________________ (the "OWNER") is the
registered owner of a ____% residual interest in ___________ Home Loan Owner
Trust 199__-__ (the "TRUST") existing under the laws of the State of Delaware
and created pursuant to the Owner Trust Agreement dated as of __________, 199__
(the "OWNER TRUST AGREEMENT") between PaineWebber Mortgage Acceptance
Corporation IV, as Depositor, ____________________________, as the Company,
___________________, not in its individual capacity but solely in its fiduciary
capacity as owner trustee under the Owner Trust Agreement (the "OWNER TRUSTEE")
and ______________________________, as Paying Agent (the "PAYING AGENT").
Initially capitalized terms used but not defined herein have the meanings
assigned to them in the Owner Trust Agreement. The Owner Trustee, on behalf of
the Issuer and not in its individual capacity, has executed this Residual
Interest Certificate by one of its duly authorized signatories as set forth
below. This Residual Interest Certificate is one of the Residual Interest
Certificates referred to in the Owner Trust Agreement and is issued under and is
subject to the terms, provisions and conditions of the Owner Trust Agreement to
which the holder of this Residual Interest Certificate by virtue of the
acceptance hereof agrees and by which the holder hereof is bound. Reference is
hereby made to the Owner Trust Agreement and the Sale and Master Servicing
Agreement for the rights of the holder of this Residual Interest Certificate, as
well as for the terms and conditions of the Trust created by the Owner Trust
Agreement.
The holder, by its acceptance hereof, agrees not to transfer this Residual
Interest Certificate except in accordance with terms and provisions of the Owner
Trust Agreement.
THIS RESIDUAL INTEREST 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.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not in
its individual capacity, has caused this Residual Interest Certificate to be
duly executed.
_________ HOME LOAN OWNER TRUST 199__-__
By: _______________________, not in its
individual capacity but solely as
Owner Trustee under the Owner Trust
Agreement
By: ___________________________________
Authorized Signatory
DATED: ____________, 199__
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Owner
Trust Agreement.
By: ______________________, not in its
individual capacity but solely as
Owner Trustee under the Owner Trust
Agreement, as Authenticating Agent
By: ___________________________________
Authorized Signatory
<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
____________________________________________________________________ Attorney 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.
<PAGE>
EXHIBIT B
TO THE OWNER TRUST AGREEMENT
CERTIFICATE OF TRUST OF
______________ HOME LOAN OWNER TRUST 199__-__
THIS Certificate of Trust of ___________ Home Loan Owner Trust 199__-__
(the "TRUST"), dated ________, 199__, is being duly executed and filed by
____________________________________ , a ________________________, as trustee,
and __________________________, as paying agent, 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 __________________
Home Loan Owner Trust 199__-__.
2. TRUSTEE. The name and business address of the trustee of the Trust, in
the State of ____________________ is ____________________ ____________________
___________________________________ ___________________________________.
* * *
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the owner trustee of the Trust,
have executed this Certificate of Trust as of the date first above written.
_______________________________________,
not in its individual capacity but
solely as owner trustee under an Owner
Trust Agreement dated as of
______________, 199__
By: ___________________________________
Name:
Title:
INDENTURE
between
_____________ HOME LOAN OWNER TRUST 199_-_,
as Issuer
and
------------------------------------,
as Indenture Trustee
Dated as of __________, 199_
____________ HOME LOAN OWNER TRUST 199_-_
Home Loan Asset Backed Notes,
Series 199_-_
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.01. Definitions
Section 1.02. Incorporation by Reference of Trust Indenture Act
Section 1.03. Rules of Construction
ARTICLE II
THE NOTES
Section 2.01. Form
Section 2.02. Execution, Authentication, Delivery and Dating
Section 2.03. Registration; Registration of Transfer and Exchange
Section 2.04. Mutilated, Destroyed, Lost or Stolen Notes
Section 2.05. Persons Deemed Note Owners
Section 2.06. Payment of Principal and/or Interest; Defaulted Interest
Section 2.07. Cancellation
Section 2.08. Conditions Precedent to the Authentication of the Notes
Section 2.09. Release of Collateral
Section 2.10. Book-Entry Notes
Section 2.11. Notices to Clearing Agency
Section 2.12. Definitive Notes
Section 2.13. Tax Treatment
ARTICLE III
COVENANTS
Section 3.01. Payment of Principal and/or Interest
Section 3.02. Maintenance of Office or Agency
Section 3.03. Money for Payments to Be Held in Trust
Section 3.04. Existence
Section 3.05. Protection of Collateral
Section 3.06. Annual Opinions as to Collateral
Section 3.07. Performance of Obligations
Section 3.08. Negative Covenants
Section 3.09. Annual Statement as to Compliance
Section 3.10. Covenants of the Issuer
Section 3.11. Restricted Payments
Section 3.12. Treatment of Notes as Debt for Tax Purposes
Section 3.13. Notice of Events of Default
Section 3.14. Further Instruments and Acts
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture
Section 4.02. Application of Trust Money
Section 4.03. Repayment of Moneys Held by Paying Agent
ARTICLE V
REMEDIES
Section 5.01. Events of Default
Section 5.02. Acceleration of Maturity; Rescission and Annulment
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee
Section 5.04. Remedies; Priorities
Section 5.05. Optional Preservation of the Collateral
Section 5.06. Limitation of Suits
Section 5.07. Unconditional Rights of Noteholders to Receive Principal
and/or Interest
Section 5.08. Restoration of Rights and Remedies
Section 5.09. Rights and Remedies Cumulative
Section 5.10. Delay or Omission Not a Waiver
Section 5.11. Control by Noteholders
Section 5.12. Waiver of Past Defaults
Section 5.13. Undertaking for Costs
Section 5.14. Waiver of Stay or Extension Laws
Section 5.15. Action on Notes
Section 5.16. Performance and Enforcement of Certain Obligations
ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee
Section 6.02. Rights of Indenture Trustee
Section 6.03. Individual Rights of Indenture Trustee
Section 6.04. Indenture Trustee's Disclaimer
Section 6.05. Notices of Default
Section 6.06. Reports by Indenture Trustee to Holders
Section 6.07. Compensation and Indemnity
Section 6.08. Replacement of Indenture Trustee
Section 6.09. Successor Indenture Trustee by Merger
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
Trustee
Section 6.11. Eligibility; Disqualification
Section 6.12. Preferential Collection of Claims Against Issuer
Section 6.13. Waiver of Setoff
ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses
of Noteholders
Section 7.02. Preservation of Information; Communications to
Noteholders
Section 7.03. Reports by Issuer
Section 7.04. Reports by Indenture Trustee
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money and Claims Under the Guaranty Policy
Section 8.02. Trust Accounts; Payments
Section 8.03. General Provisions Regarding Accounts
Section 8.04. Servicer's Monthly Statements
Section 8.05. Release of Collateral
Section 8.06. Opinion of Counsel
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders
Section 9.02. Supplemental Indentures with Consent of Noteholders
Section 9.03. Execution of Supplemental Indentures
Section 9.04. Effect of Supplemental Indentures
Section 9.05. Conformity with Trust Indenture Act
Section 9.06. Reference in Notes to Supplemental Indentures
Section 9.07. Amendments to Owner Trust Agreement
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. Redemption
Section 10.02. Form of Redemption Notice
Section 10.03. Notes Payable on Redemption Date; Provision for Payment
of Indenture Trustee [and Securities Insurer]
ARTICLE XI
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc
Section 11.02. Form of Documents Delivered to Indenture Trustee
Section 11.03. Acts of Noteholders
Section 11.04. Notices, etc., to Indenture Trustee, Issuer, Rating
Agencies [and Securities Insurer]
Section 11.05. Notices to Noteholders; Waiver
Section 11.06. Conflict with Trust Indenture Act
Section 11.07. Effect of Headings and Table of Contents
Section 11.08. Successors and Assigns
Section 11.09. Separability
Section 11.10. Benefits of Indenture
Section 11.11. Legal Holidays
Section 11.12. GOVERNING LAW
Section 11.13. Counterparts
Section 11.14. Recording of Indenture
Section 11.15. Owner Trust Obligation
Section 11.16. No Petition
Section 11.17. Inspection
[Section 11.18.Grant of Noteholder Rights to Securities Insurer]
Section 11.19. Third Party Beneficiary
Section 11.20. Suspension and Termination of Securities Insurer's
Rights]
EXHIBITS
EXHIBIT A - Forms of Notes
<PAGE>
This Indenture entered into effective _________, 199_ ("INDENTURE"),
between ___________ HOME LOAN OWNER TRUST 199_-_, a Delaware business trust, as
Issuer (the "ISSUER"), and ____________________________, as Indenture Trustee
(the "INDENTURE TRUSTEE"),
W I T N E S S E T H T H A T:
In consideration of the mutual covenants herein contained, the Issuer and
the Indenture Trustee hereby agree as follows for the benefit of each of them
and for the equal and ratable benefit of the holders of the Issuer's Home Loan
Asset Backed Notes, Series 199_-_ (the "NOTES") [and _____________ (the
"SECURITIES INSURER")].
GRANTING CLAUSE
Subject to the terms of this Indenture, the Issuer hereby Grants on the
Closing Date, to the Indenture Trustee, as Indenture Trustee for the benefit of
the Holders of the Notes [and the Securities Insurer,] all of the Issuer's
right, title and interest in and to: (i) the Trust Estate (as defined in the
Sale and Servicing Agreement); (ii) the Sale and Servicing Agreement (including
the Issuer's right to cause the Transferor to repurchase the Home Loans from the
Issuer under certain circumstances described therein); (iii) all present and
future claims, demands, causes of action and choses 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, including
all proceeds of the conversion thereof, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, property insurance
proceeds, condemnation awards, 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; (iv) all funds on deposit from time to time in the Trust Accounts
(including the Certificate Distribution Account); and (v) all other property of
the Owner Trust from time to time (collectively, 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, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Holders of the
Notes [and the Securities Insurer,] acknowledges such Grant, accepts the trusts
hereunder and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of the Holders of the Notes
may adequately and effectively be protected. The Indenture Trustee agrees and
acknowledges that possession of the Indenture Trustee's Home Loan Files will be
held by the Custodian for the benefit of the Indenture Trustee in ____________.
The Indenture Trustee further agrees and acknowledges that each other item of
Collateral that is physically delivered to the Indenture Trustee will be held on
behalf of the Indenture Trustee in _________________.
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. (a) Except as otherwise specified herein or as
the context may otherwise require, the following terms have the respective
meanings set forth below for all purposes of this Indenture. Except as otherwise
specified herein or as the context may otherwise require, capitalized terms used
but not otherwise defined herein have the respective meanings set forth in the
Sale and Servicing Agreement for all purposes of this Indenture.
"ACT" has the meaning specified in Section 11.03(a) hereof.
"ADMINISTRATION AGREEMENT" means the Administration Agreement, dated as of
__________, 199_, among the Administrator, the Issuer and the Company.
"ADMINISTRATOR" means ___________________, a ______________________, or any
successor Administrator under the Administration Agreement.
"AFFILIATE" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"AUTHORIZED OFFICER" means, with respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter) and, so long as
the Administration Agreement is in effect, any Vice President or more senior
officer of the Administrator who is authorized to act for the Administrator in
matters relating to the Issuer and to be acted upon by the Administrator
pursuant to the Administration Agreement and who is identified on the list of
Authorized Officers delivered by the Administrator to the Indenture Trustee if
the Administrator is not the Indenture Trustee (as such list may be modified or
supplemented from time to time thereafter).
"BASIC DOCUMENTS" means the Certificate of Owner Trust, the Owner Trust
Agreement, this Indenture, the Sale and Servicing Agreement, the Servicing
Agreement, the Home Loan Purchase Agreement, the Administration Agreement, the
Insurance Agreement, the Indemnification Agreement, the Custodial Agreement, the
Note Depository Agreement, the Notes and other documents and certificates
delivered in connection herewith or therewith.
"BOOK-ENTRY NOTES" means a beneficial interest in the Notes, ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 2.10 hereof.
"BUSINESS DAY" means any day other than (a) a Saturday or Sunday, or (b) a
day on which banking institutions are authorized or obligated by law or
executive order to be closed in a city at any of the following locations: (i)
The City of New York, (ii) where the corporate trust office of the Indenture
Trustee is located, (iv) where the servicing operations of the Servicer are
primarily located or (v) where the master servicing operations of the Master
Servicer are primarily located.
"CERTIFICATE OF OWNER TRUST" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Owner Trust Agreement.
"CLEARING AGENCY" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other financial
institution or other Person for which from time to time a Clearing Agency
effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"CLOSING DATE" means ____________, 199_.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"COLLATERAL" has the meaning specified in the Granting Clause of this
Indenture.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANY" means ___________________________, a ________________________, or
any successor in interest thereto.
"CORPORATE TRUST OFFICE" means the principal office of the Indenture
Trustee at which at any particular time its corporate trust business shall be
administered, which office at date of execution of this Agreement is located at
______________________________________ _____________________, or at such other
address as the Indenture Trustee may designate from time to time by notice to
the Noteholders and the Issuer, or the principal corporate trust office of any
successor Indenture Trustee at the address designated by such successor
Indenture Trustee by notice to the Noteholders and the Issuer.
"DEFAULT" means any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"DEFINITIVE NOTES" means the Notes as set forth in Section 2.12 hereof.
"DEPOSITOR" shall mean PaineWebber Mortgage Acceptance Corporation IV, a
Delaware corporation, in its capacity as depositor under the Sale and Servicing
Agreement, or any successor in interest thereto.
"DEPOSITORY INSTITUTION" means any depository institution or trust company,
including the Indenture Trustee, that (a) is incorporated under the laws of the
United States of America or any State thereof, (b) is subject to supervision and
examination by federal or state banking authorities and (c) has outstanding
unsecured commercial paper or other short-term unsecured debt obligations that
are rated A-1 by ___ (or comparable ratings if ___ is not the Rating Agency).
"DTC" means The Depository Trust Company, a New York corporation, or any
successor thereto.
"DUE PERIOD" means, with respect to any Payment Date, the period commencing
on the ____ day of the calendar month immediately preceding the month of such
Payment Date and ending on the ___ day of the month in which such Payment Date
occurs.
"EVENT OF DEFAULT" has the meaning specified in Section 5.01 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXECUTIVE OFFICER" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"GRANT" means mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise, and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"HOLDER" or "NOTEHOLDER" means the Person in whose name a Note is
registered on the Note Register.
"INDENTURE TRUSTEE" means __________________, a ___________________, as
Indenture Trustee under this Indenture, or any successor Indenture Trustee
hereunder.
"INDEPENDENT" means, when used with respect to any specified Person, that
the Person (a) is in fact independent of the Issuer, any other obligor on the
Notes, the Transferor[, the Securities Insurer] and any Affiliate of any of the
foregoing Persons, (b) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Transferor[, the Securities Insurer] or any Affiliate of any of the foregoing
Persons and (c) is not connected with the Issuer, any such other obligor, the
Transferor[, the Securities Insurer] or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
"INDEPENDENT CERTIFICATE" means a certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of SECTION 11.01 hereof, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
["INSURANCE AGREEMENT" means the Insurance and Indemnification Agreement,
dated as of ___________, 199_, among the Securities Insurer, _________________,
as Transferor and Master Servicer, the Depositor and the Issuer.]
"ISSUER" or "OWNER TRUST" means __________ Home Loan Owner Trust 199_-_
until a successor replaces it and, thereafter, means the successor and, for
purposes of any provision contained herein and required by the TIA, each other
obligor on the Notes.
"ISSUER ORDER" and "ISSUER REQUEST" mean a written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
"MAJORITY NOTEHOLDERS" means until such time as the Note Principal Balance
of the Notes has been reduced to zero, the holder or holders of in excess of 50%
of the Note Principal Balance of all Notes then Outstanding.
"MASTER SERVICER" means _____________________, a __________________________
- ---------------------------.
"MATURITY DATE" means, with respect to the Notes, _________, 20__.
"NOTE" means a ______________ Home Loan Owner Trust 199_-_, Home Loan Asset
Backed Note, Series 199_-_.
"NOTE DEPOSITORY AGREEMENT" means the agreement to be entered into among
the Issuer, the Indenture Trustee and The Depository Trust Company, as the
initial Clearing Agency, relating to the Book-Entry Notes.
"NOTE OWNER" means, with respect to a Book-Entry Note, the Person that is
the beneficial owner of such Book-Entry Note, as reflected on the books of the
Clearing Agency or on the books of a Person maintaining an account with such
Clearing Agency (directly as a Clearing Agency Participant or as an indirect
participant, in each case in accordance with the rules of such Clearing Agency).
"NOTE REGISTER" and "Note Registrar" have the respective meanings specified
in Section 2.03 hereof.
"OFFICER'S CERTIFICATE" means a certificate signed by any Authorized
Officer of the Issuer or, if authorized under the Administration Agreement, the
Administrator or the Master Servicer on behalf of the Issuer, under the
circumstances described in, and otherwise complying with, the applicable
requirements of SECTION 11.01 hereof, and delivered to the Indenture Trustee.
Unless otherwise specified, any reference in this Indenture to an Officer's
Certificate shall be to an Officer's Certificate of any Authorized Officer of
the Issuer or, if authorized under the Administration Agreement, the
Administrator.
"OPINION OF COUNSEL" means one or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be an employee of or
counsel to the party required to provide such opinion or opinions and, in each
such case, who shall be satisfactory to the Indenture Trustee [and the
Securities Insurer], and which opinion or opinions shall be addressed to the
Indenture Trustee, as Indenture Trustee, [and the Securities Insurer] and shall
comply with any applicable requirements of SECTION 11.01 hereof and shall be in
form and substance satisfactory to the Indenture Trustee [and the Securities
Insurer].
"OUTSTANDING" means, with respect to any Note and as of the date of
determination, any Note theretofore authenticated and delivered under this
Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has theretofore been deposited with the Indenture Trustee
or any Paying Agent in trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision for such
notice satisfactory to the Indenture Trustee has been made);
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a bona fide purchaser; provided, however, that in determining
whether the Holders of the requisite percentage of Outstanding Notes have
given any request, demand, authorization, direction, notice, consent or
waiver hereunder or under any Basic Document, Notes owned by the Issuer,
any other obligor upon the Notes, the Transferor or any Affiliate of any
of the foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the
Indenture Trustee knows to be owned in such manner shall be disregarded.
Notes owned in such manner that have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of
the Indenture Trustee that the pledgee has the right so to act with
respect to such Notes and that the pledgee is not the Issuer, any other
obligor upon the Notes, the Transferor or any Affiliate of any of the
foregoing Persons; and
(iv) Notes for which the related Maturity Date has
occurred;
[provided, that Notes that have been paid with funds provided under the Guaranty
Policy shall be deemed to be Outstanding until the Securities Insurer has been
reimbursed with respect thereto as evidenced by a written notice from the
Securities Insurer delivered to the Indenture Trustee, and the Securities
Insurer shall be deemed to the Holder thereof to the extent of any payments made
by the Securities Insurer.]
"OUTSTANDING AMOUNT" means the aggregate principal amount of the Notes,
Outstanding at the date of determination.
"OWNER TRUST AGREEMENT" means the Owner Trust Agreement, dated as of
___________, 199_, among PaineWebber Mortgage Acceptance Corporation IV, as
Depositor, the Company, ______________, as Owner Trustee, and
_____________________, as Paying Agent.
"OWNER TRUSTEE" means __________________________, not in its individual
capacity but solely as Owner Trustee under the Owner Trust Agreement, or any
successor Owner Trustee under the Owner Trust Agreement.
"PAYING AGENT" means the Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in SECTION 6.11
hereof and is authorized by the Issuer to make payments to and payments from the
Note Payment Account, including payment of principal of or interest on the Notes
on behalf of the Issuer.
"PAYMENT DATE" means the ____ day of any month or if such ____ day is not a
Business Day, the first Business Day immediately following such day, commencing
in ______ 199_.
"PERSON" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization, limited liability company, limited
liability partnership or government or any agency or political subdivision
thereof.
"PREDECESSOR NOTE" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under SECTION 2.04 hereof in lieu of a mutilated,
lost, destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"PROCEEDING" means any suit in equity, action at law or other judicial or
administrative proceeding.
"RATING AGENCY" means either or both of (i) ______ or (ii) ______. If no
such organization or successor thereto is any longer in existence, "Rating
Agency" shall be a nationally recognized statistical rating organization or
other comparable Person designated by the Master Servicer [and approved by the
Securities Insurer], notice of which designation shall have been given to the
Indenture Trustee[, the Securities Insurer], the Servicer and the Issuer.
"RATING AGENCY CONDITION" means, with respect to any action to which a
Rating Agency Condition applies, that each Rating Agency shall have been given
10 days (or such shorter period as is acceptable to each Rating Agency) prior
notice thereof and that each of the Depositor, the Servicer, the Master
Servicer[, the Securities Insurer], the Owner Trustee and the Issuer shall have
been notified by the Rating Agencies in writing that such action will not result
in a reduction, withdrawal or qualification of the then current internal ratings
assigned to the Notes by each of the Rating Agencies [without respect to the
Securities Insurer.
"RECORD DATE" means, as to each Payment Date, the ____ Business Day of the
month immediately preceding the month in which such Payment Date occurs.
"REDEMPTION DATE" means in the case of a redemption of the Notes pursuant
to SECTION 10.01 hereof, the Payment Date specified by the Master Servicer or
the Issuer pursuant to such SECTION 10.01.
"REGISTERED HOLDER" means the Person in the name of which a Note is
registered on the Note Register on the applicable Record Date.
"RESIDUAL INTEREST CERTIFICATE" has the meaning assigned to such term in
SECTION 1.1 of the Owner Trust Agreement.
"RESPONSIBLE OFFICER" means, with respect to the Indenture Trustee, any
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Assistant Treasurer, Assistant
Secretary or any other officer of the Indenture Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
"SALE AND SERVICING AGREEMENT" means the Sale and Master Servicing
Agreement dated as of ____________, 199_, among the Issuer, the Depositor, the
Transferor and Master Servicer and ____________________, as Indenture Trustee.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES INSURER" means _________________, a ________________________
- ------------------.
"SERVICER" shall mean _________________, a __________________, in its
capacity as servicer under the Servicing Agreement, and any successor Servicer
thereunder.
"SERVICING AGREEMENT" shall mean the Servicing Agreement [which
incorporates by reference the Agreement Regarding Standard Servicing Terms,
each] dated as of __________, 199_, between ___________ and the Servicer.
"STATE" means any one of the States of the United States of America or the
District of Columbia.
"TRANSFEROR" means ____________________, a __________________________
- -----------.
"TRUST INDENTURE ACT" or "TIA" means the Trust Indenture Act of 1939 as in
force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform Commercial
Code as in effect in the relevant jurisdiction, as amended from time to time.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
(a) Whenever this Indenture refers to a provision of 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:
"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.
(b) All other TIA terms used in this Indenture that are defined in the TIA,
defined by TIA reference to another statute or defined by rule of the Securities
and Exchange Commission have the respective meanings 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 in the United States 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
(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 (as provided in such agreements) 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.
ARTICLE II
THE NOTES
Section 2.01. FORM. The Notes shall be designated as the "_________ Home
Loan Owner Trust 199_-_ Home Loan Asset Backed Notes, Series 199_-_". Each Note
shall be in substantially the form set forth in EXHIBIT A hereto, 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 thereof. 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 Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods, all as determined by
the officers executing such Notes, as evidenced by their execution of such
Notes.
Each Note shall be dated the date of its authentication. The terms of the
Notes are set forth in EXHIBIT A hereto. The terms of each Note are part of the
terms of this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The Notes
shall be executed on behalf of the Issuer by an Authorized Officer of the Owner
Trustee or the Administrator. 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 Owner Trustee or the Administrator 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.
Subject to the satisfaction of the conditions set forth in SECTION 2.08
hereof, the Indenture Trustee shall upon Issuer Order authenticate and deliver
the Notes for original issue in the following principal amount: $_____________.
The aggregate principal of the Notes Outstanding at any time may not exceed such
amount.
The Notes that are authenticated and delivered by the Indenture Trustee to
or upon the order of the Issuer on the Closing Date shall be dated ___________,
199_. All other Notes that are authenticated after the Closing Date for any
other purpose under the Indenture shall be dated the date of their
authentication. The Notes shall be issuable as registered Notes in the minimum
denomination of $25,000 initial principal amount and integral multiples of
$1,000 in excess thereof; provided however, that any Note may be issued in such
denominations as may be necessary to represent the remainder of the aggregate
principal amount of the Notes.
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.
Section 2.03. REGISTRATION; REGISTRATION OF TRANSFER AND EXCHANGE. The
Issuer shall cause to be kept a register (the "NOTE REGISTER") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee initially shall be the "NOTE REGISTRAR" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer as
Note Registrar, the Issuer will give the Indenture Trustee [and the Securities
Insurer] prompt written notice of the appointment of such Note Registrar and of
the location, and any change in the location, of the Note Register, and the
Indenture Trustee [and the Securities Insurer] shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Indenture Trustee [and the Securities Insurer] shall have the right to rely upon
a certificate executed on behalf of the Note Registrar by an Executive Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in SECTION 3.02 hereof, the
Issuer shall execute, and the Indenture Trustee shall authenticate and the
Noteholder shall obtain from the Indenture Trustee, in the name of the
designated transferee or transferees, one or more new Notes in any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in any
authorized denominations, of a like aggregate principal amount upon surrender of
the Notes to be exchanged at such office or agency. Whenever any Notes are so
surrendered for exchange, the Issuer shall execute, and the Indenture Trustee
shall authenticate and the Noteholder shall obtain from the Indenture Trustee,
the Notes which the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in the Securities Transfer Agents' Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Note
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Exchange Act.
No service charge shall be made to a Holder [or the Securities Insurer] for
any registration of transfer or exchange of Notes, but the Issuer may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Notes, other than exchanges pursuant to SECTION 9.06 hereof not involving any
transfer.
The preceding provisions of this SECTION 2.03 notwithstanding, the Issuer
shall not be required to make, and the Note Registrar need not register,
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to such
Note.
Section 2.04. 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 [and the Securities
Insurer] such security or indemnity as may reasonably be required by them to
hold the Issuer[, the Securities Insurer] 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, an
Authorized Officer of the Owner Trustee or the Administrator on behalf of 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; 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, or shall have been called
for redemption, instead of issuing a replacement Note, the Issuer may pay such
destroyed, lost or stolen Note when so due or payable or upon the Redemption
Date 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 Note, the
Issuer[, the Securities Insurer] and the Indenture Trustee shall be entitled to
recover such replacement Note (or such payment) from the Person to which it was
delivered or any Person taking such replacement Note from such Person to which
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[, the Securities Insurer] or the Indenture Trustee in
connection therewith.
Upon the issuance of any replacement Note under this SECTION 2.04, 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 2.04 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 2.04 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 2.05. PERSONS DEEMED NOTE OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer[, the Securities Insurer], the
Indenture Trustee and any agent of the Issuer[, the Securities Insurer] or the
Indenture Trustee may treat the Person in the name of which any Note is
registered (as of the day of determination) as the Note Owner 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 none of
the Issuer[, the Securities Insurer], the Indenture Trustee or any agent of the
Issuer[, the Securities Insurer] or the Indenture Trustee shall be affected by
notice to the contrary.
Section 2.06. PAYMENT OF PRINCIPAL AND/OR INTEREST; DEFAULTED INTEREST.
(a) Each Note shall accrue interest at the Note Interest Rate, and such
interest shall be payable on each Payment Date as specified in EXHIBIT A hereto,
subject to SECTION 3.01 hereof. Any installment of interest or principal, if
any, payable on any Note that is punctually paid or duly provided for by the
Issuer on the applicable Payment Date shall be paid to the Person in the name of
which such Note (or one or more Predecessor Notes) is registered on the Record
Date by check mailed first-class postage prepaid to such Person's address as it
appears on the Note Register on such Record Date, except that, unless Definitive
Notes have been issued pursuant to SECTION 2.12 hereof, with respect to Notes
registered on the Record Date in the name of the nominee of the Clearing Agency
(initially, such nominee to be Cede & Co.), payment will be made by wire
transfer in immediately available funds to the account designated by such
nominee and except for the final installment of principal payable with respect
to such Note on a Payment Date or on the Maturity Date (and except for the
Termination Price for any Note called for redemption pursuant to SECTION 10.01
hereof), which shall be payable as provided in SECTION 2.06(B) below. The funds
represented by any such checks returned undelivered shall be held in accordance
with SECTION 3.03 hereof.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the form of Note set forth in EXHIBIT A hereto.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the earlier of (i) the
Maturity Date, (ii) the Redemption Date or (iii) the date on which an Event of
Default shall have occurred and be continuing, if the Indenture Trustee or the
Majority Noteholders [or the Securities Insurer] shall have declared the Notes
to be immediately due and payable in the manner provided; however, that if on
the date any such Event of Default occurs[, no Securities Insurer Default exists
and is continuing, the Securities Insurer,] in its sole discretion, may
determine whether or not to accelerate payment on the Notes.
All principal payments on the Notes shall be made pro rata to the
Noteholders. The Indenture Trustee shall notify the Person in the name of which
a Note is registered at the close of business on the Record Date preceding the
Payment Date on which the Issuer expects that the final installment of principal
of and interest on such Note will be paid. Such notice shall be mailed or
transmitted by facsimile prior to such final Payment Date and shall specify that
such final installment 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 payment of such installment. [A copy of such form of notice
shall be sent to the Securities Insurer by the Indenture Trustee.] Notices in
connection with redemptions of Notes shall be mailed to Noteholders as provided
in SECTION 10.02 hereof. [Promptly following the date on which all principal of
and interest on the Notes has been paid in full and the Notes have been
surrendered to the Indenture Trustee, the Indenture Trustee shall, if the
Securities Insurer has paid any amount in respect of the Notes under the
Guaranty Policy that has not been reimbursed to the Securities Insurer, deliver
such surrendered Notes to the Securities Insurer.]
Section 2.07. 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
promptly be 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 promptly be cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this SECTION 2.07, except as expressly
permitted by this Indenture. All canceled 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
Order that they be destroyed or returned to it; provided, however, that such
Issuer Order is timely and the Notes have not been previously disposed of by the
Indenture Trustee.
Section 2.08. CONDITIONS PRECEDENT TO THE AUTHENTICATION OF THE NOTES. The
Notes may be authenticated by the Indenture Trustee, upon Issuer Request and
upon receipt by the Indenture Trustee of the following:
(a) An Issuer Order authorizing the execution and authentication of such
Notes by the Issuer.
(b) All of the items of Collateral which shall be delivered to the
Indenture Trustee or its designee.
(c) An executed counterpart of the Owner Trust Agreement.
(d) An Opinion of Counsel addressed to the Indenture Trustee [and the
Securities Insurer] to the effect that:
(i) the Owner Trustee has full power, authority and legal right to execute,
deliver and perform its obligations under the Trust Agreement and to
consummate the transactions contemplated thereby;
(ii) the Issuer has been duly formed, is validly existing as a business
trust under the Business Trust Statute and has power and authority to
execute, deliver, issue, and perform, as applicable, this Indenture, the
Administration Agreement, the Sale and Servicing Agreement, [the Insurance
Agreement,] the Indemnification Agreement, the Custodial Agreement and the
Note Depository Agreement and to consummate the transactions contemplated
thereby;
(iii) assuming due authorization, execution and delivery hereof by each
party thereto, Indenture is the valid, legal and binding agreement of the
Issuer, enforceable against the Issuer in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, receivership or other laws relating to the
creditors' rights generally and to general principles of equity including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding in equity or
at law) and except that the enforcement of rights with respect to
indemnification and contribution obligations may be limited by applicable
law;
(iv) upon due authorization, execution and delivery of this Indenture by
each party hereto, and due execution, authentication, and delivery of the
Notes, such Notes will be legal, valid and binding obligations of the
Issuer, enforceable against the Issuer in accordance with their terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, receivership or other laws relating to
creditors' rights generally, and to general principles of equity including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity), and will be validly issued and outstanding and entitled to the
benefits of the Indenture;
(v) the conditions precedent to the authentication and delivery of the
Bonds as set forth in this Indenture have been complied with;
(vi) on the Closing Date, the Issuer shall cause to be furnished to the
Indenture Trustee [and the Securities Insurer] an Opinion of Counsel either
stating that, in the opinion of such counsel, this Indenture has been
properly recorded and filed so as to make effective the lien intended to be
created thereby, 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 effective; and
(vii) any other matters as the Indenture Trustee may reasonably request;
(e) An Officer's Certificate complying with the requirements of Section
11.01 hereof and stating that:
(i) the Issuer is not in Default under this Indenture and the issuance of
the Notes applied for will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, the Owner Trust
Agreement, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Issuer is a party or by which it is bound, or any
order of any court or administrative agency entered in any Proceeding to
which the Issuer is a party or by which it may be bound or to which it may
be subject, and that all conditions precedent provided in this Indenture
relating to the authentication and delivery of the Notes applied for have
been complied with;
(ii) the Issuer is the owner of the all of the Home Loans, has not assigned
any interest or participation in the Home Loans (or, if any such interest
or participation has been assigned, it has been released) and has the right
to Grant all of the Home Loans to the Indenture Trustee;
(iii) the Issuer has Granted to the Indenture Trustee all of its right,
title and interest in and to the Collateral, and has delivered or caused
the same to be delivered to the Indenture Trustee;
(iv) letters signed by the Rating Agencies confirming that the Notes have
been rated "____" by _________ and "____" by __________ have been delivered
to the Indenture Trustee;
(v) all conditions precedent provided for in this Indenture relating to the
authentication of the Notes have been complied with; and
(f) A fair value certificate from _______________ with respect to the Home
Loans.
Section 2.09. RELEASE OF COLLATERAL.
(a) Except as otherwise provided in subsections (b) and (c) of this SECTION
2.09, SECTION 11.01 hereof and the terms of the Basic Documents, the Indenture
Trustee shall release property from the lien of this Indenture only upon receipt
of an Issuer Request accompanied by an Officer's Certificate, an Opinion of
Counsel and Independent Certificates in accordance with TIA Sections 314(c) and
314(d)(l) or an Opinion of Counsel in lieu of such Independent Certificates to
the effect that the TIA does not require any such Independent Certificates.
(b) The Servicer, on behalf of the Issuer, shall be entitled to obtain a
release from the lien of this Indenture for any Home Loan and the related
Mortgaged Property at any time (i) after a payment by the Transferor or the
Issuer of the Purchase Price of the Home Loan, (ii) after a Qualified Substitute
Home Loan is substituted for such Home Loan and payment of the Substitution
Adjustment, if any, (iii) after liquidation of the Home Loan in accordance with
Section 4.11 of the Sale and Servicing Agreement and the deposit of all
Recoveries thereon in the Collection Account, or (iv) upon the termination of a
Home Loan (due to, among other causes, a prepayment in full of the Home Loan and
sale or other disposition of the related Mortgaged Property), if the Issuer
delivers to the Indenture Trustee an Issuer Request (A) identifying the Home
Loan and the related Mortgaged Property to be released, (B) requesting the
release thereof, (C) setting forth the amount deposited in the Collection
Account with respect thereto, and (D) certifying that the amount deposited in
the Collection Account (x) equals the Purchase Price of the Home Loan, in the
event a Home Loan and the related Mortgaged Property are being released from the
lien of this Indenture pursuant to item (i) above, (y) equals the Substitution
Adjustment related to the Qualified Substitute Home Loan and the Deleted Home
Loan released from the lien of the Indenture pursuant to item (ii) above, or (z)
equals the entire amount of Recoveries received with respect to such Home Loan
and the related Mortgaged Property in the event of a release from the lien of
this Indenture pursuant to items (iii) or (iv) above.
(c) The Indenture Trustee shall, if requested by the Servicer, temporarily
release or cause the Custodian temporarily to release to the Servicer the
Indenture Trustee's Home Loan File pursuant to the provisions of Section 7.02 of
the Sale and Servicing Agreement upon compliance by the Servicer with the
provisions thereof; provided, however, that the Indenture Trustee's Home Loan
File shall have been stamped to signify the Issuer's pledge to the Indenture
Trustee under the Indenture.
Section 2.10. BOOK-ENTRY NOTES. The Notes, when authorized by an Issuer
Order, will be issued in the form of typewritten Notes representing the
Book-Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by or on behalf of the Issuer. The Book-Entry Notes shall be
registered initially on the Note Register in the name of Cede & Co., the nominee
of the initial Clearing Agency, and no Note Owner will receive a definitive Note
representing such Note Owner's interest in such Note, except as provided in
SECTION 2.12 hereof. Unless and until definitive, fully registered Notes (the
"DEFINITIVE NOTES") have been issued to such Note Owners pursuant to SECTION
2.12 hereof:
(i) the provisions of this SECTION 2.10 shall be in full force and effect;
(ii) the Note Registrar, the Indenture Trustee [and the Securities Insurer]
shall be entitled to deal with the Clearing Agency 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 Note Owners;
(iii) to the extent that the provisions of this SECTION 2.10 conflict with
any other provisions of this Indenture, the provisions of this SECTION 2.10
shall control;
(iv) the rights of Note Owners shall be exercised only through the Clearing
Agency and shall be limited to those established by law and agreements
between such Note Owners and the Clearing Agency and/or the Clearing Agency
Participants pursuant to the Note Depository Agreement. Unless and until
Definitive Notes are issued pursuant to SECTION 2.12 hereof, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and interest
on the Notes to such Clearing Agency 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 Outstanding Notes, the Clearing Agency shall
be deemed to represent such percentage only to the extent that it has
received instructions to such effect from Note Owners and/or Clearing
Agency 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 2.11. NOTICES TO CLEARING AGENCY. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to such Note Owners pursuant to
SECTION 2.12 hereof, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Clearing Agency and shall have no obligation to such Note Owners.
Section 2.12. DEFINITIVE NOTES.
If (i) the Administrator advises the Indenture Trustee in writing that the
Clearing Agency is no longer willing or able to properly discharge its
responsibilities with respect to the Book-Entry 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 Clearing Agency or (iii) after the occurrence of
an Event of Default, Owners of the Book-Entry Notes representing beneficial
interests aggregating at least a majority of the Outstanding Notes advise the
Clearing Agency in writing that the continuation of a book-entry system through
the Clearing Agency is no longer in the best interests of such Note Owners, then
the Clearing Agency shall notify all Note Owners[, the Securities Insurer] and
the Indenture Trustee of the occurrence of such event and of the availability of
Definitive Notes to Note Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Notes representing the Book-Entry Notes by
the Clearing Agency, accompanied by registration instructions, the Issuer shall
execute and the Indenture Trustee shall authenticate the Definitive Notes in
accordance with the instructions of the Clearing Agency. None of the Issuer, the
Note Registrar[, the Securities Insurer] or the Indenture Trustee shall be
liable for any delay in delivery of such instructions and each of them 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 2.13. TAX TREATMENT. The Issuer has entered into this Indenture,
and the Notes will be issued, with the intention that for all purposes,
including federal, state and local income, single business and franchise tax
purposes, the Notes will qualify as indebtedness of the Issuer secured by the
Collateral. The Issuer, by entering into this Indenture, and each Noteholder, by
its acceptance of a Note (and each Note Owner by its acceptance of an interest
in the applicable Book-Entry Note), agree to treat the Notes for all purposes,
including federal, state and local income, single business and franchise tax
purposes, as indebtedness of the Issuer.
ARTICLE III
COVENANTS
Section 3.01. PAYMENT OF PRINCIPAL AND/OR INTEREST. The Issuer will duly
and punctually pay (or will cause to be paid duly and punctually) the principal
of and interest on the Notes in accordance with the terms of the Notes and this
Indenture. Without limiting the foregoing, subject to and in accordance with
SECTION 8.02(C) hereof, the Issuer will cause to be paid to the Noteholders all
amounts on deposit in the Note Payment Account on each Payment Date deposited
therein pursuant to the Sale and Servicing Agreement (less any amounts
representing income from Permitted Investments) for the benefit of the Notes.
Amounts properly withheld under the Code by any Person from a payment to any
Noteholder of interest and/or principal shall be considered as having been paid
by the Issuer [or the Securities Insurer, as applicable,] to such Noteholder for
all purposes of this Indenture. The Notes shall be non-recourse obligations of
the Issuer and shall be limited in right of payment to amounts available from
the Collateral [and any amounts received by the Indenture Trustee under the
Guaranty Policy in respect of the Notes,] as provided in this Indenture. The
Issuer shall not otherwise be liable for payments on the Notes. If any other
provision of this Indenture shall be deemed to conflict with the provisions of
this SECTION 3.01, the provisions of this SECTION 3.01 shall control.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will or will
cause the Administrator to maintain in the Borough of Manhattan in The City of
New York or in ______________ an office or agency where 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 Administrator to serve as its agent for the
foregoing purposes and to serve as Paying Agent with respect to the Notes and
the Certificates. The Issuer will give prompt written notice to the Indenture
Trustee [and the Securities Insurer] of the location, and of any change in the
location, of any such office or agency. 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. As provided in
SECTION 8.02(A) and (b) hereof, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Note
Payment Account pursuant to SECTION 8.02(C) hereof shall be made on behalf of
the Issuer by the Indenture Trustee or by the Paying Agent, and no amounts so
withdrawn from the Note Payment Account for payments of Notes shall be paid over
to the Issuer except as provided in this SECTION 3.03.
On or before the __________ Business Day preceding each Payment Date and
the Redemption Date, the Paying Agent shall deposit or cause to be deposited in
the Note Payment Account an aggregate sum sufficient to pay the amounts due on
such Payment Date or the Redemption Date under the Notes, such sum to be held in
trust for the benefit of the Persons entitled thereto, and (unless the Paying
Agent is the Indenture Trustee) shall promptly notify the Indenture Trustee [and
the Securities Insurer] of its action or failure so to act.
Any Paying Agent shall be appointed by Issuer Order with written notice
thereof to the Indenture Trustee [and the Securities Insurer]. Any Paying Agent
appointed by the Issuer shall be a Person which would be eligible to be
Indenture Trustee hereunder as provided in SECTION 6.11 hereof. The Issuer shall
not appoint any Paying Agent (other than the Indenture Trustee) which is not, at
the time of such appointment, a Depository Institution.
The Issuer will cause each Paying Agent other than the Administrator or the
Indenture Trustee to execute and deliver to the Indenture Trustee [and the
Securities Insurer] 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, 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 [and the Securities Insurer] notice of any
default by the Issuer (or any other obligor upon the Notes) 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;
(iv) immediately resign as a 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; provided, however, that
with respect to withholding and reporting requirements applicable to
original issue discount (if any) on the Notes, the Issuer shall have first
provided the calculations pertaining thereto to the Indenture Trustee.
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 Order 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 or abandoned
property, 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 two years after such amount has become due and payable shall be
discharged from such trust and be paid to either (i) the Issuer on Issuer
Request [and with the prior written consent of the Securities Insurer as long as
no Securities Insurer Default has occurred and is continuing] [or (ii) if such
money or a portion thereof was paid by the Securities Insurer to the Indenture
Trustee for the payment of principal of or interest on such Note, to the
Securities Insurer in lieu of the Issuer to the extent of such unreimbursed
amount; 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 a newspaper of general circulation in The
City of New York customarily published in the English language on each Business
Day, 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
[or the Securities Insurer, as applicable]. The Indenture Trustee shall 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 moneys
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.
(a) Subject to subparagraph (b) of this SECTION 3.04, 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, subject to the prior written consent
of the Securities Insurer, 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 and the Collateral.
(b) Any successor to the Owner Trustee appointed pursuant to SECTION 10.2
of the Owner Trust Agreement shall be the successor Owner Trustee under this
Indenture without the execution or filing of any paper, instrument or further
act to be done on the part of the parties hereto.
(c) Upon any consolidation or merger of or other succession to the Owner
Trustee, the Person succeeding to the Owner Trustee under the Owner Trust
Agreement may exercise every right and power of the Owner Trustee under this
Indenture with the same effect as if such Person had been named as the Owner
Trustee herein.
Section 3.05. PROTECTION OF COLLATERAL. The Issuer will from time to time
[and upon the direction of the Securities Insurer] execute and deliver all such
reasonable supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
and will take such other action necessary or advisable to:
(i) provide further assurance with respect to the Grant of all or any
portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the priority
thereof) of this Indenture or carry out more effectively the purposes
hereof;
(iii) perfect, publish notice of or protect the validity of any Grant made
or to be made by this Indenture;
(iv) enforce any rights with respect to the Collateral; or
(v) preserve and defend title to the Collateral and the rights of the
Indenture Trustee, the Noteholders [and the Securities Insurer] in such
Collateral against the claims of all persons and parties.
The Issuer hereby designates the Administrator, its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this SECTION 3.05.
Section 3.06. ANNUAL OPINIONS AS TO COLLATERAL. On or before July 15th in
each calendar year, beginning in 2000, the Issuer shall furnish to the Indenture
Trustee [and the Securities Insurer] an Opinion of Counsel 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 created by this
Indenture 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 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 of this
Indenture until July 15th of the following calendar year.
Section 3.07. PERFORMANCE OF OBLIGATIONS.
(a) The Issuer will not take any action and will use its best efforts not
to permit any action to be taken by others that would release any Person from
any of such Person's material covenants or obligations under any instrument or
agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Sale and Servicing Agreement or such
other instrument or agreement.
(b) The Issuer may contract with or otherwise obtain the assistance of
other Persons (including, without limitation, the Master Servicer and the
Administrator under the Administration Agreement) to assist it in performing its
duties under this Indenture, and any performance of such duties by a Person
identified to the Indenture Trustee [and the Securities Insurer] 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 Master Servicer and the
Administrator to assist the Issuer in performing its duties under this
Indenture. The Administrator must at all times be the same Person as the
Indenture Trustee.
(c) The Issuer will punctually perform and observe all of its obligations
and agreements contained in this Indenture, in the Basic Documents and in the
instruments and agreements included in the Collateral, including but not limited
to (i) filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Sale and Servicing Agreement and (ii) recording or causing to be recorded
all Mortgages, Assignments of Mortgage, all intervening Assignments of Mortgage
and all assumption and modification agreements required to be recorded by the
terms of the Sale and Servicing Agreement, in accordance with and within the
time periods provided for in this Indenture and/or the Sale and Servicing
Agreement, as applicable. Except as otherwise expressly provided therein, the
Issuer shall not waive, amend, modify, supplement or terminate any Basic
Document or any provision thereof without the consent of the Indenture Trustee[,
the Securities Insurer] and the Holders of at least a majority of the
Outstanding Notes.
(d) If the Issuer shall have knowledge of the occurrence of a Master
Servicer Event of Default under the Sale and Servicing Agreement, the Issuer
shall promptly notify the Indenture Trustee[, the Securities Insurer], the
Servicer and the Rating Agencies thereof, and shall specify in such notice the
action, if any, the Issuer is taking with respect to such Master Servicer Event
of Default. If such a Master Servicer Event of Default shall arise from the
failure of the Master Servicer to perform any of its duties or obligations under
the Sale and Servicing Agreement with respect to the Home Loans, the Issuer
shall take all reasonable steps available to it to enforce the obligations of
the Master Servicer thereunder.
(e) Without derogating from the absolute nature of the assignment granted
to the Indenture Trustee under this Indenture or the rights of the Indenture
Trustee hereunder, the Issuer agrees (i) that it will not, without the prior
written consent of the Indenture Trustee [and, if a Securities Insurer Default
has not occurred and is not continuing, the Securities Insurer,] amend, modify,
waive, supplement, terminate or surrender, or agree to any amendment,
modification, supplement, termination, waiver or surrender of, the terms of any
Collateral (except to the extent otherwise provided in the Sale and Servicing
Agreement) or the Basic Documents, or waive timely performance or observance by
the Servicer, the Master Servicer or the Depositor under the Sale and Servicing
Agreement; and (ii) that any such amendment shall not (A) increase or reduce in
any manner the amount of, or accelerate or delay the timing of, payments that
are required to be made for the benefit of the Noteholders or (B) reduce the
aforesaid percentage of the Outstanding Notes that is required to consent to any
such amendment, without the consent of the Holders of all Outstanding Notes. If
any such amendment, modification, supplement or waiver shall so be consented to
by the Indenture Trustee [and, if a Securities Insurer Default has not occurred
and is not continuing, the Securities Insurer], the Issuer agrees, promptly
following a request by the Indenture Trustee [or the Securities Insurer] to do
so, to execute and deliver, in its own name and at its own expense, such
agreements, instruments, consents and other documents as the Indenture Trustee
may deem necessary or appropriate in the circumstances.
Section 3.08. NEGATIVE COVENANTS. So long as any Notes are Outstanding, the
Issuer shall not:
(i) except as expressly permitted by this Indenture or the Sale and
Servicing Agreement, sell, transfer, exchange or otherwise dispose of any
of the properties or assets of the Issuer, including those included in the
Collateral, unless directed to do so by the Indenture Trustee [acting at
the direction of the Securities Insurer, unless a Securities Insurer
Default has occurred and is continuing, or the Securities Insurer];
(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 Collateral;
(iii) engage in any business or activity other than as permitted by the
Owner Trust Agreement or other than in connection with, or relating to, the
issuance of Notes pursuant to this Indenture, or amend the Owner Trust
Agreement as in effect on the Closing Date other than in accordance with
SECTION 11.1 thereof;
(iv) issue debt obligations under any other indenture;
(v) incur or assume any indebtedness or guaranty any indebtedness of any
Person, except for such indebtedness as may be incurred by the Issuer in
connection with the issuance of the Notes pursuant to this Indenture;
(vi) dissolve or liquidate in whole or in part or merge or consolidate with
any other Person;
(vii) (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 expressly be 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 Collateral or any part thereof or any
interest therein or the proceeds thereof (other than tax liens, mechanics'
liens and other liens that arise by operation of law, in each case on any
of the Mortgaged Properties and arising solely as a result of an action or
omission of the related Obligors or (C) permit the lien of this Indenture
not to constitute a valid first priority (other than with respect to such
tax, mechanics' or other lien) security interest in the Collateral;
(viii) remove the Administrator without cause unless the Rating Agency
Condition shall have been satisfied in connection with such removal; or
(ix) take any other action or fail to take any action which may cause the
Issuer to be taxable as (a) an association pursuant to Section 7701 of the
Code and the corresponding regulations or (b) as a taxable mortgage pool
pursuant to Section 7701(i) of the Code and the corresponding regulations.
Section 3.09. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will deliver to
the Indenture Trustee [and the Securities Insurer], within 120 days after the
end of each fiscal year of the Issuer (commencing in the fiscal year 2000), 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 3.10. COVENANTS OF THE ISSUER. All covenants of the Issuer in this
Indenture are covenants of the Issuer and are not covenants of the Owner
Trustee. The Owner Trustee is, and any successor Owner Trustee under the Owner
Trust Agreement will be, entering into this Indenture solely as Owner Trustee
under the Owner Trust Agreement and not in its respective individual capacity,
and in no case whatsoever shall the Owner Trustee or any such successor Owner
Trustee be personally liable on, or for any loss in respect of, any of the
statements, representations, warranties or obligations of the Issuer hereunder,
as to all of which the parties hereto agree to look solely to the property of
the Issuer.
Section 3.11. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any payment (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 or to the Servicer or Master Servicer, (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, payments to
the Servicer, the Master Servicer, the Indenture Trustee, the Owner Trustee,
[the Securities Insurer,] the Noteholders and the holders of the Residual
Interest Certificate as contemplated by SECTION 8.02(C) hereof, and to the
extent funds are available for such purpose under, the Sale and Servicing
Agreement or the Owner Trust Agreement. The Issuer will not, directly or
indirectly, make or cause to be made payments to or distributions from the
Collection Account except in accordance with this Indenture and the Basic
Documents.
Section 3.12. TREATMENT OF NOTES AS DEBT FOR TAX PURPOSES. The Issuer
shall, and shall cause the Administrator to, treat the Notes as indebtedness for
all purposes.
Section 3.13. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee, [the Securities Insurer,] the Master Servicer, the Depositor
and the Rating Agencies prompt written notice of each Event of Default
hereunder, each default on the part of the Master Servicer, the Servicer or the
Transferor of its obligations under the Sale and Servicing Agreement and each
default on the part of the Transferor of its obligations under the Home Loan
Purchase Agreement.
Section 3.14. FURTHER INSTRUMENTS AND ACTS. Upon request of the Indenture
Trustee [or the Securities Insurer], 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.
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 4.01. 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 [including any such right of the
Securities Insurer pursuant to SECTION 2.06(B)] or the proviso to the definition
of "Outstanding", (iv) SECTIONS 3.03, 3.04, 3.05, 3.08 and 3.10 hereof, (v) the
rights, obligations and immunities of the Indenture Trustee hereunder (including
the rights of the Indenture Trustee under SECTION 6.07 hereof and the
obligations of the Indenture Trustee under SECTION 4.02 hereof) 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 all of the following have occurred:
(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 2.04 hereof and (ii) Notes for the payment of
which 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 hereof) shall have been
delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
a. shall have become due and payable, or
b. will become due and payable within one year following the Maturity
Date, or
c. are to be called for redemption within one year under arrangements
satisfactory to the Indenture Trustee for the giving of notice of
redemption by the Indenture Trustee in the name, and at the expense,
of the Issuer,
d. and the Issuer, in the case of clause a., b. or c. above, has
irrevocably deposited or caused irrevocably to be 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 not theretofore delivered to the Indenture Trustee for
cancellation when due to the Maturity Date or the Redemption Date
(if Notes shall have been called for redemption pursuant to SECTION
10.01 hereof), as the ------------- case may be; and
(B) the latest of (a) 18 months after payment in full of all outstanding
obligations under the Notes, (b) the payment in full of all unpaid Trust Fees
and Expenses [and all sums owing to the Securities Insurer under the Insurance
Agreement as confirmed in writing by the Securities Insurer], (c) [the Guaranty
Policy is surrendered to the Securities Insurer and (d)] the date on which the
Issuer has paid or caused to be paid all other sums payable hereunder by the
Issuer; and
(C) the Issuer shall have delivered to the Indenture Trustee [and the
Securities Insurer] an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA or the Indenture Trustee) an Independent Certificate from a
firm of certified public accountants, each meeting the applicable requirements
of SECTION 11.01(A) hereof and, subject to SECTION 11.02 hereof, each stating
that all conditions precedent herein provided for, relating to the satisfaction
and discharge of this Indenture with respect to the Notes, have been complied
with.
Section 4.02. APPLICATION OF TRUST MONEY. All moneys deposited with the
Indenture Trustee pursuant to Sections 3.03 and 4.01 hereof shall be held in
trust and applied by it, in accordance with the provisions of the Notes[, the
Insurance Agreement] and this Indenture, to the payment, either directly or
through any Paying Agent, as the Indenture Trustee may determine, [to the
Securities Insurer and] to the Holders of the particular Notes for the payment
or redemption of which such moneys have been deposited with the Indenture
Trustee, of all sums due and to become due thereon; but such moneys need not be
segregated from other funds except to the extent required herein or in the Sale
and Servicing Agreement or required by law.
Section 4.03. REPAYMENT OF MONEYS HELD BY PAYING AGENT. In connection with
the satisfaction and discharge of this Indenture with respect to the Notes, all
moneys then held by any Paying Agent 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 3.03 hereof and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
REMEDIES
Section 5.01. EVENTS OF DEFAULT.
(a) "EVENT OF DEFAULT," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(i) Notwithstanding that there may be insufficient sums in the Note Payment
Account for payment thereof on the related Payment Date, default in the
payment of any interest on any Note when the same becomes due and payable,
and continuance of such default for a period of five (5) days; or
(ii) Notwithstanding that there may be insufficient sums in the Note
Payment Account for payment thereof on the related Payment Date, default in
the payment of the principal of or any installment of the principal of any
Note (i) when the same becomes due and payable or (ii) on the Maturity
Date; or
(iii) default in the observance or performance of any covenant or agreement
of the Issuer made in this Indenture (other than a covenant or agreement, a
default in the observance or performance of which is elsewhere in this
Section specifically dealt with), or any representation or warranty of the
Issuer made in this Indenture[, the Insurance Agreement], the Sale and
Servicing Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith proving to have been incorrect in
any material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a period
of 30 days after there shall have been given, by registered or certified
mail, to the Issuer by the Indenture Trustee [at the direction of the
Securities Insurer], or to the Issuer and the Indenture Trustee by the
Holders of at least [25]% of the Outstanding Notes [and with the prior
written consent of the Securities Insurer (so long as no Securities Insurer
Default has occurred and is continuing)], a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a notice of Default hereunder; or
(iv) [an Event of Default under ss.5.01 of the Insurance Agreement or in
any certificate or other writing delivered pursuant to the Insurance
Agreement or in connection therewith proving to have been incorrect in any
material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a period
of 30 days after there shall have been given, by registered or certified
mail, to the Issuer by the Indenture Trustee at the direction of the
Securities Insurer, or to the Issuer and the Indenture Trustee by the
Holders of at least 25% of the Outstanding Notes and with the prior written
consent of the Securities Insurer (so long as no Securities Insurer Default
has occurred and is continuing), a written notice specifying such default
or incorrect representation or warranty and requiring it to be remedied and
stating that such notice is a notice of Default hereunder; or]
(v) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any substantial
part of the Collateral in an involuntary case under any applicable federal
or state bankruptcy, insolvency or other similar law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Issuer or for any substantial part
of the Collateral, or ordering the winding-up or liquidation of the
Issuer's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(vi) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now
or hereafter in effect, or the consent by the Issuer to the entry of an
order for relief in an involuntary case under any such law, or the consent
by the Issuer to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of the Issuer or for any substantial part of the Collateral, or the making
by the Issuer of any general assignment for the benefit of creditors, or
the failure by the Issuer generally to pay its debts as such debts become
due, or the taking of any action by the Issuer in furtherance of any of the
foregoing.
The Issuer shall promptly deliver to the Indenture Trustee [and the
Securities Insurer] 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 clauses (iii) and (iv) above, the status of such event
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 shall occur [and a Securities Insurer Default has occurred and
is continuing] then and in every such case the Indenture Trustee may or the
Indenture Trustee as directed in writing by the Majority Noteholders shall
declare all the Notes to be then 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 Outstanding Amount of such Notes, together
with accrued and unpaid interest thereon through the date of acceleration, shall
become immediately due and payable; provided, however, that if on the date any
such Event of Default occurs or is continuing, and no Securities Insurer Default
exists and is continuing, then the Securities Insurer, in its sole discretion,
may determine whether or not to accelerate payment on the Notes]. [In the event
of any acceleration of the Notes by operation of this SECTION 5.02, the
Indenture Trustee shall continue to be entitled to make claims under the
Guaranty Policy pursuant to SECTION 8.02(E) hereof. Payments under the Guaranty
Policy following acceleration of the Notes shall be applied by the Indenture
Trustee:
FIRST: to the payment of amounts due and unpaid on the Notes in
respect of interest, ratably, without preference or priority of any kind;
and
SECOND: to the payment of amounts due and unpaid on the Notes in
respect of principal, ratably, without preference or priority of any kind,
until the Notes are paid in full.]
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the moneys due has been
obtained by the Indenture Trustee as hereinafter in this ARTICLE V provided,
[either the Securities Insurer (so long as a Securities Insurer Default has not
occurred and is continuing) or] the Majority Noteholders [(if a Securities
Insurer Default has occurred and is continuing)], by written notice to the
Issuer and the Indenture Trustee, may rescind and annul such declaration and its
consequences if:
(a) the Issuer has paid or deposited with the Indenture Trustee a sum
sufficient to pay:
1. all payments of principal of and/or interest on all Notes and all
other amounts that would then be due hereunder or upon such Notes if
the Event of Default giving rise to such acceleration had not
occurred; and
2. all sums paid or advanced by the Indenture Trustee [or the
Securities Insurer] hereunder and the reasonable compensation,
expenses, disbursements and advances of the Indenture Trustee [or
the Securities Insurer] and their respective agents and counsel; and
(b) 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 hereof. 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 Issuer will, upon demand of the Indenture Trustee
[made at the direction of the Securities Insurer,] pay to the Indenture Trustee,
for the benefit of the Holders of the Notes [and the Securities Insurer], the
whole amount then due and payable on such Notes for principal and/or interest,
with interest upon the overdue principal and, to the extent payment at such rate
of interest shall be legally enforceable, upon overdue installments of interest
at the rate borne by the Notes 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 the Securities Insurer] and their respective agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Indenture Trustee may[, with the prior written consent of the
Securities Insurer (so long as no Securities Insurer Default has occurred and is
continuing)] and shall at the direction of [the Securities Insurer (so long as
no Securities Insurer Default has occurred and is continuing) or] the Majority
Noteholders [(if a Securities Insurer Default has occurred and is continuing)]
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 such Notes and collect in the manner
provided by law out of the property of the Issuer or other obligor upon such
Notes, wherever situated, the moneys adjudged or decreed to be payable. [At any
time, so long as no Securities Insurer Default has occurred and is continuing,
if the Securities Insurer is the holder of any Note pursuant to SECTION 2.06(B)
hereof or all amounts due to all other Holders of the Notes pursuant to the
Notes and this Indenture have been paid in full, then the Securities Insurer
may, in its own name, institute any Proceedings or take any action permitted
under this SECTION 5.03 to collect amounts due hereunder from the Issuer or any
other obligor of the Notes.]
(c) If an Event of Default occurs and is continuing, the Indenture Trustee
[shall, at the direction of the Securities Insurer, and if a Securities Insurer
Default has occurred and is continuing, the Indenture Trustee] may, in its
discretion, and shall at the direction of the majority of the Holders of the
Outstanding Notes, as more particularly provided in SECTION 5.04 hereof, proceed
to protect and enforce its rights and the rights of [the Securities Insurer and]
the Noteholders 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 Collateral, 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[, upon the direction of the Securities Insurer,] by
intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of principal
and/or 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, each predecessor Indenture Trustee
[and the Securities Insurer], 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), [the
Securities Insurer] and 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 moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders[, the Securities Insurer] and 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[, the Securities Insurer] 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 [and the Securities Insurer] 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 [and the Securities
Insurer], 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 [or the Securities Insurer] any plan of reorganization,
arrangement, adjustment or composition affecting the Notes or the rights of any
Holder thereof [or the Securities Insurer] 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, attorneys and counsel, shall be
for the ratable benefit of the Holders of the Notes [and the Securities
Insurer].
(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 Noteholders, 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 [shall, at the direction of the Securities Insurer, and if a
Securities Insurer Default has occurred and is continuing, the Indenture
Trustee] may, and at the direction of a majority of the Holders of the
Outstanding Notes shall, do one or more of the following (subject to SECTION
5.05 hereof):
(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 and
amounts due [to the Securities Insurer or] under this Indenture with
respect thereto, whether by declaration or otherwise, enforce any judgment
obtained, and collect from the Issuer and any other obligor upon such Notes
moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure with respect to the Collateral;
(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 Securities Insurer] or the Noteholders; and
(iv) sell the Collateral or any portion thereof or rights or interest
therein in a commercially reasonable manner, at one or more public or
private sales called and conducted in any manner permitted by law;
[provided, however, (x) if a Securities Insurer Default has occurred and is
continuing, the Indenture Trustee may not sell or otherwise liquidate the
Collateral following an Event of Default, unless (A) the Holders of 100% of
the Outstanding Notes consent thereto, (B) the proceeds of such sale or
liquidation distributable to the Noteholders are sufficient to discharge in
full all amounts then due and unpaid upon such Notes for principal and/or
interest or (C) the Indenture Trustee determines that the Collateral 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 Holders of 66-2/3% of the Outstanding Notes, and (y) if no
Securities Insurer Default has occurred and is continuing, the Securities
Insurer may direct the Indenture Trustee and the Indenture Trustee shall
comply with any such direction, to sell or otherwise liquidate the
Collateral following an Event of Default if (1) the conditions under either
A, B or C in clause (x) above are met or (2) the Securities Insurer has
paid the Notes in full under the Guaranty Policy. In determining such
sufficiency or insufficiency with respect to clause (B) and (C) of this
subsection (a)(iv), 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 Collateral for such purpose].
(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, any Indenture Trustee Fees due and
payable, for any costs or expenses incurred by it in connection with the
enforcement of the remedies provided for in this Article V and any other
amounts payable to the Indenture Trustee pursuant to Section 6.07 hereof;
SECOND: to the Servicer, any Servicing Compensation due and payable
under the Sale and Servicing Agreement;
THIRD: to the Master Servicer, any Master Servicing Compensation due
and unpaid;
[FOURTH: to the Securities Insurer for any Guaranty Insurance
Premiums due and payable;]
FIFTH: to the Owner Trustee, any Owner Trustee Fees due and
payable;
SIXTH: to the Noteholders for amounts due and unpaid on the Notes
for interest, pro rata among the Holders of the Notes for interest,
according to the amounts due and payable pursuant to SECTION 5.01(D) of
the Sale and Servicing Agreement, until the Note Principal Balance of the
Notes is reduced to zero;
SEVENTH: to the Noteholders for amounts due and unpaid on the Notes
for principal, pro rata among the Holders of the Notes, according to the
amounts due and payable pursuant to SECTION 5.01(D) of the Sale and
Servicing Agreement, until the Note Principal Balance of the Notes is
reduced to zero;
[EIGHTH: to the Securities Insurer for any amounts then due and
payable pursuant to SECTION 5.01(E) of the Sale and Servicing Agreement;]
NINTH: to the Noteholders for amounts due and unpaid on the Notes of
Excess Spread, pro rata among the Holders of the Notes, according to the
amounts due and payable pursuant to SECTION 5.01(E) of the Sale and
Servicing Agreement, until the Note Principal Balance is reduced to zero;
TENTH: to the Noteholders for amounts due and unpaid on the Notes of
Noteholder's Interest Carry-Forward Amount, pro rata among the Holders of
the Notes, according to the amounts due and payable pursuant to Section
5.01(e) of the Sale and Servicing Agreement, pro rata, the Noteholders'
Interest Carry Forward Amount due and unpaid; and
ELEVENTH: concurrently to the Servicer in an amount equal to any
outstanding Nonrecoverable Servicing Advances and to the Master Servicer
in an amount equal to any outstanding Nonrecoverable Monthly Advances,
then to reimburse the Servicer the Servicing Fee Recovery Amount if, any,
and then for deposit into the Certificate Distribution Account for payment
to the holders of the Residual Interest Certificate.
The Indenture Trustee may fix a record date and payment date for any
payment to be made to the Noteholders pursuant to this Section. At least 15 days
before such record date, the Indenture Trustee shall mail to each Noteholder[,
the Securities Insurer] and the Issuer a notice that states the record date, the
payment date and the amount to be paid.
Section 5.05. OPTIONAL PRESERVATION OF THE COLLATERAL. If the Notes have
been declared to be due and payable under SECTION 5.02 hereof 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 maintain possession
of the Collateral. 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 the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the
Collateral. In determining whether to maintain possession of the Collateral, 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
Collateral 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 for as long as a Securities Insurer Default has not occurred or
is not continuing and, if a Securities Insurer Default has occurred and is
continuing, unless:
(a) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% of the Outstanding 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;
(c) 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;
(d) the Indenture Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute such Proceeding; and
(e) no direction inconsistent with such written request has been given to
the Indenture Trustee during such 30-day period by the Majority Noteholders.]
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 group representing less than a Majority Noteholders, 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/OR 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 applicable Maturity Date thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) 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[, the Securities Insurer] 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 adversely to the Indenture Trustee[, the Securities Insurer] or to
such Noteholder, then and in every such case the Issuer, the Indenture Trustee[,
the Securities Insurer] 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[, the Securities Insurer] 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[, the Securities Insurer] 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[, the Securities Insurer] or any Holder of any Note to
exercise any right or remedy accruing upon any Default or Event of Default shall
impair any such right or remedy or constitute a waiver of any such Default or
Event of Default or an acquiescence therein. Every right and remedy given by
this Article V or by law to the Indenture Trustee[, the Securities Insurer] or
to the Noteholders may be exercised from time to time, and as often as may be
deemed expedient, by the Indenture Trustee[, the Securities Insurer] or by the
Noteholders, as the case may be[, subject, in each case, however, to the right
of the Securities Insurer to control any such right and remedy, except as
provided in Section 11.20].
Section 5.11. CONTROL BY NOTEHOLDERS. [Subject to the rights of the
Securities Insurer under SECTION 11.18 hereof,] the Majority Noteholders 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,
however, that:
(a) such direction shall not be in conflict with any rule of law or with
this Indenture;
(b) subject to the express terms of SECTION 5.04 hereof, any direction to
the Indenture Trustee to sell or liquidate the Collateral shall be by Holders of
Notes representing not less than 100% of the Notes Outstanding;
(c) if the conditions set forth in SECTION 5.05 hereof have been satisfied
and the Indenture Trustee elects to retain the Collateral pursuant to such
Section, then any direction to the Indenture Trustee by Holders of Notes
representing less than 100% of the Notes Outstanding to sell or liquidate the
Collateral shall be of no force and effect; and
(d) 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 the Noteholders set forth in this SECTION
5.11, subject to SECTION 6.01 hereof, 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.
Section 5.12. WAIVER OF PAST DEFAULTS. The [Securities Insurer may, or at
any time when a Securities Insurer Default has occurred and is continuing, the]
Majority Noteholders may waive any past Default or Event of Default and its
consequences, except a Default (a) in the payment of principal of or interest on
any of the Notes or (b) in respect of a covenant or provision hereof that cannot
be modified or amended without the consent of [the Securities Insurer (so long
as no Securities Insurer Default has occurred and is continuing) or] the Holder
of each Note. In the case of any such waiver, the Issuer, the Indenture
Trustee[, the Securities Insurer] 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 Default or impair any right consequent
thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and 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 Default or 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 shall not apply to (a) any suit instituted by the
Indenture Trustee [or the Securities Insurer], (b) any suit instituted by any
Noteholder, or group of Noteholders, in each case holding in the aggregate more
than 10% 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 (or, in
the case of redemption, on or after the Redemption Date).
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 will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee [or the Securities Insurer], but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.15. 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[, the Securities Insurer] 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 Collateral 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) hereof.
Section 5.16. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS.
(a) Promptly following a request from the Indenture Trustee [or the
Securities Insurer] to do so and at the Master Servicer's expense, the Issuer
shall take all such lawful action as the Indenture Trustee [or the Securities
Insurer] may request to compel or secure the performance and observance by the
Transferor, the Servicer and the Master Servicer, as applicable, of each of
their obligations to the Issuer under or in connection with the Sale and
Servicing Agreement, and to exercise any and all rights, remedies, powers and
privileges lawfully available to the Issuer, under or in connection with the
Sale and Servicing Agreement to the extent and in the manner directed by the
Indenture Trustee [or the Securities Insurer], including the transmission of
notices of default on the part of the Transferor or the Master Servicer
thereunder and the institution of legal or administrative actions or proceedings
to compel or secure performance by the Transferor, the Master Servicer or the
Servicer of each of their obligations under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the Indenture
Trustee shall, [at the direction of the Securities Insurer, and] at the
direction (which direction shall be in writing or by telephone, confirmed in
writing promptly thereafter) of the Holders of 66-2/3% of the Notes Outstanding
shall[, with the prior written consent of the Securities Insurer (so long as no
Securities Insurer Default has occurred and is continuing),] exercise all
rights, remedies, powers, privileges and claims of the Issuer, as
Securityholder, against the Transferor, the Servicer or the Master Servicer
under or in connection with the Sale and Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Transferor, the Servicer 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 Sale and
Servicing Agreement, and any right of the Issuer to take such action shall be
suspended.
Section 5.17. RIGHTS IN RESPECT OF INSOLVENCY PROCEEDINGS.
(a) In the event that the Indenture Trustee has received a certified copy
of an order of the appropriate court that any scheduled payment of principal of
or interest on a Note has been voided in whole or in part as a preference
payment under applicable bankruptcy law, the Indenture Trustee shall so [notify
the Securities Insurer, shall comply with the provisions of the Guaranty Policy
to obtain payment by the Securities Insurer of such voided scheduled payment,
and shall, at the time it provides notice to the Securities Insurer,] notify, by
mail to Holders of the Notes that, in the event that any Holder's scheduled
payment is so recovered, such Holder will be entitled to payment pursuant to the
terms of the Policy, a copy of which shall be made available through the
Indenture Trustee[, the Securities Insurer]or the Fiscal Agent, if any, and the
Indenture Trustee shall furnish to the [Securities Insurer or its] Fiscal Agent,
if any, its records evidencing the payments of principal of and interest on the
Notes, if any, which have been made by the Indenture Trustee and subsequently
recovered from Holders, and the dates on which such payments were made.
[(b) The Indenture Trustee shall promptly notify the Securities Insurer of
either of the following as to which it has actual knowledge: (i) the
commencement of any proceeding by or against the Issuer commenced under the
United States Bankruptcy Code or any other applicable bankruptcy, insolvency,
receivership, rehabilitation or similar law (an "INSOLVENCY PROCEEDING") and
(ii) the making of any claim in connection with any Insolvency Proceeding
seeking the avoidance as a preferential transfer (a "PREFERENCE CLAIM") of any
payment of principal of, or interest on, the Notes. Each Holder, by its purchase
of Notes, and the Indenture Trustee hereby agree that, so long as a the
Securities Insurer Default shall not have occurred and be continuing, the
Securities Insurer may at any time during the continuation of an Insolvency
Proceeding direct all matters relating to such Insolvency Proceeding, including,
without limitation, (i) all matters relating to any Preference Claim, (ii) the
direction of any appeal of any order relating to any Preference Claim at the
expense of the Securities Insurer but subject to reimbursement as provided in
the Insurance Agreement and (iii) the posting of any surety, supersedes or
performance Note pending any such appeal. In addition, and without limitation of
the foregoing, as set forth in Section 5.18, the Securities Insurer shall be
subrogated to, and each Holder and the Indenture Trustee hereby delegate and
assign, to the fullest extent permitted by law the rights of the Indenture
Trustee and each Holder in the conduct of any Insolvency Proceeding, including,
without limitation, all rights of any party to an adversary proceeding action
with respect to any court order issued in connection with any such Insolvency
Proceeding.
(c) The Indenture Trustee shall furnish to the [Securities Insurer or its]
Fiscal Agent its records evidencing the payments of principal of and interest on
the Notes which have been made by the Indenture Trustee and subsequently
recovered from Noteholders, and the dates on which such payments were made.]
Section 5.18. [EFFECT OF PAYMENTS BY THE SECURITIES INSURER; SUBROGATION.
(a) Anything herein to the contrary notwithstanding, any payment with
respect to the principal of or interest on the Notes which is made with moneys
received pursuant to the terms of the Policy shall not be considered payment by
the Issuer of the Notes, shall not discharge the Issuer in respect of its
obligation to make such payment and shall not result in the payment of or the
provision for the payment of the principal of or interest on the Notes within
the meaning of Section 4.01 hereof. The Issuer and the Indenture Trustee
acknowledge that without the need for any further action on the part of the
Securities Insurer, the Issuer, the Indenture Trustee or the Note Registrar (i)
to the extent the Securities Insurer makes payments, directly or indirectly, on
account of principal of or interest on the Notes to the Holders of such Notes,
the Securities Insurer will be fully subrogated to the rights of such Holders to
receive such principal and interest from the Issuer, and (ii) the Securities
Insurer shall be paid such principal and interest in its capacity as a Holder of
Notes but only from the sources and in the manner provided herein for the
payment of such principal and interest in each case only after the Holders of
the Notes have received payment of all scheduled payments of principal and
interest due thereon.]
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 or gross negligence 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; provided, however, that 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 pursuant to SECTION 5.11 hereof.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to PARAGRAPHS (A), (B), (C) AND (G) of this SECTION
6.01.
(e) 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.
(f) Money held in trust by the Indenture Trustee shall be segregated from
other funds held by the Indenture Trustee except to the extent permitted by law
or the terms of this Indenture or the Sale and Servicing Agreement.
(g) 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 to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it; provided, however, that the Indenture Trustee shall
not refuse or fail to perform any of its duties hereunder solely as a result of
nonpayment of its normal fees and expenses and provided, further, that nothing
in this SECTION 6.01(G) shall be construed to limit the exercise by the
Indenture Trustee of any right or remedy permitted under this Indenture or
otherwise in the event of the Issuer's failure to pay the Indenture Trustee's
fees and expenses pursuant to SECTION 6.07 hereof. In determining that such
repayment or indemnity is not reasonably assured to it, the Indenture Trustee
must consider not only the likelihood of repayment or indemnity by or on behalf
of the Issuer but also the likelihood of repayment or indemnity from amounts
payable to it from the Collateral pursuant to SECTION 6.07 hereof.
(h) 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.
(i) The Indenture Trustee shall not be required to take notice or be deemed
to have notice or knowledge of any Event of Default (other than an Event of
Default pursuant to SECTION 5.01(A)(I) or (II) hereof) unless a Responsible
Officer of the Indenture Trustee shall have received written notice thereof or
otherwise shall have actual knowledge thereof. In the absence of receipt of
notice or such knowledge, the Indenture Trustee may conclusively assume that
there is no Event of Default.
(j) [The Indenture Trustee shall, and hereby agrees, that it will hold the
Guaranty Policy in trust and will hold any proceeds of any claim on the Guaranty
Policy in trust solely for the use and benefit of the Noteholders. The Indenture
Trustee will deliver to the Rating Agencies notice of any change made to the
Guaranty Policy.]
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 so long as the Indenture Trustee remains
liable to the Issuer, the Noteholders and the Securities Insurer for the
performance of its duties 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 such action or omission by the
Indenture Trustee does not constitute willful misconduct, negligence or bad
faith.
(e) The Indenture Trustee may, at the expense of the Transferor as provided
under SECTION 6.07, 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 Paying Agent, 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 hereof.
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, shall not be accountable for the
Issuer's use of the proceeds from the Notes, or 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.
Section 6.05. NOTICES OF DEFAULT. If a Default occurs and is continuing and
if it is known to a Responsible Officer of the Indenture Trustee, the Indenture
Trustee shall mail to each Noteholder notice of the Default within 90 days after
it occurs [and to the Securities Insurer notice of such Default promptly after
it occurs]. Except in the case of a Default in payment of principal of or
interest on any Note (including payments pursuant to the mandatory redemption
provisions of such Note), the Indenture Trustee may withhold the notice to
Noteholders 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 reasonably available
to the Indenture Trustee as may be required to enable such Holder to prepare its
federal and state income tax returns.
Section 6.07. COMPENSATION AND INDEMNITY. As compensation for its services
hereunder, the Indenture Trustee shall be entitled to receive, on each Payment
Date, the Indenture Trustee's Fee pursuant to SECTION 8.02(C) hereof (which
compensation shall not be limited by any law on compensation of a trustee of an
express trust) and shall be entitled to reimbursement by the Master Servicer 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 and
Opinions of Counsel hereunder. The Issuer agrees to cause the Master Servicer,
at its expense, 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, the Servicer and the
Master Servicer promptly of any claim for which it may seek indemnity. Failure
by the Indenture Trustee so to notify the Issuer, the Servicer and the Master
Servicer shall not relieve the Issuer of its obligations hereunder. The Issuer
shall or shall cause the Master Servicer to defend any such claim, and the
Indenture Trustee may have separate counsel reasonably acceptable to the Master
Servicer and the Issuer shall or shall cause the Master Servicer to pay the
reasonable fees and expenses of such counsel. Neither the Issuer, the Servicer
nor the Master Servicer 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 a Default specified in SECTION
5.01(A)(V) hereof 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 Securities Insurer]. [The
Securities Insurer or the Holders of a majority of the Outstanding Notes with
the consent of the Securities Insurer (so long as no Securities Insurer Default
has occurred and is continuing) may remove the Indenture Trustee by so notifying
the Indenture Trustee and may appoint a successor Indenture Trustee subject to
SECTION 6.11.] The Issuer shall remove the Indenture Trustee [upon the prior
written consent of the Securities Insurer] if:
(a) the Indenture Trustee fails to comply with SECTION 6.11 hereof;
(b) the Indenture Trustee is adjudged a bankrupt or insolvent;
(c) a receiver or other public officer takes charge of the Indenture
Trustee or its property; or
(d) 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 [acceptable to the
Securities Insurer].
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee[, the Securities Insurer] 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 Securities Insurer], the Issuer or the Holders of a majority of
the Outstanding 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 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee
[acceptable to the Securities Insurer].
Notwithstanding the replacement of the Indenture Trustee pursuant to this
SECTION 6.08, the Issuer's and the Master Servicer's obligations under SECTION
6.07 hereof shall continue for the benefit of the retiring Indenture Trustee
[acceptable to the Securities Insurer].
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,
however, that such corporation or banking association shall otherwise be
qualified and eligible under SECTION 6.11 hereof. The Indenture Trustee shall
provide [the Securities Insurer and] the Rating Agencies prior written notice of
any such transaction.
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 Collateral may at the time be located, the Indenture Trustee
shall have the power, [with the prior written consent of the Securities Insurer
(so long as no Securities Insurer Default has occurred and is continuing),] 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 Collateral, or any
part hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Indenture Trustee [or the
Securities Insurer] 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 hereof and no notice to Noteholders of
the appointment of any co-trustee or separate trustee shall be required under
Section 6.08 hereof[; provided that the Indenture Trustee shall deliver notice
of any such co-trustee or separate trustee to the Securities Insurer].
(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 Collateral 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
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, jointly with the Indenture
Trustee, 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 Section 310(a). The Indenture Trustee
shall [be acceptable to the Securities Insurer and 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. The Indenture Trustee shall comply with
TIA Section 310(b), including the optional provision permitted by the second
sentence of TIA Section 310(b)(9); provided, however, that there shall be
excluded from the operation of TIA Section 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 Section 310(b)(1) are met.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). An Indenture Trustee which has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
Section 6.13. WAIVER OF SETOFF. The Indenture Trustee hereby expressly
waives any and all rights of setoff that the Indenture Trustee may otherwise at
any time have under the applicable law with respect to any Trust Account and
agrees that amounts in the Trust Accounts shall at all times be held and applied
solely in accordance with the Basic Documents.
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 the earlier of (i) each Record Date
and (ii) three months after the last 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 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. The Indenture Trustee, [or if the Indenture Trustee
is not the Note Register, the Issuer, shall furnish to the Securities Insurer]
in writing on an annual basis[, and at such other times as the Securities
Insurer may request, a copy of the list of Noteholders].
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 hereof 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. [The Indenture Trustee shall make such
list available to the Securities Insurer on request.]
(b) Noteholders may communicate pursuant to TIA Section 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 Section 312(c).
Section 7.03. REPORTS BY ISSUER.
(a) The Issuer shall:
(i) file with the Indenture Trustee [and the Securities Insurer],
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[, the Securities Insurer] and the
Commission in accordance with the 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 Section 313(c)) such
summaries of any information, documents and reports required to be filed by
the Issuer pursuant to 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 Section
313(a), within 60 days after each __________, beginning with ________, 200_, the
Indenture Trustee shall mail [to the Securities Insurer and] to each Noteholder
as required by TIA Section 313(c) a brief report dated as of such date that
complies with TIA Section 313(a). The Indenture Trustee also shall comply with
TIA Section 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 securities 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 securities exchange.
ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. COLLECTION OF MONEY AND CLAIMS UNDER THE GUARANTY POLICY.
(a) 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 Collateral,
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 hereof.
(b) [The Notes will be insured by the Guaranty Policy pursuant to the terms
set forth therein, notwithstanding any provisions to the contrary contained in
this Indenture or the Sale and Servicing Agreement. All amounts received under
the Guaranty Policy shall be used solely for the payment to Noteholders of
principal and interest on the Notes.]
Section 8.02. TRUST ACCOUNTS; PAYMENTS.
(a) On or prior to the Closing Date, the Issuer shall cause the Master
Servicer to establish and maintain, in the name of the Indenture Trustee for the
benefit of the Noteholders [and the Securities Insurer], or on behalf of the
Owner Trustee for the benefit of the Securityholders, the Collection Account as
provided in ARTICLE V of the Sale and Servicing Agreement. The Indenture Trustee
shall establish and maintain, in the name of the Indenture Trustee on behalf of
the holders of the Notes, the Note Payment Account as provided in ARTICLE V of
the Sale and Servicing Agreement. The Indenture Trustee shall establish and
maintain, in the name of the Indenture Trustee on behalf of the holders of the
Notes, the Policy Payments Account as provided in ARTICLE V of the Sale and
Servicing Agreement. The Indenture Trustee shall also establish and maintain an
account (the "CERTIFICATE DISTRIBUTION ACCOUNT") in the name of the Owner
Trustee on behalf of the holders of the Residual Interest Certificates. The
Indenture Trustee shall deposit amounts into each of the accounts in accordance
with the terms hereof, the Sale and Servicing Agreement and the Servicer's
Monthly Remittance Report.
(b) On the _______ Business Day prior to each Payment Date, the Servicer
will remit to the Indenture Trustee for deposit into the Note Payment Account,
the applicable portions of the Available Collection Amount from the Collection
Account, pursuant to SECTION 5.01(B)(2) of the Sale and Servicing Agreement and
the Indenture Trustee will deposit such amount in the Note Payment Account. On
each Payment Date, to the extent funds are available in the Note Payment
Account, the Indenture Trustee shall either retain funds in the Note Payment
Account for payment on such day or make the withdrawals from the Note Payment
Account and deposits into the Certificate Distribution Account for distribution
on such Payment Date as required pursuant to SECTION 5.01(C) of the Sale and
Servicing Agreement.
(c) On each Payment Date and Redemption Date, to the extent funds are
available in the Note Payment Account, the Indenture Trustee shall make the
following payments from the amounts on deposit in the Note Payment Account in
the following order of priority (except as otherwise provided in SECTION 5.04(B)
hereof):
(i)(A) to the Indenture Trustee, an amount equal to the Indenture
Trustee Fee and all unpaid Indenture Trustee Fees from prior Payment
Dates; (B) to the Master Servicer, an amount equal to the Master Servicer
Compensation and all unpaid Master Servicing Compensation from prior
Payment Dates; (C) to the Servicer, on behalf of the Owner Trustee, an
amount equal to the Servicing Compensation (net of the sum of any amounts
retained prior to deposit into the Collection Account pursuant to Section
5.01(b)(1) of the Sale and Servicing Agreement) and all unpaid Servicing
Compensation from prior Payment Dates; [(D) to the Securities Insurer, an
amount equal to the Guaranty Insurance Premium and all unpaid Guaranty
Insurance Premiums from prior Payment Dates;] and
(ii) to the Noteholders [and the Securities Insurer], the amounts set forth
in Sections 5.01(d) and (e) of the Sale and Servicing Agreement.
(d) On each Payment Date and each Redemption Date, to the extent of the
interest of the Indenture Trustee in the Certificate Distribution Account (as
described in Section 5.03(a) of the Sale and Servicing Agreement), the Indenture
Trustee hereby authorizes the Owner Trustee or the Paying Agent, as applicable,
to make the distributions from the Certificate Distribution Account as required
pursuant to SECTIONS 5.01(D) AND (E) of the Sale and Servicing Agreement.
Section 8.03. GENERAL PROVISIONS REGARDING ACCOUNTS.
(a) So long as no Default or Event of Default shall have occurred and be
continuing, all or a portion of the funds in the Trust Accounts shall be
invested in Permitted Investments and reinvested by the Indenture Trustee at the
direction of the Master Servicer in accordance with the provisions of ARTICLE V
of the Sale and Servicing Agreement. All income or other gain from investments
of moneys deposited in the Trust Accounts shall be deposited by the Indenture
Trustee into the Note Payment Account, and any loss resulting from such
investments shall be charged to such account.
(b) Subject to SECTION 6.01(C) hereof, the Indenture Trustee shall not in
any way be held liable by reason of any insufficiency in any of the Trust
Accounts resulting from any loss on any Permitted Investment included therein
except for losses attributable to the Indenture Trustee's failure to make
payments on such Permitted Investments issued by the Indenture Trustee, in its
commercial capacity as principal obligor and not as trustee, in accordance with
their terms.
(c) If (i) the Issuer shall have failed to give investment directions for
any funds on deposit in the Trust Accounts to the Indenture Trustee by 11:00
a.m. Eastern Time (or such other time as may be agreed by the Issuer and
Indenture Trustee) on any Business Day or (ii) a Default or Event of Default
shall have occurred and be continuing with respect to the Notes but the Notes
shall not have been declared due and payable pursuant to SECTION 5.02 hereof or
(iii) if such Notes shall have been declared due and payable following an Event
of Default, amounts collected or receivable from the Collateral are being
applied in accordance with SECTION 5.05 hereof as if there had not been such a
declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Permitted Investments.
Section 8.04. SERVICER'S MONTHLY STATEMENTS. On each Payment Date, the
Indenture Trustee shall deliver the Servicer's Monthly Remittance Report (as
defined in the Sale and Servicing Agreement) with respect to such Payment Date
to DTC, the Master Servicer, the Rating Agencies [and the Securities Insurer].
Section 8.05. RELEASE OF COLLATERAL.
(a) Subject to SECTION 11.01 and the terms of the Basic Documents, 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 this ARTICLE VIII 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 moneys. [The Indenture Trustee shall surrender
the Guaranty Policy to the Securities Insurer upon the conditions in SECTION
4.01 hereof.]
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due to the Certificateholders pursuant to Section
5.02(b) of the Sale and Servicing Agreement, to the Servicer pursuant to SECTION
8.02(C)(I)(A) hereof, to the Master Servicer pursuant to SECTION 8.02(C)(I)(B)
hereof, [to the Securities Insurer pursuant to Section 8.02(C)(I)(C) hereof,] to
the Indenture Trustee pursuant to SECTION 8.02(C)(I)(D) hereof, to the Owner
Trustee pursuant to SECTION 8.02(C)(I)(E) hereof and to the Custodian pursuant
to SECTION 8.02(C)(I)(F) hereof have been paid, release any remaining portion of
the Collateral that secured the Notes from the lien of this Indenture and
release to the Issuer or any other Person entitled thereto any funds then on
deposit in the Trust Accounts. The Indenture Trustee shall release property from
the lien of this Indenture pursuant to this SUBSECTION (B) only upon receipt by
it [and the Securities Insurer] of an Issuer Request accompanied by an Officer's
Certificate, an Opinion of Counsel and (if required by the TIA) Independent
Certificates in accordance with TIA Sections 314(c) and 314(d)(1) meeting the
applicable requirements of SECTION 11.01 hereof.
Section 8.06. OPINION OF COUNSEL. The Indenture Trustee [and the Securities
Insurer] shall receive at least seven days' prior notice when requested by the
Issuer to take any action pursuant to SECTION 8.05(A) hereof, accompanied by
copies of any instruments involved, and the Indenture Trustee [and the
Securities Insurer] may also require, as a condition to such action, an Opinion
of Counsel, in form and substance satisfactory to the Indenture Trustee [and the
Securities Insurer], 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 and such action
will not materially and adversely impair the security for the Notes or the
rights of the Noteholders in contravention of the provisions of this Indenture;
provided, however, that such Opinion of Counsel shall not be required to express
an opinion as to the fair value of the Collateral. Counsel rendering any such
opinion may rely, without independent investigation, on the accuracy and
validity of any certificate or other instrument delivered to the Indenture
Trustee in connection with any such action.
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 prior notice
to the Rating Agencies [and with the prior written consent of the Securities
Insurer (so long as no Securities Insurer Default has occurred and is
continuing),] the Issuer and the Indenture Trustee, when authorized by an Issuer
Order, 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 or to make any other
provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided, however, that such
action shall not adversely affect the interests of the Holders of the
Notes;
(vi) 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 hereof; or
(vii) 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.
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, [with the prior written consent
of the Securities Insurer (so long as no Securities Insurer Default has occurred
and is continuing)], when authorized by an Issuer Order, may, also without the
consent of any of the Holders of the Notes but with prior consent of the Rating
Agencies, 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 (i) an Opinion of Counsel or (ii)
satisfaction of the Rating Agency Condition, adversely affect in any material
respect the interests of any Noteholder [including the interests of the
Securities Insurer] to the extent it is, or will become, upon payment in full of
all amounts due to any Noteholder hereunder or pursuant to a Note, a Noteholder
pursuant to SECTION 2.06(B) hereof.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may,
with prior consent of the Rating Agencies,[ the Securities Insurer (so long as
no Securities Insurer Default has occurred and is continuing)] and with the
consent of the Holders of not less than a majority of the Outstanding Notes, 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
Outstanding Note affected thereby[ and the Securities Insurer]:
(a) change the date of payment of any installment of principal of or
interest on any Note, or reduce the Note Principal Balance thereof, the interest
rate thereon or the Termination Price with respect thereto, change the
provisions of this Indenture relating to the application of collections on, or
the proceeds of the sale of, the Collateral 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
hereof, to the payment of any such amount due on the Notes on or after the
respective due dates thereof (or, in the case of redemption, on or after the
Redemption Date);
(b) reduce the percentage of the Outstanding 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;
(c) modify or alter the provisions of the proviso to the definition of the
term "Outstanding" or "Voting Rights";
(d) reduce the percentage of the Outstanding Notes required to direct the
Indenture Trustee to direct the Issuer to sell or liquidate the Collateral
pursuant to SECTION 5.04 hereof;
(e) modify any provision of this Section 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 Outstanding Note affected thereby;
(f) 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 to affect the rights of the
Holders of Notes to the benefit of any provisions for the mandatory redemption
of the Notes contained herein; or
(g) 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 Collateral 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.
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.
In connection with requesting the consent of the Noteholders 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. 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.
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 hereof, 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.
Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURES. 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.
Section 9.07. AMENDMENTS TO OWNER TRUST AGREEMENT. Subject to Section 11.1
of the Owner Trust Agreement, the Indenture Trustee shall, upon Issuer Order,
consent to any proposed amendment to the Owner Trust Agreement or an amendment
to or waiver of any provision of any other document relating to the Owner Trust
Agreement, such consent to be given without the necessity of obtaining the
consent of the Holders of any Notes upon satisfaction of the requirements under
Section 11.1 of the Owner Trust Agreement. Nothing in this Section shall be
construed to require that any Person obtain the consent of the Indenture Trustee
to any amendment or waiver or any provision of any document where the making of
such amendment or the giving of such waiver without obtaining the consent of the
Indenture Trustee is not prohibited by this Indenture or by the terms of the
document that is the subject of the proposed amendment or waiver.
ARTICLE X
REDEMPTION OF NOTES
Section 10.01. REDEMPTION. The Majority Residual Interestholders (as
defined in the Owner Trust Agreement) may, at its option, effect an early
redemption of the Notes on any Payment Date on or after the Payment Date on
which the Pool Principal Balance declines to ___% or less of the Original Pool
Principal Balance. The [Securities Insurer or the] Master Servicer may, at their
respective options, effect an early termination of the Notes on any Payment Date
on which the Pool Principal Balance declines to __% or less of the Original Pool
Principal Balance. The Majority Residual Interestholders, the Servicer [or the
Securities Insurer], as applicable, shall effect such early termination in the
manner specified in and subject to the provisions of SECTION 11.02(B) of the
Sale and Servicing Agreement.
The Master Servicer or the Issuer shall furnish the Rating Agencies, the
Servicer [and, if redemption is effected by the Majority Residual
Interestholders, the Securities Insurer] notice of any such redemption in
accordance with SECTION 10.02 hereof.
Section 10.02. FORM OF REDEMPTION NOTICE. Notice of redemption under
Section 10.01 hereof shall be given by the Indenture Trustee by first-class
mail, postage prepaid, or by facsimile mailed or transmitted not later than 10
days prior to the applicable Redemption Date to [the Securities Insurer and]
each Holder of Notes, as of the close of business on the Record Date preceding
the applicable Redemption Date, at such Holder's address or facsimile number
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) that on the Redemption Date Noteholders shall receive the
Note Redemption Amount; and
(iii) the place where such Notes are to be surrendered for payment of the
Termination Price (which shall be the office or agency of the Issuer to be
maintained as provided in SECTION 3.02 hereof).
Notice of redemption of the Notes shall be given by the Indenture Trustee
in the name of the Issuer and at the expense of the Master Servicer. Failure to
give to any Holder of any Note notice of redemption, or any defect therein,
shall not impair or affect the validity of the redemption of any other Note.
Section 10.03. NOTES PAYABLE ON REDEMPTION DATE; PROVISION FOR PAYMENT OF
INDENTURE TRUSTEE [AND SECURITIES INSURER]. The Notes to be redeemed shall,
following notice of redemption as required by SECTION 10.02 hereof (in the case
of redemption pursuant to SECTION 10.01) hereof, on the Redemption Date become
due and payable at the Note Redemption Amount and (unless the Issuer shall
default in the payment of the Note Redemption Amount) no interest shall accrue
thereon for any period after the date to which accrued interest is calculated
for purposes of calculating the Note Redemption Amount. The Issuer may not
redeem the Notes unless (i) all outstanding obligations under the Notes have
been paid in full and (ii) the Indenture Trustee has been paid all amounts to
which it is entitled hereunder [and the Securities Insurer has been paid all
Securities Insurer Reimbursement Amounts to which it is entitled as of the
applicable Redemption Date].
ARTICLE XI
MISCELLANEOUS
Section 11.01. 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 (except with respect to
the Master Servicer's servicing activity in the ordinary course of its
business), the Issuer shall furnish to the Indenture Trustee [and the Securities
Insurer] (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, (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with and (iii)
(if required by the TIA) an Independent Certificate from a firm of certified
public accountants meeting the applicable requirements of this Section, 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; and
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) 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 11.01(A) hereof or elsewhere in
this Indenture, furnish to the Indenture Trustee [and the Securities Insurer] 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.
(c) Whenever the Issuer is required to furnish to the Indenture Trustee
[and the Securities Insurer] an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in SUBSECTION (B)
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 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
SUBSECTION (B) above and this SUBSECTION (C), is __% or more of the Outstanding
Amount 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 Outstanding Amount of the Notes.
(d) Whenever any property or securities are to be released from the lien of
this Indenture, the Issuer shall also furnish to the Indenture Trustee [and the
Securities Insurer] 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.
(e) 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 SUBSECTION (D) above, the Issuer shall also furnish
to the Indenture Trustee [and the Securities Insurer] an Independent Certificate
as to the same matters if the fair value of the property or securities and of
all other property, other than 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 SUBSECTION (D) above and this SUBSECTION (E),
equals __% or more of the Outstanding Amount 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 Outstanding Amount of the
Notes.
Section 11.02. 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 or opinion or representations
with respect to the matters upon which such officer's 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
Servicer, the Master Servicer, the Transferor, the Issuer or the Administrator,
stating that the information with respect to such factual matters is in the
possession of the Servicer, the Master Servicer, the Transferor, 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 hereof.
Section 11.03. 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 hereof) conclusive in
favor of the Indenture Trustee and the Issuer, if made in the manner provided in
this SECTION 11.03.
(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 Register.
(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.
Section 11.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, RATING AGENCIES
[AND SECURITIES INSURER]. 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[, the Securities Insurer] 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 its
Corporate Trust Office, or
(ii) the Issuer by the Indenture Trustee[, the Securities Insurer] or by
any Noteholder shall be sufficient for every purpose hereunder if in
writing and made, given, furnished or filed with the Issuer addressed to:
_________ Home Loan Owner Trust 199_-_, in care
of_________________________________________________________ _____________,
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.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee[, the Securities Insurer] or the Owner Trustee shall be in
writing, personally delivered or mailed by certified mail, return receipt
requested, to (i) in the case of _________, at the following address:
- ------------------------------------------------------------ ___________________
and (ii) in the case of ___________, -----------------------------
- -------------------.
[Notices required to be given to the Securities Insurer 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 the following address:
_________________________________ _________________________ Re: ________ Home
Loan Owner Trust 199_-_, Telephone No.: ______________, or at such other address
as shall be designated by written notice to the other parties.]
Notices required to be given to the Master Servicer by the Issuer, the
Indenture Trustee[, the Securities Insurer] or the Owner Trustee shall be in
writing, personally delivered or mailed by certified mail, return receipt
requested to the following address: _________________
________________________________________; or to such other address as shall be
designated by written notice to the other parties.
Notices required to be given to the Depositor by the Issuer, the Indenture
Trustee[, the Securities Insurer] or the Owner Trustee shall be in writing,
personally delivered or mailed by certified mail, return receipt requested to
the following address: PaineWebber Mortgage Acceptance Corporation IV, 1285
Avenue of the Americas, 18th Floor, New York, New York 10019, Attention: John
Fearey, Esq., or to such other address as shall be designated by written notice
to the other parties.
Section 11.05. 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 his address 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 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 duly been given.
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 a Default or Event of
Default.
Section 11.06. 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 Sections 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 11.07. 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 11.08. 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 11.09. 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.
Section 11.10. BENEFITS OF 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, the Noteholders, any other party secured
hereunder, any other Person with an ownership interest in any part of the
Collateral) any benefit or any legal or equitable right, remedy or claim under
this Indenture[, except that the Securities Insurer is an express third party
beneficiary to this Indenture as provided in Section 11.19].
Section 11.11. 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 11.12. 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 11.13. 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 11.14. 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 the expense of the Master Servicer accompanied by
an Opinion of Counsel (which may be counsel to the Indenture Trustee or any
other counsel reasonably acceptable to the Indenture Trustee [and the Securities
Insurer]) 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 11.15. OWNER TRUST 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, except as expressly provided for in
ARTICLE VI hereof, 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 expressly have 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
Articles VI, VII and VIII of the Owner Trust Agreement.
Section 11.16. 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 Transferor, the Servicer,
the Master Servicer or the Issuer, or join in any institution against the
Transferor, the Servicer, the Master Servicer 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 11.17. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee [or the
Securities Insurer], 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 reasonably be
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 11.18. [GRANT OF NOTEHOLDER RIGHTS TO SECURITIES INSURER. In
consideration for the guarantee of the Notes by the Securities Insurer pursuant
to the Guaranty Policy, the Noteholders hereby grant to the Securities Insurer
the right to act as the holder of 100% of the outstanding Notes for the purpose
of exercising the rights of the Holders of the Notes hereunder, including the
voting rights of such Holders, but excluding those rights requiring the consent
of all such Holders under Section 9.02 and any rights of such Holders to
payments under Section 8.02 hereof; provided that the preceding grant of rights
to the Securities Insurer by the Noteholders shall be subject to Section 11.20
hereof. The rights of the Securities Insurer to direct certain actions and
consent to certain actions of the Noteholders hereunder will terminate at such
time as the Note Principal Balance of the Notes has been reduced to zero and the
Securities Insurer has been reimbursed for all Insured Payments and any other
amounts owed under the Guaranty Policy and the Insurance Agreement, the
Securities Insurer has no further obligation under the Guaranty Policy and the
Guaranty Policy has been surrendered to the Securities Insurer.
Section 11.19. THIRD PARTY BENEFICIARY. The parties hereto acknowledge that
the Securities Insurer is an express third party beneficiary hereof entitled to
enforce any rights reserved to it hereunder as if it were actually a party
hereto.
Section 11.20. SUSPENSION AND TERMINATION OF SECURITIES INSURER'S RIGHTS.
(a) During the continuation of a Securities Insurer Default, rights granted
or reserved to the Securities Insurer hereunder shall vest instead in the
Noteholders; provided that the Securities Insurer shall be entitled to any
payments in reimbursement of the Securities Insurer Reimbursement Amount, and
the Securities Insurer shall retain those rights under Sections 9.01 and 9.02
hereof to consent to any supplement to this Indenture.
(b) At such time as the Note Principal Balance of the Notes has been
reduced to zero and the Securities Insurer has been reimbursed for all Insured
Payments and any other amounts owed under the Guaranty Policy and the Insurance
Agreement (and the Securities Insurer no longer has any obligation under the
Guaranty Policy, except for breach thereof by the Securities Insurer), then the
rights and benefits granted or reserved to the Securities Insurer hereunder
(including the rights to direct certain actions and receive certain notices)
shall terminate and the Noteholders shall be entitled to the exercise of such
rights and to receive such benefits of the Securities Insurer following such
termination to the extent that such rights and benefits are applicable to the
Noteholders.]
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this
Indenture to be duly executed by their respective officers, thereunto duly
authorized and duly attested, all as of the day and year first above written.
______________ HOME LOAN
OWNER TRUST 199_-_
By: ___________________________
not in its individual capacity
but
solely as Owner Trustee
By:____________________________________
Name:
Title:
----------------------------------,
not in its individual capacity, but
solely as Indenture Trustee
By:____________________________________
Name:
Title:
<PAGE>
STATE OF __________
COUNTY OF __________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ___________________________,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument and acknowledged to me that the same was the act of the
said ______________________________, not in its individual capacity, but solely
as Owner Trustee on behalf of __________ HOME LOAN OWNER TRUST 199_-_, a
Delaware business trust, and that such person executed the same as the act of
said business trust for the purpose and consideration therein expressed, and in
the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of _______, 199_.
- ------------------------------------------------------------------------------
Notary Public
My commission expires:
- ------------------------------------
<PAGE>
STATE OF __________
COUNTY OF __________
BEFORE ME, the undersigned authority, a Notary Public in and for said
county and state, on this day personally appeared ___________________, known to
me to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of
_________________, a __________________, and that such person executed the same
as the act of said corporation for the purpose and consideration therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of _______, 199_.
- ------------------------------------------------------------------------------
Notary Public
(Seal)
My commission expires:
- ------------------------------------
<PAGE>
EXHIBIT A
FORM OF NOTE
NOTE
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is registered
in the name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
EACH TRANSFEREE OF THIS NOTE OR A BENEFICIAL INTEREST HEREIN THAT IS A PLAN, OR
IS A PERSON ACTING ON BEHALF OF OR INVESTING THE ASSETS OF A PLAN, SHALL BE
DEEMED TO REPRESENT THAT THE RELEVANT CONDITIONS FOR EXEMPTIVE RELIEF UNDER AT
LEAST ONE OF THE FOLLOWING PROHIBITED TRANSACTION CLASS EXEMPTIONS HAVE BEEN
SATISFIED: PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23 (RELATING TO
TRANSACTIONS EFFECTED BY AN "IN-HOUSE ASSET MANAGER"), PTCE 95-60 (RELATING TO
TRANSACTIONS INVOLVING INSURANCE COMPANY GENERAL ACCOUNTS), PTCE 91-38 (RELATING
TO TRANSACTIONS INVOLVING BANK COLLECTIVE INVESTMENT FUNDS), PTCE 90-1 (RELATING
TO TRANSACTIONS INVOLVING INSURANCE COMPANY POOLED SEPARATE ACCOUNTS) AND PTCE
84-14 (RELATING TO TRANSACTIONS EFFECTED BY A "QUALIFIED PROFESSIONAL ASSET
MANAGER").
THE PRINCIPAL OF THIS NOTE IS PAYABLE AS SET FORTH HEREIN. ACCORDINGLY, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE LESS THAN THE
AMOUNT SHOWN ON THE FACE HEREOF.
<PAGE>
$[---------------]
No. __ CUSIP NO. __________________
_______________ HOME LOAN OWNER TRUST 199_-_
HOME LOAN ASSET BACKED NOTE
___________________ HOME LOAN OWNER TRUST 199_-_, a business trust
organized and existing under the laws of the State of Delaware (herein referred
to as the "Issuer"), for value received, hereby promises to pay to CEDE & CO. or
registered assigns, the principal sum of [_____________________] ($[__________])
payable on each Payment Date in an amount equal to the result obtained by
multiplying (i) a fraction the numerator of which is the initial principal
amount of this Note and the denominator of which is the aggregate principal
amount of all Notes by (ii) the aggregate amount, if any payable from the Note
Payment Account in respect of principal on the Notes pursuant to SECTION 5.01(D)
AND (E) of the Sale and Servicing Agreement; provided, however, that the entire
unpaid principal amount of this Note shall be due and payable on the earlier of
(i) the applicable Maturity Date, (ii) the date of termination, if any, pursuant
to SECTION 11.01 of the Sale and Servicing Agreement, (iii) the date on which
either the Majority Residual Interestholders[, the Securities Insurer] or the
Servicer, as applicable, exercises its option to terminate the Issuer pursuant
to SECTION 11.02 of the Sale and Servicing Agreement or (iv) the date on which
an Event of Default shall have occurred and be continuing if [the Securities
Insurer declares the Notes due and payable, or, if a Securities Insurer Default
has occurred and is continuing, then if] the Indenture Trustee declares or is
directed by the Majority Noteholders to declare the Notes to be immediately due
and payable, in each case in the manner provided in SECTION 5.02 of the
Indenture. Capitalized terms used but not defined herein are defined in Article
I of the Indenture (the "Indenture") dated as of _________, 199_ between the
Issuer and _________________________, a __________________, which also contains
rules as to construction that shall be applicable herein.
The Issuer will pay interest on this Note at a per annum rate equal to the
lesser of (i) One-Month LIBOR plus ____%, provided any Payment Date after the
Call Option Date, this rate shall be One-month LIBOR plus ____% and (ii) the Net
Interest Rate.
Such principal of and interest on this Note shall be paid in the manner
specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Indenture Trustee whose name appears below by manual signature, this Note shall
not be entitled to any benefit under the Indenture referred to on the reverse
hereof, or be valid or obligatory for any purpose.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer, as of the date set forth
below.
Date: __________, 199_
_______________ HOME LOAN OWNER TRUST
199_-_
By: __________________________,
not in its individual capacity
but
solely as Owner Trustee under
the
Owner Trust Agreement
By:____________________________________
Authorized Signatory
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: _______________, 199_
---------------------------------,
not in its individual capacity but
solely as Indenture Trustee
By:____________________________________
Authorized Signatory
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Home Loan Asset Backed Notes (herein called the "Notes"), as
issued under the Indenture, to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture.
The Notes will be secured by the collateral pledged as security therefor as
provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an amount
described on the face hereof. "Payment Date" means the _____ day of each month,
or, if any such date is not a Business Day, the next succeeding Business Day,
commencing in ______ 199_.
As described on the face hereof, the entire unpaid principal amount of this
Note shall be due and payable on the earlier of the applicable Maturity Date,
the optional termination of the Issuer pursuant to SECTION 11.02 of the Sale and
Servicing Agreement and the termination of the Sale and Servicing Agreement
pursuant to SECTION 11.01(A) thereof. Notwithstanding the foregoing, the entire
unpaid principal amount of the Notes shall be due and payable on the date on
which an Event of Default shall have occurred and be continuing and [if the
Securities Insurer declares the Notes due and payable, or if a Securities
Insurer Default has occurred and is continuing,] if the Indenture Trustee
declares, or is directed by the Majority Noteholders to declare, the Notes to be
immediately due and payable in the manner provided in Section 5.02 of the
Indenture. All principal payments on the Notes shall be made pro rata to the
holders of the Notes entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Registered Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the Person
entitled thereto at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of this
Note (or any one or more Predecessor Notes) effected by any payments made on any
Payment Date shall be binding upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof, whether or not noted hereon. If funds are expected to be available,
as provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Payment Date, then the Indenture Trustee, in
the name of and on behalf of the Issuer, will notify the Person who was the
Registered Holder hereof as of the Record Date preceding such Payment Date by
notice mailed or transmitted by facsimile prior to such Payment Date, and the
amount then due and payable shall be payable only upon presentation and
surrender of this Note at the Indenture Trustee's principal Corporate Trust
Office or at the office of the Indenture Trustee's agent appointed for such
purposes located in
- -----------------------------.
[________________________, as the Securities Insurer, has issued a Guaranty
Policy for the benefit of the Noteholders, which policy guarantees payments on
each Payment Date to the Indenture Trustee for the benefit of the Noteholders of
the related Noteholders' Interest Payment Amount and the Noteholders' Principal
Deficiency Amount then payable on the Notes. Unless a Securities Insurer Default
shall be continuing, the Securities Insurer shall be deemed to be the Holder of
100% of the outstanding Notes for the purpose of exercising certain rights,
including voting rights, of the Noteholders under the Indenture and the Sale and
Servicing Agreement. In addition, on each Payment Date, after the Noteholders
have been paid all amounts to which they are entitled, the Securities Insurer
will be entitled to be reimbursed for any unreimbursed Insured Payments and any
other amounts owed under the Guaranty Policy.]
As provided in the Indenture and the Sale and Servicing Agreement, the
Notes may be redeemed in whole, but not in part, (a) at the option of the
holders of greater than 50% of the Residual Interest Certificates on any Payment
Date on and after the date on which the Pool Principal Balance is less than ___%
of the Original Pool Principal Balance or (b) at the option of [the Securities
Insurer or] the Servicer on any Payment Date on and after the date on which the
Pool Principal Balance is less than __% of the Original Pool Principal Balance.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or such Holder's attorney
duly authorized in writing, with such signature guaranteed by an "eligible
guarantor institution" meeting the requirements of the Note Registrar, which
requirements include membership or participation in the Securities Transfer
Agent's Medallion Program ("STAMP") or such other "signature guarantee program"
as may be determined by the Note Registrar in addition to, or in substitution
for, STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended, and thereupon one or more new Notes of authorized denominations and in
the same aggregate principal amount will be issued to the designated transferee
or transferees. No service charge will be charged to a Holder [or the Securities
Insurer] for any registration of transfer or exchange of this Note, but the
Issuer may require a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any such registration of transfer
or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that 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
the Indenture or any certificate or other writing delivered in connection
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 or employee 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 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.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees by accepting
the benefits of the Indenture that such Noteholder or Note Owner will not at any
time institute against the Transferor, the Servicer, the Master Servicer or the
Issuer, or join in any institution against the Transferor, the Servicer, the
Master Servicer or the Issuer of, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Notes, the Indenture or the Basic Documents.
The Issuer has entered into the Indenture and this Note is 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
secured by the Trust Estate. Each Noteholder, by acceptance of a Note (and each
Note Owner by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for federal, state and local income, single business and franchise tax
purposes as indebtedness of the Issuer.
Prior to the due presentment for registration of transfer of this Note, the
Issuer[, the Securities Insurer], the Indenture Trustee and any agent of the
Issuer[, the Securities Insurer] or the Indenture Trustee may treat the Person
in whose name this Note (as of the day of determination or as of such other date
as may be specified in the Indenture) is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and none of the Issuer[, the
Securities Insurer], the Indenture Trustee or any such agent shall be affected
by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Rating Agencies[, the Securities
Insurer (provided that no Securities Insurer Default has occurred and is
continuing)] and the Holders of Notes representing not less than a majority of
the Outstanding Notes. The Indenture also contains provisions permitting the
[Securities Insurer, or if a Securities Insurer Default has occurred and is
continuing,] the Holders of Notes representing not less than a majority of the
Outstanding Amount of the Notes, on behalf of the Holders of all the Notes, to
waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Note (or any one or more Predecessor
Notes) shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note. The Indenture also permits the
Indenture Trustee [or the Securities Insurer] to amend or waive certain terms
and conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
This Note and the 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 and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, none of the Issuer in its individual capacity,
the Owner Trustee in its individual capacity, any owner of a beneficial interest
in the Issuer, or any of their respective partners, beneficiaries, agents,
officers, directors, employees or successors or assigns shall be personally
liable for, nor shall recourse be had to any of them for, the payment of
principal of or interest on this Note or performance of, or omission to perform,
any of the covenants, obligations or indemnifications contained in the
Indenture. The Holder of this Note by its acceptance hereof agrees that, except
as expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto:
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated:
______________________________________________________________________________*/
Signature Guaranteed:
______________________________________________________________________________*/
- -----------------
*/NOTICE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatever. Such
signature must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in STAMP or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.
================================================================================
SALE AND SERVICING AGREEMENT
Dated as of ___________, 199__
among
_____________ HOME LOAN OWNER TRUST 199__-__
(Issuer)
PAINEWEBBER MORTGAGE ACCEPTANCE CORPORATION IV
(Depositor)
------------------------------------
(Transferor and Master Servicer)
and
------------------------------------
(Indenture Trustee)
____________ HOME LOAN OWNER TRUST 199__-__
HOME LOAN ASSET BACKED NOTES
SERIES 199__-__
================================================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
Section 1.01. Definitions...........................................
Section 1.02. Other Definitional Provisions.........................
ARTICLE II CONVEYANCE OF THE HOME LOANS
Section 2.01. Conveyance of the Home Loans..........................
Section 2.02. Ownership and Possession of Home Loan Files...........
Section 2.03. Books and Records.....................................
Section 2.04. Delivery of Home Loan Documents.......................
Section 2.05. Acceptance by the Indenture Trustee of the Home Loans;
Certain Substitutions; Certification by the Custodian.
ARTICLE III REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of the Depositor.......
Section 3.02. Representations and Warranties of the Transferor......
Section 3.03. Representations, Warranties and Covenants
of the Master Servicer................................
Section 3.04. Representations and Warranties Regarding
Individual Home Loans.................................
Section 3.05. Purchase and Substitution.............................
ARTICLE IV ADMINISTRATION AND SERVICING OF THE HOME LOANS
Section 4.01. Appointment and Duties of the Master Servicer.........
Section 4.02. Interim Servicer......................................
Section 4.03. Powers of Attorney....................................
Section 4.04. Filing of Continuation Statements.....................
Section 4.05. Reports to the Securities and Exchange Commission.....
ARTICLE V ESTABLISHMENT OF TRUST ACCOUNTS
Section 5.01. Collection Account and Note Payment Account...........
Section 5.01A. Claims Under Guaranty Policy..........................
Section 5.02. Certificate Distribution Account......................
Section 5.03. Trust Accounts; Trust Account Property................
Section 5.04. Allocation of Losses..................................
ARTICLE VI STATEMENTS AND REPORTS; WITHHOLDING
Section 6.01. Statements............................................
Section 6.02. Withholding...........................................
ARTICLE VII GENERAL SERVICING PROCEDURES
Section 7.01. Servicing Advances....................................
Section 7.02. Release of Home Loan Files............................
Section 7.03. Servicing Compensation................................
Section 7.04. Statement as to Compliance and Financial Statements...
Section 7.05. Independent Public Accountants' Servicing Report......
Section 7.06. Reports to the Indenture Trustee;
Collection Account Statements.........................
Section 7.07. Financial Statements and Records of Servicer..........
ARTICLE VIII (RESERVED)
ARTICLE IX THE MASTER SERVICER
Section 9.01. Indemnification; Third Party Claims...................
Section 9.02. Merger or Consolidation of the Master Servicer........
Section 9.03. Limitation on Liability of the Master Servicer
and Others................................69
Section 9.04. Master Servicer Not to Resign; Assignment.............
Section 9.05. Term of Master Servicer Engagement....................
Section 9.06. Relationship of Master Servicer to the Issuer
and the Indenture Trustee.............................
Section 9.07. Master Servicer May Own Securities....................
Section 9.08. Right to Examine Master Servicer Records..............
Section 9.09. Financial Statements..................................
ARTICLE X DEFAULT
Section 10.01. Master Service Events of Default.....................
Section 10.02. [Reserved]...........................................
Section 10.03. Waiver of Defaults...................................
Section 10.04. Accounting Upon Termination of Master Servicer.......
ARTICLE XI TERMINATION
Section 11.01. Termination..........................................
Section 11.02. Optional Termination.................................
Section 11.03. Notice of Termination................................
ARTICLE XII MISCELLANEOUS PROVISIONS
Section 12.01. Acts of Noteholders..................................
Section 12.02. Amendment............................................
Section 12.03. Recordation of Agreement.............................
Section 12.04. Duration of Agreement................................
Section 12.05. Governing Law........................................
Section 12.06. Notices..............................................
Section 12.07. Severability of Provisions...........................
Section 12.08. No Partnership.......................................
Section 12.09. Counterparts.........................................
Section 12.10. Successors and Assigns...............................
Section 12.11. Headings.............................................
Section 12.12. Actions of Securityholders...........................
Section 12.13. Reports to Rating Agencies...........................
Section 12.14. Holders of the Residual Interest Certificates........
Section 12.15. Year 2000 Compliance..................................
Section 12.16. Grant of Noteholder Rights to Securities Insurer.....
Section 12.17. Third Party Beneficiary..............................
Section 12.18. Suspension and Termination of Securities
Insurer's Rights.....................................
EXHIBITS:
A - Home Loan Schedule
B - Form of Servicer's Monthly Remittance Report to Indenture Trustee
C - Form of Loan Liquidation Report
D - Form of Master Servicer Renewal Notice
E - Form of Standard Servicing Terms
<PAGE>
This SALE AND SERVICING AGREEMENT is entered into effective as of
_________, 199__, (this "Agreement") among ______________ HOME LOAN OWNER TRUST
199__-__, a Delaware business trust (the "Issuer" or the "Trust"), PAINEWEBBER
MORTGAGE ACCEPTANCE CORPORATION IV, a Delaware corporation, as Depositor (the
"Depositor"), ______________________________ , a ________________________
("___________ "), as Transferor (in such capacity, the "Transferor") and Master
Servicer (in such capacity, the "Master Servicer") and
_____________________________ , a ____________________ , as Indenture Trustee on
behalf of the Noteholders (the "Indenture Trustee").
W I T N E S S E T H:
In consideration of the mutual agreements herein contained, the parties
hereto hereby agree as follows for the benefit of each of them and for the
benefit of the holders of the Notes issued under the Indenture, the Residual
Interest Certificates issued under the Owner Trust Agreement [and the Securities
Insurer for issuing the Guaranty Policy]:
ARTICLE I
DEFINITIONS
-----------
Section 1.01. Definitions.
-----------
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the meanings specified in this
Article. Unless otherwise specified, all calculations of interest described
herein shall be made on the basis of the actual number of days elapsed during
the related Interest Accrual Period and a 360-day year.
Accepted Servicing Procedures: Servicing procedures that satisfy the
following: (a) meet at least the same standards the Servicer would follow in
exercising reasonable care in servicing mortgage loans such as the Home Loans
held for its own account; (b) comply with applicable state and federal law; (c)
comply with the provisions of the related Debt Instruments and Mortgages; and
(d) give due consideration to the accepted standards of practice of prudent loan
servicers that service sub-prime mortgage loans comparable to the Home Loans,
including the terms set forth in the Standard Servicing Terms set forth herein
as Exhibit E, and the reliance placed by [the Securities Insurer,] the Master
Servicer and Securityholders on the Servicer for the servicing of the Home
Loans, but without regard to:
(i)..any relationship that the Servicer or any Affiliate of the
Servicer may have with the related Obligor;
(ii). the ownership of any Notes or the Residual Interest Certificates
by the Servicer or any Affiliate of the Servicer;
(iii). the Servicer's obligation to make Servicing Advances; or
(iv)..the Servicer's right to receive compensation for its services
hereunder with respect to any particular transaction.
Accrual Period: With respect to the Notes and any Payment Date, the
period commencing on the Payment Date preceding the month in which the related
Payment Date occurs and ending on the day immediately preceding the related
Payment Date, except in the case of the first Payment Date, which shall be the
period commencing on the Closing Date and ending on the first Payment Date.
Administration Agreement: The Administrative Agreement, dated as of
__________, 199__, by and among the Issuer, _______________________ and
________________________.
Affiliate: With respect to any specified Person, any other Person
controlling, controlled by, or under common control with such specified Person.
For the purposes of this definition, the term "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have corresponding meanings.
Agreement: This Sale and Servicing Agreement and all amendments hereof
and supplements hereto.
Annual Loss Percentage: With respect to any Payment Date, a fraction,
expressed as a percentage, the numerator of which is the aggregate of all
Realized Losses for the twelve preceding Due Periods ending on the last day of
the preceding Due Period and the denominator of which is the Pool Principal
Balance as of the first day of the twelfth preceding Due Period.
Assignment of Mortgage: With respect to each Home Loan, an assignment,
notice of transfer or equivalent instrument sufficient under the laws of the
jurisdiction wherein the related Mortgaged Property is located to reflect or
record the sale of the related Home Loan which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
Available Collection Amount: With respect to any Payment Date, an
amount without duplication equal to the sum of: (i) all amounts received on the
Home Loans or required to be paid by the Master Servicer, the Servicer or the
Transferor during the related Due Period (exclusive of amounts not required to
be deposited in the Collection Account pursuant to Section 5.01(b)(1) hereof and
amounts permitted to be withdrawn by the Indenture Trustee from the Collection
Account pursuant to Section 5.01(b)(3) hereof); (ii) upon exercise of optional
redemption of the Notes and termination of the Issuer pursuant to Section 11.02
hereof, the Termination Price; and (iii) the Purchase Price paid for any Home
Loans purchased pursuant to Section 3.05 hereof prior to the related
Determination Date and the Substitution Adjustment to be deposited in the
Collection Account in connection with any substitution, in each case prior to
the related Determination Date.
Available Payment Amount: With respect to any Payment Date, the
Available Collection Amount deposited into the Note Payment Account, minus the
amount of any Trust Fees and Expenses required to be paid from the Note Payment
Account pursuant to Section 5.01(c)(i) hereof.
Business Day: Any day other than (a) a Saturday or Sunday, or (b) a day
on which the banking institutions are authorized or obligated by law or
executive order to be closed in a city at any of the following locations: (i)
The City of New York, [(ii) where the Securities Insurer is located,] (iii)
where the Corporate Trust Office of the Indenture Trustee is located, (iv) where
the servicing operations of the Servicer are located or (v) where the master
servicing operations of the Master Servicer are located.
Call Option Date: The first Payment Date on which the Pool Principal
Balance has declined to ___% or less of the Original Pool Principal Balance.
Certificate Distribution Account: The account designated as such,
established and maintained pursuant to Section 5.02 hereof.
Certificate Register: The register established pursuant to Section 3.4
of the Owner Trust Agreement.
Certificateholder: A holder of a Residual Interest Certificate.
Closing Date: ___________, 199__.
Code: The Internal Revenue Code of 1986, as amended from time to time,
and Treasury Regulations promulgated thereunder.
Collection Account: The Eligible Account established and maintained by
the Indenture Trustee pursuant to Section 5.01(a)(1) hereof.
Compensating Interest: With respect to any Due Period, the amount of
the shortfall in the interest portion of the Monthly Payments due on Home Loans
that prepay in full or in part during the related month other than on the date
the Monthly Payments were due.
Custodial Agreement: The custodial agreement dated as of __________,
199__ by and among the Depositor, the Issuer, ___________, as the Transferor and
as the Master Servicer, and _______________________, a
__________________________, as the custodian, providing for the retention of the
Indenture Trustee's Home Loan Files by such custodian on behalf of the Owner
Trust.
Custodian: Any custodian [acceptable to the Securities Insurer and]
appointed by the Indenture Trustee pursuant to the Custodial Agreement, which
custodian shall not be affiliated with the Master Servicer, the Transferor, the
Servicer or the Depositor.___________________, ________________ shall be the
initial Custodian pursuant to the terms of the Custodial Agreement.
Custodian's Final Certification: As defined in Section 1(c) of the
Custodial Agreement.
Custodian's Initial Certification: As defined in Section 1(a) of the
Custodial Agreement.
Custodian's Updated Certification: As defined in Section 1(c) of the
Custodial Agreement.
Cut-Off Date: The close of business on _____________, 199__.
Debt Instrument: The mortgage note evidencing the indebtedness of an
Obligor under a Home Loan.
Defaulted Home Loan: With respect to any date of determination, any
Home Loan, including, without limitation, any Liquidated Home Loan with respect
to which any of the following has occurred as of the end of the preceding Due
Period: (a) foreclosure or similar proceedings have been commenced; or (b) the
Servicer has determined in good faith and in accordance with the Accepted
Servicing Procedures that such Home Loan is in default for a period in excess of
30 days or imminent default and that such default or imminent default involves
the nonpayment of any Monthly Payment or a default which has or would have a
material adverse affect on such Home Loan.
Defective Home Loan: As defined in Section 3.05 hereof.
Deficiency Amount: As of any Payment Date, the sum of (a) the amount by
which (1) the Noteholders' Interest Payment Amount for the Notes on such Payment
Date less Relief Act Shortfalls for such Payment Date, exceeds (2) the Available
Payment Amount for such Payment Date, and (b) the Noteholders' Principal
Deficiency Amount for such Payment Date.
Deleted Home Loan: A Home Loan replaced or to be replaced by one or
more than one Qualified Substitute Home Loan.
Delinquent: A Home Loan is "Delinquent" if any Monthly Payment due
thereon is not made by the Due Date. A Home Loan shall be deemed to be "30 days
Delinquent" if the delinquency remains uncured for two calendar months, but not
three. The determination of whether a Home Loan is "60 days Delinquent," "90
days Delinquent", etc., shall be made in like manner.
Delivery: When used with respect to Trust Account Property means the
delivery of such Trust Account Property in a manner that results in the
transferee having either the status of a perfected security interest free of any
adverse claims or a holder in due course in accordance with the following: (a)
in the case of "certificated securities" or "uncertificated securities" (in
either case as defined in Article 8 of the UCC), the applicable provisions of
Article 8 of the UCC, and in the case of "instruments", "accounts" or "general
intangibles" (in either case as defined in Article 9 of the UCC), the applicable
provisions of Article 9 of the UCC; or (b) in the case of book-entry securities
governed by Federal law, the applicable provisions of Federal law.
Denomination: With respect to a Note, the portion of the Original Note
Principal Balance represented by such Note as specified on the face thereof.
Depositor: PaineWebber Mortgage Acceptance Corporation IV, a Delaware
corporation, and any successor
thereto.
Determination Date: With respect to any Payment Date, the _______
calendar day of the month in which such Payment Date occurs or if such day is
not a Business Day, the immediately preceding Business Day.
Due Date: With respect to a Monthly Payment, the day of the month on
which such Monthly Payment is due from the Obligor on a Home Loan.
Due Period: With respect to any Determination Date or Payment Date, the
____ day of the calendar month preceding the month in which the relevant
Determination Date or Payment Date occurs, and ending on the ______ day of the
month in which the relevant Determination Date or Payment Date occurs.
Eligible Account: At any time, an account that is either:
(a) A segregated account or accounts maintained with an institution
that satisfies the following: (1) whose deposits are insured by the FDIC; (2)
whose unsecured and uncollateralized long-term debt obligations of which are
then rated by each Rating Agency in one of their two highest short-term ratings;
and (3) which is either (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, (iv) a principal subsidiary of a bank holding company, or (v) an
institution approved in writing by the Securities Insurer and each Rating
Agency; or
(b) A segregated trust account or accounts maintained with the
corporate trust department of a federal or state chartered depository
institution that satisfies the following: (1) is acceptable to the Securities
Insurer and each Rating Agency; (2) has capital and surplus of not less than
$100,000,000; and (3) is acting in its fiduciary capacity.
Eligible Servicer: A Person that (i) has demonstrated the ability
professionally and competently to service a portfolio of mortgage loans similar
to the Home Loans, (ii) has a net worth calculated in accordance with GAAP of at
least $500,000, and (iii) is acceptable to the Securities Insurer and each
Rating Agency.
Excess Spread: With respect to any Payment Date, the excess of (a) the
Available Payment Amount over (b) the Regular Payment Amount.
FDIC: The Federal Deposit Insurance Corporation and any successor
thereto.
FHLMC: Freddie Mac (f/k/a Federal Home Loan Mortgage Corporation) and
any successor thereto.
FNMA: Fannie Mae (f/k/a Federal National Mortgage Association) and any
successor thereto.
Foreclosed Loan: As of any date of determination, any Home Loan that
has been discharged as a result of (i) the completion of foreclosure or
comparable proceedings; (ii) the Issuer's acceptance of the deed or other
evidence of title to any related Mortgaged Property in lieu of foreclosure or
other comparable proceeding; or (iii) the acquisition by the Issuer of title to
any related Mortgaged Property by operation of law.
Foreclosure Property: Any real property securing a Foreclosed Loan that
has been acquired by the Servicer through foreclosure, deed in lieu of
foreclosure or similar proceedings in respect of the related Home Loan.
GAAP: Generally accepted accounting principles as in effect in the
United States.
[Guaranty Insurance Premium: The premium payable monthly that is
specified in the Premium Letter.]
[Guaranty Policy: That certain financial guaranty insurance policy for
the Notes, number dated _________ , 199__ , and issued by the Securities Insurer
to the Indenture Trustee and guaranteeing payment of any Insured Payment
thereunder.]
Home Loan: Any mortgage loan that is included in the Home Loan Pool. As
applicable, a Home Loan shall be deemed to refer to the related Debt Instrument,
the Mortgage and any related Foreclosure Property, and shall include, among
other items, all Monthly Payments with a Due Date after the Cut-Off Date.
Home Loan File: As to each Home Loan, the Indenture Trustee's Home Loan
File and the Servicer's Home
Loan File.
Home Loan Interest Rate: The annual rate of interest borne by a Debt
Instrument, as shown on the related Home Loan Schedule.
Home Loan Pool: The pool of Home Loans conveyed to the Issuer pursuant
to this Agreement on the Closing Date, together with the payments thereon and
proceeds therefrom received after the applicable Cut-Off Date, as identified on
the Home Loan Schedule annexed hereto as Exhibit A.
Home Loan Purchase Agreement: The Home Loan Purchase Agreement between
the Transferor and the Depositor, dated as of __________, 199__.
Home Loan Schedule: The schedule of Home Loans set forth on Exhibit A
attached hereto, as amended or supplemented from time to time specifying, with
respect to each Home Loan, the following information: (i) the Transferor's Home
Loan number; (ii) the Obligor's name and the street address; (iii) the current
principal balance; (iv) the original principal amount with respect to any Home
Loan originated by the Transferor and the principal amount purchased by the
Transferor with respect to a Home Loan acquired by the Transferor subsequent to
its origination; (v) any related Loan-to-Value Ratio as of the date of the
origination of the related Home Loan; (vi) the paid through date; (vii) whether
the Home Loan pays interest at a fixed rate or an adjustable rate; (viii) the
current Home Loan Interest Rate; (ix) if such Home Loan has an adjustable Home
Loan Rate, (A) the initial rate reset date, (B) the frequency of the rate reset,
(C) the initial periodic cap, (D) the subsequent periodic cap, (E) the margin,
(F) the maximum lifetime rate and (G) the minimum lifetime rate; (x) the final
maturity date under the Debt Instrument; (xi) the current Monthly Payment; (xii)
the occupancy status of the Mortgaged Property, if any; and (xiii) the original
term of the Debt Instrument.
Indemnification and Contribution Agreement: The Indemnification and
Contribution Agreement dated as of __________, 199__ by and among
_________________________ , the Depositor, PaineWebber Incorporated,
_______________________________ and _____________ _________________________.
Indenture: The Indenture, dated as of ____________, 199__, between the
Issuer and the Indenture Trustee.
Indenture Trustee: ________________________, a
___________________________, as Indenture Trustee under the Indenture and this
Agreement acting on behalf of the Noteholders, or any successor indenture
trustee under the Indenture or this Agreement.
Indenture Trustee Fee: As to any Payment Date, the one-twelfth (1/12)
of the Indenture Trustee Fee Rate times the Pool Principal Balance as of the
opening of business on the first day of the Due Period immediately preceding the
calendar month of such Payment Date (or, with respect to the first Payment Date,
the Original Pool Principal Balance).
Indenture Trustee Fee Rate: __________ % ( ________ basis points) per
annum.
Indenture Trustee's Home Loan File: As defined in Section 2.04 hereof.
Independent: When used with respect to any specified Person, such
Person (i) is in fact independent of the Transferor, the Servicer, the Master
Servicer, the Depositor, [the Securities Insurer,] the Indenture Trustee or any
of their respective Affiliates, (ii) does not have any direct financial interest
in, or any material indirect financial interest in, any of the Transferor, the
Servicer, the Master Servicer, the Depositor, [the Securities Insurer,] the
Indenture Trustee or any of their respective Affiliates and (iii) is not
connected with any of the Transferor, the Servicer, the Depositor, [the
Securities Insurer,] the Indenture Trustee or any of their respective
Affiliates, as an officer, employee, promoter, underwriter, trustee, partner,
director or Person performing similar functions; provided, however, that a
Person shall not fail to be Independent of the Transferor, the Servicer, the
Depositor, [the Securities Insurer,] the Indenture Trustee or any of their
respective Affiliates merely because such Person is the beneficial owner of 1%
or less of any the securities issued by the Transferor, the Servicer, the
Depositor or any of their respective Affiliates, as the case may be.
Independent Accountants: A firm of nationally recognized certified
public accountants that is in fact Independent.
[Insurance Agreement: The Insurance and Indemnity Agreement, dated as
of _________, 199__, among the Securities Insurer, the Transferor, the Master
Servicer, the Depositor and the Issuer.]
[Insured Payment: With respect to the Guaranty Policy, as of any
Payment Date (i) any Deficiency Amount
and (ii) any Preference Amount.]
[Insured Securities: Each of the Notes.]
Interest Reduction Amount: As to any Payment Date, the sum of the
Servicing Fee, the Master Servicer Fee, the Indenture Trustee Fee, [and the
Guaranty Insurance Premium] payable with respect to such Payment Date or the
related Interest Accrual Period or Due Period as applicable, provided that on
any Payment Date on or after the Payment Date occurring in __________ 200__ ,
the Interest Reduction Amount shall increase by an amount equal to one-twelfth
of the product of ____ % and the aggregate Principal Balance of the Home Loans
as of the first day of the related Due Period.
Issuer: _____________ Home Loan Owner Trust 199__-__, a Delaware
business trust.
Liquidated Home Loan: With respect to any date of determination, any
Foreclosure Property or any Home Loan in respect of which a Monthly Payment is
in excess of 30 days past due and as to which the Servicer has determined that
all amounts which it reasonably and in good faith expects to collect have been
recovered from or on account of such Home Loan or the related Foreclosure
Property; provided, however, that in any event any Home Loan or the related
Foreclosure Property shall be deemed uncollectible and therefore be a Liquidated
Home Loan upon the earliest to occur of: (i) the liquidation or disposition of
such Home Loan or the related Foreclosure Property; or (ii) the determination by
the Servicer in accordance with the Accepted Servicing Procedures that there is
no reasonable likelihood of (A) recovering an economically significant amount
attributable to the outstanding interest and principal owing on such Home Loan
from either the related Mortgaged Property or the Obligor, in excess of (B) the
costs and expenses to obtain such recovery (including without limitation any
Servicing Advances), and in relation to (C) the expected timing of such recovery
therefrom.
Liquidation Proceeds: With respect to a Liquidated Home Loan, any cash
amounts received in connection with the liquidation or disposition of such
Liquidated Home Loan, whether through trustee's sale, foreclosure sale or other
disposition, any cash amounts received in connection with the management of the
Foreclosure Properties from Foreclosed Home Loans and any other amounts required
to be deposited in the Collection Account pursuant to Section 5.01(b) hereof, in
each case other than Property Insurance Proceeds and Released Mortgaged Property
Proceeds.
Loan-to-Value Ratio: With respect to any Home Loan, the fraction,
expressed as a percentage, (a) the numerator of which is the principal balance
of such Home Loan at origination and (b) the denominator of which is the value
as determined pursuant to the Transferor's underwriting guidelines of the
related Mortgaged Property at the time of origination of such Home Loan.
Majority Noteholders: The holder or holders of in excess of 50% of the
Note Principal Balance of all the Notes.
Majority Residual Interestholders: The holder or holders of more than
50% of the Residual Interest.
Master Servicer: _______________________ , a _______________________ ,
as Master Servicer hereunder, or any successor Master Servicer hereunder.
Master Servicer Compensation: The Master Servicer Fee and other amounts
to which the Master Servicer is entitled pursuant to Section 4.01(a) hereof.
Master Servicer Event of Default: As described in Section 10.01 hereof.
Master Servicer Fee: As to each Home Loan (including any Home Loan that
has been foreclosed and has become a Foreclosure Property, but excluding any
Liquidated Home Loan), the fee payable monthly to the Master Servicer on each
Payment Date, which shall equal the product of (a) one-twelfth (1/12) of _______
% (___ basis points) and (b) the Principal Balance of such Home Loan as of the
beginning of the immediately preceding Due Period.
Maturity Date: With respect to the Notes, the Payment Date occurring in
__________ 203__.
Monthly Advance: As defined in Section 4.01(h) hereof.
Monthly Advance Reimbursement Amount: With respect to any date of
determination and with respect to the receipt of proceeds from or the
liquidation of a Home Loan for which any Monthly Advances have been made, the
amount of any such Monthly Advances that have not been reimbursed as of such
date, including Nonrecoverable Monthly Advances.
Monthly Cut-Off Date: The last day of any calendar month and, with
respect to any Payment Date, the last day of the calendar month immediately
preceding such Payment Date.
Monthly Payment: The scheduled monthly payment of principal and/or
interest required to be made by an Obligor on the related Home Loan, as set
forth in the related Debt Instrument.
Mortgage: The mortgage, deed of trust or other security instrument
creating a lien in accordance with applicable law on a Mortgaged Property to
secure the Debt Instrument which evidences a Home Loan.
Mortgaged Property: The real property encumbered by the Mortgage that
secures the Debt Instrument evidencing a Home Loan.
Mortgaged Property States: Each state in which any Mortgaged Property
securing a Home Loan is located
as set forth in the Home Loan Schedule.
Net Interest Rate: As to any Payment Date, the annualized percentage
derived from the fraction (which shall not be greater than 1), the numerator of
which is the positive difference, if any, between (x) the amount of all interest
due on the Home Loans during the related Due Period and (y) the Interest
Reduction Amount and the denominator of which is the aggregate principal amount
of the Notes immediately prior to such Payment Date.
Net Liquidation Proceeds: With respect to any Payment Date, Liquidation
Proceeds received during the related Due Period, net of any reimbursements to
the Servicer or the Master Servicer, as the case may be, made from such amounts
for the following: (i) any unreimbursed Servicing Compensation or Master
Servicing Compensation; and (ii) Servicing Advances (including Nonrecoverable
Servicing Advances) made, and (iii) Monthly Advances (including Nonrecoverable
Monthly Advances) made and any other fees and expenses paid in connection with
the foreclosure, conservation or liquidation of the related Liquidated Home Loan
or Foreclosure Property.
Net Loan Losses: With respect to any Defaulted Home Loan that is
subject to a modification, an amount equal to the portion of the Principal
Balance, if any, released in connection with such modification.
Nonrecoverable Monthly Advance: With respect to any Defaulted Home Loan
or any Foreclosure Property, any Monthly Advance previously made and not
reimbursed from late or other fee collections, Liquidation Proceeds, Property
Insurance Proceeds or the Released Mortgaged Property Proceeds following the
liquidation or disposition of such Defaulted Home Loan or Foreclosure Property,
as evidenced by an Officer's Certificate delivered to the Indenture Trustee [and
the Securities Insurer].
Nonrecoverable Servicing Advance: With respect to any Defaulted Home
Loan or any Foreclosure Property, any Servicing Advance previously made and not
reimbursed from late or other fee collections, Liquidation Proceeds, Property
Insurance Proceeds or the Released Mortgaged Property Proceeds following the
liquidation or disposition of such Defaulted Home Loan or Foreclosure Property,
as evidenced by an Officer's Certificate delivered to the Indenture Trustee, the
Master Servicer [and the Securities Insurer].
Note: Any of the Notes issued pursuant to the Indenture.
Note Factor: With respect to any date of determination, the Note
Principal Balance divided by the Original Note Principal Balance.
Note Interest Rate: As to any Payment Date, a per annum rate equal to
the lesser of (i) One-Month LIBOR plus _____ %, provided that on any Payment
Date after the Call Option Date, this rate shall be One-Month LIBOR plus _____
%; and (ii) the Net Interest Rate.
Note Payment Account: The Eligible Account established and maintained
pursuant to Section 5.01(a)(2) hereof.
Note Principal Balance: As of any date of determination, the Original
Note Principal Balance reduced by the sum of all amounts previously distributed
in respect of principal of such Notes on all previous Payment Dates.
Note Redemption Amount: As of any date of determination, an amount
without duplication equal to the sum of (i) the then outstanding Note Principal
Balance of all Notes plus all accrued and unpaid interest thereon including any
unpaid Noteholders Interest Carry-Forward Amount, (ii) any Trust Fees and
Expenses due and unpaid on such date, (iii) any Servicing Advance Reimbursement
Amount [and Monthly Advance Reimbursement Amount and (iv) any due and unpaid
Securities Insurer Reimbursement Amount].
Noteholder: A holder of a Note.
Noteholders' Interest Carry-Forward Amount: With respect to any Payment
Date, (A) if on the immediately preceding Payment Date the Note Interest Rate
was limited pursuant to clause (ii) of the definition of "Note Interest Rate,"
the excess, if any, of the amount of interest that would have accrued on the
Notes for the immediately preceding Payment Date pursuant to clause (i) of the
definition thereof, over the amount of interest that was due on the Notes for
the immediately preceding Payment Date pursuant to clause (ii) of the definition
thereof, plus (ii) any outstanding Noteholders' Interest Carry-Forward Amount
remaining unpaid from prior Payment Dates, together with interest thereon at the
Note Interest Rate (without regard to clause (ii) thereof).
Noteholders' Interest Payment Amount: With respect to any Payment Date,
the sum of the Noteholders' Monthly Interest Payment Amount for such Payment
Date and the Noteholders' Interest Shortfall Amount for such Payment Date.
Noteholders' Interest Shortfall Amount: With respect to any Payment
Date, the excess, if any, of (A) the Noteholders' Monthly Interest Payment
Amount for the preceding Payment Date plus any outstanding Noteholders' Interest
Shortfall Amount on such preceding Payment Date, over (B) the amount in respect
of interest that is actually deposited in the Note Payment Account on such
preceding Payment Date.
Noteholders' Monthly Interest Payment Amount: With respect to each
Payment Date and the Notes, the interest accrued during the related Accrual
Period at the Note Interest Rate on the Note Principal Balance of the Notes
immediately preceding such Payment Date (or, in the case of the first Payment
Date, beginning on the Closing Date) after giving effect to all payments of
principal to the holders of the Notes on or prior to such preceding Payment
Date.
Noteholders' Principal Deficiency Amount: (1) With respect to any
Payment Date (other than as set forth in (2) below), the excess, if any, of (a)
the Note Principal Balance as of such Payment Date (after giving effect to all
payments of principal on such Payment Date, but without giving effect to any
payments in respect of this Noteholders' Principal Deficiency Amount to be made
on such Payment Date), over (b) the Pool Principal Balance as of the end of the
related Due Period; and [(2) with respect to the Maturity Date of the Notes or
any Payment Date upon which the Securities Insurer has exercised its option to
accelerate the Notes under the Indenture, the excess of (a) the Note Principal
Balance (after giving effect to all payments of principal on such Payment Date,
but without giving effect to any payments in respect of this Noteholders'
Principal Deficiency Amount to be made on such Payment Date), over (b) the
Available Payment Amount remaining after the payment of the Noteholders'
Interest Payment Amount and the Regular Principal Payment Amount for such
Payment Date].
Obligor: Each obligor on a Debt Instrument.
OC Trigger Increase Event: With respect to any Payment Date, the
occurrence of any of the following: (1) the Six-Month Average Delinquency equals
or exceeds ______ %; (2) the Annual Loss Percentage exceeds ___ %; or (3)
cumulative Realized Losses as a percentage of the Original Pool Principal
Balance, equal or exceed the following percentages based on the month of
determination after the Closing Date:
------------------------- -----------------------
Month of Cumulative
Determination Realized Losses
------------------------- -----------------------
0 -12 _____ %
------------------------- -----------------------
13 - 24 _____ %
------------------------- -----------------------
25 - 36 _____ %
------------------------- -----------------------
37 - 48 _____ %
------------------------- -----------------------
49+ _____ %
------------------------- -----------------------
Officer's Certificate: A certificate delivered to the Indenture
Trustee, the Depositor, the Servicer, the Master Servicer, [the Securities
Insurer,] the Transferor or the Issuer signed by the President or a Vice
President or an Assistant Vice President or other officer of the Indenture
Trustee, the Depositor, the Servicer, the Master Servicer, [the Securities
Insurer,] the Issuer or the Transferor, in each case, as required by this
Agreement.
One-Month LIBOR: With respect to each Accrual Period, as determined by
the Indenture Trustee on the second Business Day preceding the beginning of such
Accrual Period, on the basis of the offered rates of the Reference Bank for
one-month U.S. dollar deposits as such rates appear on the Telerate Screen Page
3750 as of 11:00 a.m. (London time) on such LIBOR Determination Date. As used in
this paragraph, "business day" means a day on which banks are open for dealing
in foreign currency and exchange in London and New York City; 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 Telerate Screen Page 3750 on the LIBOR Determination 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 Issuer, the
Depositor or the Transferor.
On each LIBOR Determination Date, One-Month LIBOR will be established
by the Indenture Trustee as follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR shall be the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of such
offered quotations.
(b) If on such LIBOR Determination Date fewer than two Reference Banks
provide such offered quotations, One-Month LIBOR shall be the greater of (x)
One-Month LIBOR as determined on the previous LIBOR 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 U.S. dollar lending rates which New York City banks selected by the
Indenture Trustee are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market or, in
the event that the Indenture Trustee can determine no such arithmetic mean, (ii)
the lowest one-month U.S. dollar lending rate which New York City banks selected
by the Indenture Trustee are quoting on such LIBOR Determination Date to leading
European banks.
The establishment of One-Month LIBOR on each LIBOR Determination Date by the
Indenture Trustee and the Indenture Trustee's calculation of the Note Interest
Rate for the related Accrual Period shall (in the absence of manifest error) be
final and binding.
Opinion of Counsel: A written opinion of counsel issued by counsel (a)
who is acceptable to the Master Servicer, the Indenture Trustee, the Rating
Agencies [and the Securities Insurer], and (b) who may be employed or retained
by the Transferor, the Servicer, the Master Servicer, the Depositor, [the
Securities Insurer] or any of their respective Affiliates.
Original Note Principal Balance: $____________.
Original Pool Principal Balance: $_____________, which is the Pool
Principal Balance as of the Cut-Off ------------------------------- Date.
Outstanding: As defined in the Indenture.
[Overcollateralization Amount: With respect to any Payment Date, the
amount equal to the excess of (A) the Pool Principal Balance as of the end of
the preceding Due Period, over (B) the Note Principal Balance of the Notes
(after giving effect to the payments made on such date pursuant to Section
5.01(d) and (e) hereof). As of the Closing Date, the initial
Overcollateralization Amount attributable to such excess shall be equal to
zero.]
[Overcollateralization Deficiency Amount: With respect to any Payment
Date, the excess, if any, of the Overcollateralization Target Amount over the
Overcollateralization Amount prior to the application of Excess Spread on such
Payment Date.]
[Overcollateralization Reduction Amount: With respect to any Payment
Date that occurs on or after the Stepdown Date, the lesser of (1) the excess, if
any, of (a) the Overcollateralization Amount (assuming principal payments on the
Notes on such Payment Date are equal to the Regular Principal Payment Amount
without deduction of this Overcollateralization Reduction Amount), over (b) the
Overcollateralization Target Amount, and (2) the Regular Principal Payment
Amount (as determined without the deduction of this Overcollateralization
Reduction Amount therefrom) on such Payment Date. Prior to the occurrence of a
Stepdown Date, the Overcollateralization Reduction Amount shall be zero.]
[Overcollateralization Target Amount: With respect to any Payment Date,
an amount determined as follows:
(1) with respect to any Payment Date occurring prior to the Stepdown
Date or on which the Step Down Test is not satisfied, an amount equal to ______
% of the Original Pool Principal Balance plus the Spread Squeeze Amount, if any;
(2) with respect to any other Payment Date occurring on or after the
Stepdown Date and on which the Step Down Test is satisfied, an amount equal to
the greatest of (a) the Stepped Down Percentage of the Pool Principal Balance,
(b) ______ % of the Original Pool Principal Balance; and (c) the aggregate
Principal Balance of the three largest Home Loans then outstanding, plus, in the
case of (a), (b) and (c), the Spread Squeeze Amount, if any; and
(3) with respect to any Payment Date occurring on which an OC Trigger
Increase Event is occurring, notwithstanding any of the preceding clauses (1)
through (2), an amount equal to 100% of the Pool Principal Balance;
provided, however, with respect to any Payment Date, notwithstanding any of the
preceding clauses (1) through (3), the Overcollateralization Target Amount shall
not exceed the Note Principal Balance and may be modified by the Securities
Insurer, but shall not be reduced below, (1) with respect to any Payment Date
occurring prior to the Stepdown Date, ______ % of the Cut-Off Date Pool Balance
or (2) with respect to any Payment Date occurring on or after the Stepdown Date,
an amount equal to the greater of (a) ______ % of the Pool Principal Balance as
of the end of the related Due Period, (b) ______ % of the Cut-Off Date Pool
Principal Balance or (c) an amount equal to the aggregate Principal Balance of
the ________ largest Loans then outstanding.
Owner Trust Agreement: The Owner Trust Agreement, dated as of ________,
199__ , among the Depositor, __________, the Owner Trustee and
__________________________ , a national banking association.
Owner Trustee: ________________________ , as owner trustee under the
Owner Trust Agreement, and any successor owner trustee under the Owner Trust
Agreement.
Ownership Interest: As to any Note, any ownership or security interest
in such Note, including any interest in such Note as the holder thereof and any
other interest therein, whether direct or indirect, legal or beneficial, as
owner or as pledgee.
Payment Date: The ______ day of any month or if such ______ day is not
a Business Day, the first Business Day immediately following such day,
commencing in ________ 199__.
Payment Statement: As defined in Section 6.01 hereof.
Percentage Interest: As defined in the Owner Trust Agreement.
Permitted Investments: Each of the following:
(1)..direct obligations of, and obligations fully guaranteed by,
the United States of America, FHLMC, FNMA, the Federal Home Loan Banks or any
agency or instrumentality of the United States of America the obligations of
which are backed by the full faith and credit of the United States of America;
(2)..(i) demand and time deposits in, certificates of deposit of,
bankers acceptances issued by, or federal funds sold by, any depository
institution or trust company (including the Indenture Trustee or its agent
acting in their respective commercial capacities) incorporated under the laws of
the United States of America or any state thereof and subject to supervision and
examination by federal or state authorities, so long as, at the time of such
investment or contractual commitment providing for such investment, such
depository institution or trust company or its ultimate parent has a short-term
unsecured debt rating in _____________ highest available rating categories of
___________ and the ___________ available rating category of Moody's and
provided that each such investment has an original maturity of no more than 365
days, and (ii) any other demand or time deposit or deposit which is fully
insured by the FDIC;
(3)..repurchase obligations with a term not to exceed 30 days with
respect to any security described in clause (a) above and entered into with a
depository institution or trust company (acting as principal) rated "A" or
higher by S&P and rated "A2" or higher by Moody's; provided, however, that
collateral transferred pursuant to such repurchase obligation must be of the
type described in clause (a) above and must (i) be valued daily at current
market price plus accrued interest, (ii) pursuant to such valuation, be equal,
at all times, to at least ______ % of the cash transferred by the Indenture
Trustee in exchange for such collateral, and (iii) be delivered to the Indenture
Trustee, or if the Indenture Trustee is supplying the collateral, an agent for
the Indenture Trustee, in such a manner as to accomplish perfection of a
security interest in the collateral by possession of certificated securities;
(4)..securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States of America or
any state thereof which has a short-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of such
investment;
(5)..commercial paper having an original maturity of less than 365
days and issued by an institution having a short-term unsecured debt rating in
the highest available rating category of each of the Rating Agencies at the time
of such investment;
(6)..a guaranteed investment contract approved by each of the
Rating Agencies [and the Securities Insurer] and issued by an insurance company
or other corporation having a short-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of such
investment;
(7)..money market funds having one of the two highest available
rating categories of S&P and the highest available rating category of Moody's at
the time of such investment, which invests only in other Permitted Investments,
including any such money market funds for which the Master Servicer or the
Indenture Trustee or any affiliate of the Master Servicer or the Indenture
Trustee acts as the investment manager or advisor; provided that any such money
market funds which provide for demand withdrawals shall be conclusively deemed
to satisfy any maturity requirements for Permitted Investments set forth in this
Agreement; and
(8)..any investment approved in writing by the Securities Insurer
and for which the Ratings Confirmation have been obtained with respect to such
investment.
The Indenture Trustee may purchase from or sell to itself or an
affiliate, as principal or agent, the Permitted Investments listed above. All
Permitted Investments in a trust account under this Agreement shall be made in
the name of the Indenture Trustee for the benefit of the Securityholders and the
Securities Insurer; provided, that the Master Servicer shall be entitled to all
investment earnings from the Note Payment Account and the Collection Account as
part of its Master Servicer Compensation hereunder.
Person: Any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, estate,
national banking association, unincorporated organization or government or any
agency or political subdivision thereof.
Pool Principal Balance: With respect to any date of determination, the
aggregate Principal Balances of the Home Loans as of the end of the preceding
Due Period; provided, however, that the Pool Principal Balance on any Payment
Date on which the Termination Price is to be paid to Noteholders will be deemed
to have been equal to zero as of such date.
Preference Amount: Any amount previously distributed to the holder of
an Insured Security 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,
non-appealable order of a court having jurisdiction.
[Premium Letter: The letter agreement dated ___________, 199__ between
the Securities Insurer and _____________ relating to the premiums due in respect
of the Guaranty Policy.]
Principal Balance: With respect to any Home Loan or related Foreclosure
Property, (i) at the Cut-Off Date, the outstanding unpaid principal balance of
the Home Loan as of the Cut-Off Date and (ii) with respect to any date of
determination, the outstanding unpaid principal balance of the Home Loan as of
the last day of the preceding Due Period (after giving effect to all payments
received thereon or Monthly Advances in respect of principal made with respect
thereto and the allocation of any Net Loan Losses with respect thereto which
relates to such Due Period), without giving effect to amounts received in
respect of such Home Loan or related Foreclosure Property after such Due Period;
provided, however, that any Liquidated Home Loan shall have a Principal Balance
of zero and with respect to the valuation of the Issuer's assets such Liquidated
Home Loan shall not accrue interest thereon.
Principal Prepayment: With respect to any Home Loan and any Due Period,
any principal amount received on a Home Loan in excess of the principal of the
Monthly Payment due in such Due Period and applied by the Servicer during such
Due Period in reduction of the Principal Balance of the Home Loan.
Property Insurance Proceeds: With respect to any Mortgaged Property,
all amounts collected in respect of any related insurance policy that insures
such Mortgaged Property or the related Obligor and not required to be applied to
the restoration of any such Mortgaged Property or paid to the related Obligor
(but excluding any Insured Payments).
Prospectus: The Depositor's final Prospectus dated __________, 199__ as
supplemented by the Prospectus Supplement.
Prospectus Supplement: The Prospectus Supplement dated ___________,
199__ prepared by the Depositor and Transferor in connection with the issuance
and sale of the Notes.
Purchase Price: With respect to a Defective Home Loan, the Principal
Balance thereof as of the date of purchase, plus all accrued and unpaid interest
on such Defective Home Loan from the Closing Date to but not including the date
of repurchase computed at the applicable Home Loan Interest Rate, plus the
amount of any unreimbursed Servicing Advances and Monthly Advances with respect
to such Defective Home Loan (after deducting therefrom any amounts received in
respect of such repurchased Defective Home Loan and being held in the Collection
Account for future distribution to the extent such amounts represent recoveries
of principal not yet applied to reduce the related Principal Balance or interest
(net of the Servicing Fee, Master Servicer Fee, Indenture Trustee Fee [and
Guaranty Insurance Premium] for such Defective Home Loan) for the period from
and after the date of repurchase).
Qualified Substitute Home Loan: A home loan or home loans substituted
for a Deleted Home Loan pursuant to Section 3.05 hereof, which satisfies the
following: (i) in the case of a fixed rate Home Loan, has or have a fixed
interest rate (a) no lower than the Home Loan Interest Rate for the Deleted Home
Loan, and (b) not more than 2.0 percentage points greater than the Home Loan
Interest Rate for the Deleted Home Loan; (ii) in the case of an adjustable rate
Home Loan has or have an adjustable rate and (a) has a current interest rate no
lower than the Home Loan Interest Rate for the Deleted Home Loan, (b) has a
gross margin not more than [2.0] percentage points different than the Home Loan
Interest Rate for the Deleted Home Loan, (c) has a lifetime interest rate cap
not more than [2.0] percentage points lower than the Home Loan Interest Rate for
the Deleted Home Loan, (d) has a lifetime interest rate floor not more than
[2.0] percentage points lower than the Home Loan Interest Rate for the Deleted
Home Loan, and (e) pays interest based on the same index as the Deleted Home
Loan; (iii) matures or mature not more than one year later than, and not more
than one year earlier, than the maturity date of Deleted Home Loan, has a
maturity date no later than ___________ , 20____ and an original term to
maturity of less than or equal to 30 years; (iv) has or have a principal balance
or principal balances (after application of all payments received on or prior to
the date of substitution) equal to or less than the Principal Balance or
Balances of the Deleted Home Loan or Loans as of such date; (v) has or have a
borrower or borrowers with a debt-to-income ratio no higher than the
debt-to-income ratio of the Obligor with respect to the Deleted Loan; (vi)
complies or comply as of the date of substitution with each representation and
warranty set forth in Section 3.04 hereof and is or are not more than 89 days
delinquent as of the date of substitution for such Deleted Home Loan or Loans;
(vii) has or have a lien priority no lower than the Deleted Loan; and [(viii) is
otherwise satisfactory to the Securities Insurer]. For purposes of determining
whether multiple mortgage loans proposed to be substituted for one or more
Deleted Home Loans pursuant to Section 3.05 hereof are in fact "Qualified
Substitute Home Loans" as provided above, the criteria specified in clauses (i),
(ii) and (iii) above may be considered on an aggregate or weighted average
basis, rather than on a loan-by-loan basis (i.e., so long as the weighted
average Home Loan Interest Rate of any loans proposed to be substituted is not
less than the Home Loan Interest Rate for the designated Deleted Home Loan or
Loans and not more than two percentage points greater than the Home Loan
Interest Rate for the designated Deleted Home Loan or Loans, the requirements of
clause (i) above would be deemed satisfied).
Rating Agencies: ___________ and________ . If no such organization or
successor is any longer in existence, "Rating Agency" shall be a nationally
recognized statistical rating organization or other comparable person designated
by the Master Servicer [and approved by the Securities Insurer], notice of which
designation shall have been given to the Indenture Trustee[, the Securities
Insurer], the Servicer and the Issuer.
Ratings: The ratings initially assigned to the Notes by the Rating
Agencies, as evidenced by letters from the Rating Agencies.
Ratings Confirmation: With respect to a contemplated action to be
undertaken or performed pursuant to this Agreement, a written confirmation from
each Rating Agency to the effect that such action will not result in or cause
the downgrading, withdrawal or qualification of the rating that would otherwise
be assigned by such Rating Agency to the Notes [without the benefit of the
Guaranty Policy provided by the Securities Insurer].
Realized Losses: As of any Payment Date, the sum of (1) with respect to
all Home Loans that have become Liquidated Home Loans during the related Due
Period, the difference between (a) the aggregate Principal Balances of such
Liquidated Home Loans and accrued and unpaid interest thereon, minus (b) the
aggregate Net Liquidation Proceeds collected during the related Due Period, and
(2) with respect to all Defaulted Home Loans, the aggregate Net Loan Losses that
occurred during the related Due Period.
Record Date: With respect to each Payment Date, the close of business
on the last Business Day of the month immediately preceding the month in which
such Payment Date occurs.
Regular Payment Amount: With respect to any Payment Date, the lesser of
(a) the Available Payment Amount and (b) the sum of (i) the Noteholders'
Interest Payment Amount and (ii) the Regular Principal Payment Amount.
Regular Principal Payment Amount: On each Payment Date, an amount equal
to the lesser of:
(A) the Note Principal Balance of the Notes immediately prior to such
Payment Date; and
(B) the sum of (i) each scheduled payment of principal collected by the
Servicer or advanced by the Master Servicer in respect of the related Due
Period, (ii) all Principal Prepayments applied by the Servicer during such
related Due Period, (iii) the principal portion of all Net Liquidation Proceeds,
Property Insurance Proceeds and Released Mortgaged Property Proceeds received
during the related Due Period, (iv) that portion of the Purchase Price of any
repurchased Home Loan which represents principal received prior to the related
Determination Date, (v) the principal portion of any Substitution Adjustments
required to be deposited in the Collection Account as of the related
Determination Date and (vi) on the Payment Date on which the Issuer is to be
terminated pursuant to Section 11.02 hereof, the Termination Price (net of any
accrued and unpaid interest, Trust Fees and Expenses due and unpaid on such date
and Servicing Advance Reimbursement Amounts and Monthly Advance Reimbursement
Amounts);
provided, however, that if such Payment Date is on or after a Stepdown Date,
then with respect to the payment of principal to the Noteholders the foregoing
amount will be reduced (but not less than zero) by the Overcollateralization
Reduction Amount, if any, for such Payment Date.
Released Mortgaged Property Proceeds: With respect to any Home Loan,
proceeds received by the Servicer in connection with (i) a taking of an entire
Mortgaged Property by exercise of the power of eminent domain or condemnation or
(ii) any release of part of the Mortgaged Property from the lien of the related
Mortgage, whether by partial condemnation, sale or otherwise; which proceeds in
either case are not released to the Obligor in accordance with applicable law,
Accepted Servicing Procedures and this Agreement.
Relief Act Shortfall: Any shortfall in an Obligor's Monthly Payment
caused by the application of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
Residual Interest: The meaning assigned thereto in the Owner Trust
Agreement.
Residual Interest Certificate: The meaning assigned thereto in the
Owner Trust Agreement.
Responsible Officer: When used with respect to the Indenture Trustee,
any officer within the Corporate Trust Office of the Indenture Trustee,
including any Vice President, Assistant Vice President, Secretary, Assistant
Secretary or any other officer of the Indenture Trustee, customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Issuer, any officer in the
Corporate Trust Administration Department of the Owner Trustee with direct
responsibility for the administration of the Owner Trust Agreement and this
Agreement on behalf of the Issuer. When used with respect to the Depositor, the
Servicer, the Master Servicer, the Transferor, the Servicer or any Custodian,
the President or any Vice President, Assistant Vice President, or any Secretary
or Assistant Secretary.
Securities: The Notes or Residual Interest Certificates.
[Securities Insurer: ., as issuer of the Guaranty Policy, and its
successors and assigns.]
[Securities Insurer Default: The existence and continuation of any of
the following:
(a) The Securities Insurer fails to make a payment required under the
Guaranty Policy in accordance with its terms;
(b) The Securities Insurer (1) files any petition or commences any case
or proceeding under any provision or chapter of the United States Bankruptcy
Code or any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization, (2) makes a general
assignment for the benefit of its creditors, or (3) has an order for relief
entered against it under the United States Bankruptcy Code or any other similar
federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization which is final and nonappealable; or
(c) A court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority enters a final and
nonappealable order, judgment or decree (1) appointing a custodian, trustee,
agent or receiver for the Securities Insurer or for all or any material portion
of its property or (2) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the Securities Insurer (or the taking of
possession of all or any material portion of the property of the Securities
Insurer).]
[Securities Insurer Reimbursement Amount: At any time, an amount owed
to the Securities Insurer for any unreimbursed Insured Payments made under the
Guaranty Policy and any other amounts then owing to the Securities Insurer under
the Insurance Agreement, which have not previously been reimbursed, in each case
together with interest thereon at the rate specified in the Insurance
Agreement.]
Securityholder: Any Noteholder or Certificateholder.
Series or Series 199__-__: _____________ Home Loan Asset Backed Notes,
Series 199__-__.
[Servicer: One or more servicers that enter into a Servicing Agreement
with the Master Servicer, which initially will be__________________________ , a
_____________________ ________________________ _______________ for an interim
period, and thereafter will be ___________________, a Utah corporation.]
Servicer's Home Loan Files: In respect of each Home Loan, all documents
customarily included in the Servicer's loan file for the related type of Home
Loan as specifically set forth in Section 4.4 of the Servicing Agreement.
Servicer's Monthly Remittance Report: A report prepared and computed by
the Servicer in substantially the form of Exhibit B attached hereto.
Servicing Advance Reimbursement Amount: With respect to any date of
determination and with respect to the receipt of proceeds from or the
liquidation of a Home Loan for which any Servicing Advances have been made, the
amount of any such Servicing Advances that have not been reimbursed as of such
date, including Nonrecoverable Servicing Advances.
Servicing Advances: All reasonable, customary and necessary "out of
pocket" costs and expenses advanced or paid by the Servicer with respect to the
Home Loans in accordance with the performance by the Servicer of its servicing
obligations under Section 6.6 of the Servicing Agreement, including, but not
limited to, the costs and expenses for (i) the preservation, restoration and
protection of any related Mortgaged Property, including without limitation
advances in respect of real estate taxes and assessments, (ii) any collection,
enforcement or judicial proceedings, including without limitation foreclosures,
collections and liquidations , (iii) the conservation, management and sale or
other disposition of a Foreclosure Property, and (iv) the satisfaction,
cancellation, release or discharge of any Home Loan or any related Mortgage in
accordance with this Agreement; provided, however, that such Servicing Advances
(plus accrued interest thereon from the date of such advance to the date of
reimbursement and at the rate equal to the Servicer's cost of funds) are
reimbursable to the Servicer out of the expected late collections, Liquidation
Proceeds, Property Insurance Proceeds or Released Mortgaged Property Proceeds
from the related Home Loan, Obligor or Mortgaged Property.
Servicing Agreement: The servicing agreement, incorporating by
reference the Agreement Regarding Standard Servicing Terms, each dated as of the
date hereof each between _________ owner of the Home Loans and as the Master
Servicer and the Servicer, a form of which is attached hereto as Exhibit E.
Servicing Compensation: The Servicing Fee and other amounts to which
the Servicer is entitled pursuant to this Agreement and the Servicing Agreement.
On any Payment Date Servicing Compensation shall include any Servicing Fee
Recovery Amounts due and unpaid, to the extent of Master Servicer Compensation
available after allocations under Section 4.01(K) hereof on such Payment Date.
Servicing Fee: As to each Home Loan (including any Home Loan that has
been foreclosed and has become a Foreclosure Property, but excluding any
Liquidated Home Loan), the fee payable monthly to the Servicer on each Payment
Date, which shall equal the product of (a) one-twelfth (1/12) of _____ % (____
basis points) and (b) the Principal Balance of such Home Loan as of the
beginning of the immediately preceding Due Period (or as of the Cut-Off Date
with respect to the first Due Period).
Servicing Fee Recovery Amount: The amount of any Servicing Fee used to
pay Compensating Interest for which the Servicer has not received reimbursement.
Servicing Officer: Any officer of the Servicer or Master Servicer
involved in, or responsible for, the administration and servicing of the Home
Loans whose name and specimen signature appears on a list of servicing officers
annexed to an Officer's Certificate furnished by the Servicer or the Master
Servicer, respectively, to [the Securities Insurer,] the Master Servicer and the
Indenture Trustee, on behalf of the Securityholders [and the Securities
Insurer], as such list may from time to time be amended.
Six-Month Average Delinquency: With respect to any Payment Date, the
average for such Payment Date and the five preceding Payment Dates of the
respective ratios, expressed as a percentage, equal to (x) the aggregate
Principal Balances of all Home Loans that are 90 days or more Delinquent
(excluding any Liquidated Home Loans but including Foreclosed Loans and Home
Loans in foreclosure proceedings) as of the end of each of the related Due
Periods, divided by (y) the respective Pool Principal Balance as of the end of
the applicable Due Period.
Spread Squeeze Amount: For any Payment Date on or after the Payment
Date in _______ 200__ , an amount (not less than zero) equal to the product,
obtained by multiplying (i) _______ , (ii) the excess, if any, of _____ % (
___________________________ ) or ______ % (with respect to any Payment Date
after the 24th Payment Date) over the Spread Squeeze Percentage for such Payment
Date and (iii) the Original Pool Principal Balance.
Spread Squeeze Percentage: With respect to any Payment Date, the
percentage equivalent of a fraction, the numerator of which is the product of
_____ and the excess of the Excess Spread for such Payment Date [over the
Securities Insurer Reimbursement Amount] for such Payment Date, and the
denominator of which is the Pool Principal Balance for such Payment Date.
Stepdown Date: The first Payment Date occurring on the later of: (a)
the ___________ month after the month in which the Closing Date occurs; or (b)
the Payment Date on which the Pool Principal Balance as of the end of the
related Due Period has been reduced to an amount that is less than or equal to
____ % of the Original Pool Principal Balance.
Step Down Test: As of any Payment Date, each of the following
conditions:
(i) the most recent six month rolling 90 day and over average
delinquency rate (including foreclosures and REOs) is equal
to or less than _____ % of the Pool Principal Balance.
(ii) the cumulative losses through the given month is equal to or
less than the following percent of Principal Pool Original
Balance:
Cumulative Loss % of Original
Month Pool Balance
24 _____ %
36 _____ %
48 _____ %
60+ _____ %
and
(iii) the aggregate loss during the 12 months preceding a Payment
Date, as a percentage of the Pool Principal Balance as of the
first day of such 12 month period must be less than ____
basis points (_____ %).
Stepped Down Percentage: For any Payment Date on or after the Step Down
Date on which the Step Down Test is satisfied, a percentage equal to _____ %.
Substitution Adjustment: As to any date on which a substitution occurs
pursuant to Section 3.05 hereof, the amount, if any, by which (a) the sum of the
aggregate principal balance (after application of principal payments received on
or before the date of substitution) of any Qualified Substitute Home Loans as of
the date of substitution, plus any accrued and unpaid interest thereon to the
date of substitution, is less than (b) the sum of the Principal Balance,
together with accrued and unpaid interest thereon to the date of substitution,
of the related Deleted Home Loans.
Tangible Net Worth: As defined in Section 10.01(a)(x) hereof.
Termination Price: As of any date of determination, an amount without
duplication equal to the greater of (A) the Note Redemption Amount and (B) the
sum of (i) the Principal Balance of each Home Loan as of the applicable Monthly
Cut-Off Date; (ii) all unpaid interest accrued on the Principal Balance of each
such Home Loan at the related Home Loan Interest Rate to such Monthly Cut-Off
Date; (iii) the aggregate fair market value of each Foreclosure Property on such
Monthly Cut-Off Date, as determined by an appraiser acceptable to [the Indenture
Trustee as of a date not more than 30 days prior to such Monthly Cut-Off Date;
and (iv) any due but unpaid Securities Insurer Reimbursement Amount].
Transaction Documents: This Agreement, the Servicing Agreement, the
Home Loan Purchase Agreement, the Owner Trust Agreement, the Custodial
Agreement, the Administration Agreement, the Indemnification and Contribution
Agreement, [the Insurance and Indemnity Agreement, the Premium Letter and the
Indemnification Agreement].
Transferor: __________ , in its capacity as the transferor hereunder.
Treasury Regulations: Regulations, including proposed or temporary
regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
Trust: The Issuer.
Trust Account Property: The Trust Accounts, all amounts and investments
held from time to time in the Trust Accounts and all proceeds of the foregoing.
Trust Accounts: The Note Payment Account, the Certificate Distribution
Account, the Policy Payment Account or the Collection Account.
Trust Estate: The assets subject to this Agreement, the Owner Trust
Agreement and the Indenture and assigned and conveyed to the Trust, which assets
consist of: (i) such Home Loans as from time to time are subject to this
Agreement as listed in the Home Loan Schedule, as the same may be amended or
supplemented from time to time including by the removal of Deleted Home Loans
and the addition of Qualified Substitute Home Loans, together with the Home Loan
File relating thereto and all proceeds thereof, (ii) the Mortgages and security
interests in Mortgaged Properties, (iii) all payments in respect of interest due
with respect to the Home Loans on or after the Cut-Off Date and all payments in
respect of principal received after the Cut-Off Date, (iv) such assets as from
time to time are identified as Foreclosure Property, (v) such assets and funds
as are from time to time are deposited in the Collection Account, the Note
Payment Account and the Certificate Distribution Account, including amounts on
deposit in such accounts which are invested in Permitted Investments, (vi) the
Issuer's rights under all insurance policies with respect to the Home Loans and
any Property Insurance Proceeds, (vii) Net Liquidation Proceeds and Released
Mortgaged Property Proceeds, (viii) all right, title and interest of the
Depositor in and to the obligations of the Transferor under the Home Loan
Purchase Agreement pursuant to which the Depositor acquired the Home Loans from
the Transferor, and (ix) all right, title and interest of the Depositor in and
to the Servicing Agreement and all proceeds of any of the foregoing.
Trust Fees and Expenses: As of each Payment Date, an amount equal to
the Master Servicer Compensation (which includes the Master Servicer Fee), the
Servicing Compensation (which includes the Servicing Fee), [Guaranty Insurance
Premium] and the Indenture Trustee Fee and reimbursement of the reasonable
expenses of the Indenture Trustee.
UCC: The Uniform Commercial Code as in effect in the State of New York.
Section 1.02. Other Definitional Provisions.
-----------------------------
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture and the Owner Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under GAAP. To the extent that the definitions of accounting terms in this
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under GAAP, the definitions contained in this Agreement
or in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Article, Section, Schedule
and Exhibit references contained in this Agreement are references to Articles,
Sections, Schedules and Exhibits in or to this Agreement unless otherwise
specified; and the term "including" shall mean "including without limitation."
(e) The definitions contained in this 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 genders of such terms.
(f) 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.
<PAGE>
ARTICLE II
CONVEYANCE OF THE HOME LOANS
----------------------------
Section 2.01. Conveyance of the Home Loans.
----------------------------
(a) As of the Closing Date, in consideration of the Issuer's delivery
of the Notes and the Residual Interest Certificates to the Depositor or its
designee, upon the order of the Depositor, the Depositor, as of the Closing Date
and concurrently with the execution and delivery hereof, does hereby sell,
transfer, assign, set over and otherwise convey to the Issuer, without recourse,
but subject to the other terms and provisions of this Agreement, all of the
right, title and interest of the Depositor in and to the Trust Estate. The
foregoing sale, transfer, assignment, set over and conveyance does not, and is
not intended to, result in a creation or an assumption by the Issuer of any
obligation of the Depositor, the Transferor or any other person in connection
with the Trust Estate or under any agreement or instrument relating thereto
except as specifically set forth herein.
(b) As of the Closing Date, the Issuer acknowledges the conveyance to
it of the Trust Estate, including all right, title and interest of the Depositor
in and to the Trust Estate, receipt of which is hereby acknowledged by the
Issuer. Concurrently with such delivery and in exchange therefor, the Issuer has
pledged the Trust Estate to the Indenture Trustee and executed the Notes, and
the Indenture Trustee, pursuant to the written instructions of the Issuer, has
caused the Notes to be authenticated and delivered to the Depositor or its
designee. In addition, concurrently with such delivery and in exchange therefor,
the Owner Trustee, pursuant to the instructions of the Depositor, has executed
(not in its individual capacity, but solely as Owner Trustee on behalf of the
Issuer) and caused the Residual Interest Certificates to be authenticated and
delivered to the Depositor or its designee, upon the order of the Depositor.
Section 2.02. Ownership and Possession of Home Loan Files.
-------------------------------------------
Upon the issuance of the Notes, with respect to the Home Loans, the
ownership of each Debt Instrument, the related Mortgage and the contents of the
related Servicer's Home Loan File and the Indenture Trustee's Home Loan File
shall be vested in the Trust and pledged to the Indenture Trustee for the
benefit of the Noteholders, although possession of the Servicer's Home Loan
Files (other than items required to be maintained in the Indenture Trustee's
Home Loan Files) on behalf of and for the benefit of the Securityholders shall
remain with the Servicer, and the Custodian shall take possession of the
Indenture Trustee's Home Loan Files as contemplated in Section 2.05 hereof.
Section 2.03. Books and Records.
-----------------
The sale of each Home Loan shall be reflected on the balance sheets and
other financial statements of the Depositor or the Transferor, as the case may
be, as a sale of assets by the Depositor or the Transferor, as the case may be,
under GAAP. Each of the Servicer and the Custodian shall be responsible for
maintaining, and shall maintain, a complete set of books and records for each
Home Loan which shall be clearly marked to reflect the ownership of each Home
Loan by the Owner Trustee and pledged to the Indenture Trustee for the benefit
of the Noteholders.
It is the intention of the parties hereto that the transfers and
assignments contemplated by this Agreement shall constitute a sale of the Home
Loans and the other property specified in Section 2.01(a) hereof from the
Depositor to the Trust. If the assignment and transfer of the Home Loans and the
other property specified in Section 2.01(a) hereof to the Trust pursuant to this
Agreement or the conveyance of the Home Loans or any of such other property to
the Trust is held or deemed not to be a sale or is held or deemed to be a pledge
of security for a loan, the Depositor intends that the rights and obligations of
the parties shall be established pursuant to the terms of this Agreement and
that in such event, (i) the Depositor shall be deemed to have granted and does
hereby grant to the Trust a first priority security interest in the entire
right, title and interest of the Depositor in and to the Home Loans and all
other property conveyed to the Trust pursuant to Section 2.01 hereof and all
proceeds thereof and (ii) this Agreement shall constitute a security agreement
under applicable law. Within ten (10) days of the Closing Date, the Depositor
shall cause to be filed UCC-1 financing statements naming the Trust as a
"secured party" and describing the Home Loans being sold by the Depositor to the
Trust with the office of the Secretary of State of the state in which the
Depositor is located.
Section 2.04. Delivery of Home Loan Documents.
-------------------------------
(a) With respect to each Home Loan, the Transferor and/or the
Depositor, as applicable, shall, on the Closing Date, deliver or caused to be
delivered to the Custodian, as the designated agent of the Indenture Trustee,
each of the following documents (collectively, the "Indenture Trustee's Home
Loan Files"):
(i)..The original Debt Instrument, endorsed by the Transferor in
blank or in the following form: "Pay to the order of
____________________________ as Trustee without recourse" with all prior and
intervening endorsements showing a complete chain or endorsement from
origination of the Home Loan to the Transferor, or a lost note affidavit
acceptable to the Indenture Trustee (not to exceed ___ Home Loans);
(ii)..The original Mortgage with evidence of recording thereon
(or, if the original Mortgage has not been returned from the applicable public
recording office or is not otherwise available, a copy of the Mortgage certified
by a Responsible Officer of the Transferor or by the closing attorney or by an
officer of the title insurer or agent of the title insurer which issued the
related title insurance policy, if any, or commitment therefor to be a true and
complete copy of the original Mortgage submitted for recording) and, if the
Mortgage was executed pursuant to a power of attorney, the original power of
attorney with evidence of recording thereon (or, if the original power of
attorney has not been returned from the applicable public recording office or is
not otherwise available, a copy of the power of attorney certified by a
Responsible Officer of the Transferor or by the closing attorney or by an
officer of the title insurer or agent of the title insurer which issued the
related title insurance policy, if any, or commitment, thereof, to be a true and
complete copy of the original power of attorney submitted for recording);
(iii)..The original executed Assignment of Mortgage, in blank or
in recordable form to "____________________ , as Trustee." The Assignment of
Mortgage may be a blanket assignment, to the extent such assignment is effective
under applicable law, for Mortgages covering Mortgaged Properties situated
within the same county. If the Assignment of Mortgage is in blanket form, an
Assignment of Mortgage need not be included in the individual Indenture
Trustee's Home Loan File;
(iv)..All original intervening assignments of mortgage, with
evidence of recording thereon, showing a complete chain of assignment from
origination of the Home Loan to the Transferor (or, if any such assignment of
mortgage has not been returned from the applicable public recording office or is
not otherwise available, a copy of such assignment of mortgage certified by a
Responsible Officer of the Transferor or by the closing attorney or by an
officer of the title insurer or agent of the title insurer which issued the
related title insurance policy, if any, or commitment therefor to be a true and
complete copy of the original assignment submitted for recording); provided that
the chain of intervening recorded assignments shall not be required to match the
chain of intervening endorsements of the Debt Instrument so long as the chain of
intervening recorded assignments, if applicable, evidences one or more
assignments of the Mortgage from the original mortgagee ultimately to the person
who has executed the Assignment of Mortgage;
(v)..The original, or a copy certified by the Transferor to be a
true and correct copy of the original, of each assumption, modification, written
assurance or substitute agreement, if any; and
(vi)..[The original policy of title insurance, including riders
and endorsements thereto, as if the policy has not yet been issued, a written
commitment or interim binder or preliminary report of title issued by the title
insurance or escrow company.]
(b) With respect to each Home Loan, the Transferor and the Depositor
shall, on the Closing Date, deliver or caused to be delivered to the Servicer,
as the designated agent of the Indenture Trustee, the Servicer's Home Loan
Files.
(c) The Indenture Trustee shall cause the Custodian to take and
maintain continuous physical possession of the Indenture Trustee's Home Loan
Files in the State of _____________ and, in connection therewith, shall act
solely as agent for the Noteholders in accordance with the terms hereof and not
as agent for the Transferor or any other party.
(d) Within 60 days after the Closing Date, the Transferor, at its own
expense, shall record each Assignment of Mortgage (which may be a blanket
assignment if permitted by applicable law) in the appropriate real property or
other records; provided, however, that the Transferor need not record any such
Assignment of Mortgage which relates to a Home Loan in any jurisdiction under
the laws of which, as evidenced by an Opinion of Counsel delivered by the
Transferor (at the Transferor's expense) to the Indenture Trustee, the
Securities Insurer and the Rating Agencies, that recordation of such Assignment
of Mortgage is not necessary to protect the Indenture Trustee's and the
Noteholder's interest in the related Home Loan. With respect to any Assignment
of Mortgage as to which the related recording information is unavailable within
60 days following the Closing Date, such Assignment of Mortgage shall be
submitted for recording within 30 days after receipt of such information but in
no event later than 360 days after the Closing Date. The Indenture Trustee shall
be required to retain a copy of each Assignment of Mortgage submitted for
recording. In the event that any such Assignment of Mortgage is lost or returned
unrecorded because of a defect therein, the Transferor shall promptly prepare a
substitute Assignment of Mortgage or cure such defect, as the case may be, and
thereafter the Transferor shall be required to submit each such Assignment of
Mortgage for recording.
(e) All recordings required pursuant to this Section 2.04 shall be
accomplished by and at the expense of the Transferor.
Section 2.05. Acceptance by the Indenture Trustee of the Home Loans;
Certain Substitutions; Certification by the Custodian.
------------------------------------------------------
(a) The Indenture Trustee agrees to cause the Custodian to execute and
deliver on the Closing Date an acknowledgment of receipt of the Indenture
Trustee's Home Loan File for each Home Loan. The Indenture Trustee will cause
the Custodian to hold such documents and any amendments, replacements or
supplements thereto, as well as any other assets included in the Trust Estate
and delivered to the Custodian, in trust, upon and subject to the conditions set
forth herein. The Indenture Trustee agrees to cause the Custodian to review each
Indenture Trustee's Home Loan File within 45 days after the Closing Date (or,
with respect to any Qualified Substitute Home Loan, within 45 days after the
conveyance of the related Home Loan to the Trust) and to cause the Custodian to
deliver to the Transferor, the Depositor, the Servicer, the Indenture Trustee,
[and the Securities Insurer] a certification (the "Custodian's Initial
Certification") to the effect that, as to each Home Loan listed in the Home Loan
Schedule (other than any Home Loan paid in full or any Home Loan specifically
identified as an exception to such certification), (i) all documents required to
be delivered to the Indenture Trustee pursuant to this Agreement are in its
possession or in the possession of the Custodian on its behalf (other than as
expressly permitted by Section 2.04 hereof), (ii) such documents have been
reviewed by the Custodian and have not been mutilated or damaged and appear
regular on their face (handwritten additions, changes or corrections shall not
constitute irregularities if initialed by the Obligor) and relate to such Home
Loan, and (iii) based on the examination of the Custodian on behalf of the
Indenture Trustee, and only as to the foregoing documents, the information set
forth on the Home Loan Schedule accurately reflects the information set forth in
the Indenture Trustee's Home Loan File. Neither the Indenture Trustee nor the
Custodian shall be under any duty or obligation to make an independent
examination of any documents contained in each Indenture Trustee's Home Loan
File beyond the review listed herein. Neither the Custodian nor the Indenture
Trustee makes any representations as to: (i) the validity, legality,
sufficiency, enforceability, execution by a responsible officer or genuineness
of any of the documents contained in each Indenture Trustee's Home Loan File of
any of the Home Loans identified on the Home Loan Schedule relating to such Home
Loans, or (ii) the collectibility, insurability, effectiveness or suitability of
any such Home Loan, or (iii) the existence of any document specified in clause
(v) of Section 1(b) of the Custodial Agreement.
(b) The Servicer's Home Loan Files shall be held in the custody of the
Servicer for the benefit of, and as agent for, the Noteholders and the Indenture
Trustee for so long as the Indenture continues in full force and effect; after
the Indenture is terminated in accordance with the terms thereof, the Servicer's
Home Loan Files shall be held in the custody of the Servicer for the benefit of,
and as agent for, the Certificateholders. It is intended that, by the Servicer's
agreement pursuant to this Section 2.05(b), the Indenture Trustee shall be
deemed to have possession of the Servicer's Home Loan Files for purposes of
Section 9-305 of the Uniform Commercial Code of the state in which such
documents or instruments are located. The Servicer shall promptly report to the
Indenture Trustee any failure by it to hold the Servicer's Home Loan File as
herein provided and shall promptly take appropriate action to remedy any such
failure. In acting as custodian of such documents and instruments, the Servicer
agrees not to assert any legal or beneficial ownership interest in the Home
Loans or such documents or instruments. The Servicer agrees to indemnify the
Securityholders and the Indenture Trustee for any and all liabilities,
obligations, losses, damages, payments, costs or expenses of any kind whatsoever
which may be imposed on, incurred by or asserted against the Securityholders or
the Indenture Trustee as the result of any act or omission by the Servicer
relating to the maintenance and custody of such documents or instruments which
have been delivered to the Servicer; provided, however, that the Servicer will
not be liable for any portion of any such amount resulting from the negligence
or misconduct of any Securityholders or the Indenture Trustee; and provided,
further, that the Servicer will not be liable for any portion of any such amount
resulting from the Servicer's compliance with any instructions or directions
consistent with this Agreement issued to the Servicer by the Indenture Trustee.
The Indenture Trustee shall have no duty to monitor or otherwise oversee the
Servicer's performance as custodian hereunder.
(c) The Indenture Trustee agrees to cause the Custodian to review, for
the benefit of the Securityholders, each Indenture Trustee's Home Loan File
within 60 days after the date the Custodian delivered a Custodian's Initial
Certification and to deliver to the Transferor, the Depositor, the Servicer, the
Indenture Trustee [and the Securities Insurer] an updated certification (a
"Custodian's Updated Certification"), setting forth those exceptions listed on
the Custodian's Initial Certification which continue to exist on the date of
such Custodian's Updated Certification. With respect to any Home Loans which are
set forth as exceptions in the Custodian's Updated Certification because
recorded assignments or original or certified copies of Mortgages have not yet
been delivered to the Custodian, the Transferor shall cure such exceptions by
delivering such missing documents to the Custodian no later than 180 days after
the Closing Date.
The Indenture Trustee agrees to cause the Custodian to review for the
benefit of the Securityholders, each Indenture Trustee's Home Loan File within
180 days after the date it delivered a Custodian's Initial Certification and to
deliver to the Transferor, the Depositor, the Servicer, the Indenture Trustee,
[and the Securities Insurer] a final certification (a "Custodian's Final
Certification"), setting forth those exceptions listed on the Custodian's
Updated Certification which continue to exist on the date of such Custodian's
Final Certification.
In performing any such review, the Custodian may conclusively rely on
the Transferor as to the purported genuineness of any such document and any
signature thereon. Neither the Indenture Trustee nor the Custodian shall have
any responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form, whether any document has been recorded in accordance with the requirements
of any applicable jurisdiction or whether a blanket assignment is permitted in
any applicable jurisdiction. If a material defect in a document constituting
part of a Indenture Trustee's Home Loan File is discovered, then the Depositor
and Transferor shall comply with the cure, substitution and repurchase
provisions of Section 3.05 hereof.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.01. Representations and Warranties of the Depositor.
-----------------------------------------------
The Depositor hereby represents and warrants to the Transferor, the
Master Servicer, the Servicer, the Indenture Trustee, the Owner Trustee[, the
Securities Insurer] and the Noteholders that as of the Closing Date:
(a) The Depositor is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has, and had at all
relevant times, full power to own its property, to carry on its business as
currently conducted, to enter into and perform its obligations under each
Transaction Document to which the Depositor is a party and to create the Trust
pursuant to the Owner Trust Agreement.
(b) The execution and delivery of each Transaction Document to which
the Depositor is a party by the Depositor and its performance of and compliance
with the terms of thereof will not violate the Depositor's certificate of
incorporation or by-laws or constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, or result in the
breach or acceleration of, any material contract, agreement or other instrument
to which the Depositor is a party or which may be applicable to the Depositor or
any of its assets.
(c) The Depositor has the full power and authority to enter into and
consummate the transactions contemplated by each Transaction Document to which
the Depositor is a party, has duly authorized the execution, delivery and
performance of each Transaction Document to which the Depositor is a party and
has duly executed and delivered each Transaction Document to which the Depositor
is a party. Each Transaction Document to which the Depositor is a party,
assuming due authorization, execution and delivery by each other party thereto,
constitutes a valid, legal and binding obligation of the Depositor, enforceable
against it in accordance with the terms thereof, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(d) The Depositor is not in violation of, and the execution and
delivery of any Transaction Document by the Depositor and its performance and
compliance with the terms of any Transaction Document to which the Depositor is
a party will not constitute a violation with respect to, any order or decree of
any court or any order or regulation of any federal, state, municipal or
governmental agency having jurisdiction, which violation would materially and
adversely affect the condition (financial or otherwise) or operations of the
Depositor or its properties or materially and adversely affect the performance
of its duties hereunder or thereunder.
(e) There are no actions or proceedings against, or investigations of,
the Depositor currently pending with regard to which the Depositor has received
service of process and no action or proceeding against, or investigation of, the
Depositor is, to the knowledge of the Depositor, threatened or otherwise pending
before any court, administrative agency or other tribunal that (A) if determined
adversely, would prohibit its entering into any Transaction Document to which
the Depositor is a party or render the Notes invalid, (B) seek to prevent the
issuance of the Notes or the consummation of any of the transactions
contemplated by any Transaction Document to which the Depositor is a party or
(C) if determined adversely, would prohibit or materially and adversely affect
the performance by the Depositor of its obligations under, or the validity or
enforceability of, any Transaction Document to which the Depositor is a party or
the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Depositor of, or compliance by the Depositor with, any
Transaction Document to which the Depositor is a party or the Notes, or for the
consummation of the transactions contemplated by any Transaction Document,
except for such consents, approvals, authorizations and orders, if any, that
have been obtained prior to the Closing Date.
(g) The Depositor is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by its execution and delivery of
any Transaction Document or its obligations hereunder; no petition of bankruptcy
(or similar insolvency proceeding) has been filed by or against the Depositor
prior to the date hereof.
(h) The Depositor did not sell the Home Loans to the Issuer, with any
intent to hinder, delay or defraud any of its creditors; the Depositor will not
be rendered insolvent as a result of the sale of the Home Loans to the Issuer.
(i) Immediately upon each transfer and assignment herein contemplated,
the Depositor will have delivered to the Issuer good title to, and the Issuer
will be the sole beneficial owner of, the Home Loans free and clear of any lien
or options in favor of, or claims of, any other Person.
(j) No Officers' Certificate, statement, report or other document
prepared by the Depositor and furnished or to be furnished by it pursuant to
this Agreement or in connection with the transactions contemplated hereby
contains any untrue statement of material fact.
(k) The Depositor is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
Section 3.02. Representations and Warranties of the Transferor.
------------------------------------------------
The Transferor hereby represents and warrants to the Servicer, the
Indenture Trustee, the Owner Trustee[, the Securities Insurer], the Noteholders
and the Depositor that as of the Closing Date (except as otherwise specifically
provided herein):
(a) The Transferor is _______________________________duly organized,
validly existing and in good standing under the laws of the State of
__________________ and has and had at all relevant times, full corporate power
to originate or purchase the Home Loans, to own its property, to carry on its
business as presently conducted and to enter into and perform its obligations
under each Transaction Document to which it is a party.
(b) The execution and delivery of each Transaction Document to which it
is a party by the Transferor and its performance of and compliance with the
terms of each Transaction Document to which it is a party will not violate the
Transferor's certificate of incorporation or by-laws or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach or acceleration of, any material
contract, agreement or other instrument to which the Transferor is a party or
which may be applicable to the Transferor or any of its assets.
(c) The Transferor has the full power and authority to enter into and
consummate all transactions to be consummated by it, contemplated by each
Transaction Document to which it is a party has duly authorized the execution,
delivery and performance of each Transaction Document to which it is a party and
has duly executed and delivered each Transaction Document to which it is a
party. Each Transaction Document to which the Transferor is a party, assuming
due authorization, execution and delivery by the other parties thereto,
constitutes a valid, legal and binding obligation of the Transferor, enforceable
against it in accordance with the terms thereof, except as such enforcement may
be limited by bankruptcy, insolvency, reorganization, receivership, moratorium
or other similar laws relating to or affecting the rights of creditors
generally, and by general equity principles (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(d) The Transferor is not in violation of, and the execution and
delivery of any Transaction Documents by the Transferor and its performance and
compliance with the terms thereof will not constitute a violation with respect
to, any order or decree of any court or any order or regulation of any federal,
state, municipal or governmental agency having jurisdiction, which violation
would materially and adversely affect the condition (financial or otherwise) or
operations of the Transferor or its properties or materially and adversely
affect the performance of its duties hereunder or thereunder.
(e) There are no actions or proceedings against, or investigations of,
the Transferor currently pending with regard to which the Transferor has
received service of process and no action or proceeding against, or
investigation of, the Transferor is, to the knowledge of the Transferor,
threatened or otherwise pending, before any court, administrative agency or
other tribunal that (A) if determined adversely, would prohibit its entering
into this Agreement or render the Notes invalid, (B) seek to prevent the
issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or (C) if determined adversely, would prohibit or
materially and adversely affect the sale of the Home Loans to the Depositor, the
performance by the Transferor of its obligations under, or the validity or
enforceability of, this Agreement or the Notes.
(f) No consent, approval, authorization or order of any court or
governmental agency or body is required for: (1) the execution, delivery and
performance by the Transferor of, or compliance by the Transferor with, this
Agreement, (2) the issuance of the Notes, (3) the sale of the Home Loans under
the Home Loan Purchase Agreement or (4) the consummation of the transactions
required of it by this Agreement, except such as shall have been obtained before
the Closing Date.
(g) The Transferor acquired title to the Home Loans in good faith,
without notice of any adverse claim.
(h) The collection practices used by the Transferor with respect to the
Home Loans have been, in all material respects, legal, proper, prudent and
customary in the servicing of loans of the same type as the Home Loans;
(i) No Officer's Certificate, statement, report or other document
prepared by the Transferor and furnished or to be furnished by it pursuant to
any Transaction Document or in connection with the transactions contemplated
hereby contains any untrue statement of material fact.
(j) The Transferor is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
any Transaction Document or by the performance of its obligations hereunder; no
petition of bankruptcy (or similar insolvency proceeding) has been filed by or
against the Transferor prior to the date hereof.
(k) The Prospectus Supplement does not contain an untrue statement of a
material fact and does not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the Transferor makes no statement with
respect to: (1) the statements set forth in the final paragraph of the cover of
the Prospectus Supplement; and (2) statements set forth under the following
captions: (i) "SUMMARY - Tax Status", "-- ERISA Considerations", and "-- Legal
Investment"; (ii) "DESCRIPTION OF CREDIT ENHANCEMENT"; (iii) "FEDERAL INCOME TAX
CONSEQUENCES"; (iv) "ERISA CONSIDERATIONS"; (v) "LEGAL INVESTMENT MATTERS"; and
(vi) "UNDERWRITING".
(l) The Transferor has transferred the Home Loans without any intent to
hinder, delay or defraud any of its creditors.
(m) The origination and collection practices used with respect to each
Debt Instrument and Mortgage have been in all material respects legal, proper,
prudent and customary in the mortgage origination and servicing business and in
compliance with the Transferor's underwriting criteria as described in the
Prospectus Supplement.
(n) Upon the receipt of each Indenture Trustee's Home Loan File by the
Custodian, the Indenture Trustee will have a first priority security interest in
each Home Loan and such other items comprising the corpus of the Trust free and
clear of any lien, charge or encumbrance other than the lien of the Indenture.
(o) The transfer, assignment and conveyance of the Debt Instruments and
the Mortgages by the Transferor pursuant to this Agreement are not subject to
the bulk transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction.
It is understood and agreed that the representations and warranties set
forth in this Section 3.02 shall survive delivery of the Indenture Trustee's
Home Loan Files to the Custodian and shall inure to the benefit of the
Securityholders, the Securities Insurer, the Depositor, the Master Servicer, the
Servicer, the Indenture Trustee, the Owner Trustee and the Trust. Upon discovery
by any of the Transferor, [the Securities Insurer,] the Depositor, the Master
Servicer, the Servicer, the Indenture Trustee or the Owner Trustee of a breach
of any of the foregoing representations and warranties that materially and
adversely affects the value of any Home Loan, the party discovering such breach
shall give prompt written notice (but in no event later than two Business Days
following such discovery) to the other parties. The obligations of the
Transferor set forth in Section 3.05 hereof shall constitute the sole remedies
available hereunder to the Securityholders, the Depositor, the Master Servicer,
the Servicer, the Indenture Trustee or the Owner Trustee respecting a breach of
the representations and warranties contained in this Section 3.02.
Section 3.03. Representations, Warranties and Covenants
of the Master Servicer.
-----------------------------------------
The Master Servicer hereby represents and warrants to and covenants
with the Owner Trustee, the Indenture Trustee, [the Securities Insurer,] the
Noteholders, the Depositor, and the Transferor that as of the Closing Date or as
of such date specifically provided herein:
(a) The Master Servicer is a ______________________________ duly
organized, validly existing, and in good standing under the laws of the state of
_________________ and has all licenses necessary to carry on its business as now
being conducted and is licensed, qualified and in good standing in each state
where any property securing the Home Loans is located if the laws of such state
require licensing or qualification in order to conduct business of the type
conducted by the Master Servicer and perform its obligations as Master Servicer
hereunder and under the Servicing Agreement; the Master Servicer has the power
and authority to execute and deliver this Agreement and under the Servicing
Agreement and to perform its obligations in accordance herewith and therewith;
the execution, delivery and performance of this Agreement and under the
Servicing Agreement (including all instruments of transfer to be delivered
pursuant to this Agreement) by the Master Servicer and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action; this Agreement and under the Servicing
Agreement evidences the valid, binding and enforceable obligation of the Master
Servicer; and all requisite action has been taken by the Master Servicer to make
this Agreement valid, binding and enforceable upon the Master Servicer in
accordance with its terms, subject to and under the Servicing Agreement the
effect of bankruptcy, insolvency, reorganization, moratorium and other, similar
laws relating to or affecting creditor's rights generally or the application of
equitable principles in any proceeding, whether at law or in equity.
(b) All actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits authorizations, rights and licenses required to be
taken, given or obtained, as the case may be, by or from any federal, state or
other governmental authority or agency, that are necessary in connection with
the purchase and sale of the Notes and the execution and delivery by the Master
Servicer of the documents to which it is a party, have been duly taken, given or
obtained, as the case may be, are in full force and effect, are not subject to
any pending proceedings or appeals (administrative, judicial or otherwise) and
either the time within which any appeal therefrom may be taken or review thereof
may be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement and the other documents on the part
of the Master Servicer and the performance by the Master Servicer of its
obligations as Master Servicer under this Agreement and such other documents to
which it is a party.
(c) The consummation of the transaction contemplated by this Agreement
and the Servicing Agreement will not result in the breach of any terms or
provisions of the certificate of incorporation or by-laws of the Master Servicer
or result in the breach of any term or provision of, or conflict with or
constitute a default under or result in the acceleration for any obligation
under, any material agreement, indenture or loan or credit agreement or other
material instrument to which the Master Servicer or to its property is subject,
or result in the violation of any law, rule, regulation, order, judgment or
decree to which the Master Servicer or its property is subject;
(d) Neither this Agreement nor any report or other document prepared by
the Master Servicer and furnished or to be furnished pursuant to this Agreement
or in connection with the transactions contemplated hereby contains any untrue
statement of material fact; and the statements set forth in the Prospectus
Supplement under the caption "THE MASTER SERVICER" do not contain an untrue
statement of a material fact and do not omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(e) There is no action, suit, proceeding or investigation pending or,
to the best of the Master Servicer's knowledge, threatened against the Master
Servicer which, either in any one instance or in the aggregate, may result in
any material adverse change in the business, operations, financial condition,
properties or assets of the Master Servicer or in any material impairment of the
right or ability of the Master Servicer to carry on its business substantially
as now conducted, or in any material liability on the part of the Master
Servicer or which would draw into question the validity of this Agreement, the
Servicing Agreement or the Home Loans or of any action taken or to be taken in
connection with the obligations of the Master Servicer contemplated herein, or
which would be likely to impair the ability of the Master Servicer to perform
under the terms of this Agreement or the Servicing Agreement.
(f) The Master Servicer 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 Master Servicer or its properties or might have consequences
that would adversely affect its performance hereunder or under the Servicing
Agreement.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 3.03 shall survive delivery of the
respective Home Loan Files to the Indenture Trustee and shall inure to the
benefit of the Depositor, the Noteholders, the Owner Trustee[, the Securities
Insurer], and the Indenture Trustee. Upon discovery by any of the Transferor,
the Depositor, the Indenture Trustee[, the Securities Insurer] or the Owner
Trustee of a breach of any of the foregoing representations, warranties and
covenants that materially and adversely affects the value of any Home Loan or
the interests of such Person therein, the party discovering such breach shall
give prompt written notice (but in no event later than _______ Business Days
following such discovery) to the other parties.
Section 3.04. Representations and Warranties
Regarding Individual Home Loans.
-------------------------------
The Transferor hereby represents and warrants to the Depositor, the
Issuer, the Indenture Trustee, the Owner Trustee[, the Securities Insurer], the
Master Servicer and the Noteholders, with respect to each Home Loan as of the
Closing Date, except as otherwise expressly stated:
(a) Home Loan Schedule. The information with respect to each Home Loan
set forth in the Home Loan Schedule is complete, true and correct as of the
Cut-off-Date;
(b) Delivery of Home Loan File. All of the original or certified
documentation required to be delivered by the Transferor on the Closing Date or
as otherwise provided herein has or will be so delivered as provided; The Home
Loan File contains each of the documents and instruments specified to be
included therein duly executed and in due and proper form, and each such
document or instrument is in a form generally acceptable to prudent home loan
lenders that regularly originate or purchase mortgage loans comparable to the
Home Loans for sale to prudent investors in the secondary market that invest in
mortgage loans such as the Home Loans;
(c) Nature of Property. Each Mortgaged Property consists of a single
parcel of residential real property, separately assessed for tax purposes, owned
by the related Obligor in fee simple absolute and is improved by a
one-to-four-family residential dwelling, which does not include condominiums,
cooperatives, units in a planned urban development, town houses, or mobile homes
and does not constitute other than real property under the state law. No
Mortgage Property is a manufactured housing unit, as defined in the Fannie
Mae/Freddie Mac Seller-Servicer's Guide;
(d) Servicing. Each Home Loan is being serviced by the Master Servicer;
(e) Fixed Interest Rate. The Debt Instrument related to approximately
______ % of the Home Loans bear a fixed Home Loan Interest Rate. The Home Loan
Interest Rate on the fixed rate Home Loans is not less than _____ % nor more
than _______ % and as of the Cut-Off-Date, the weighted average Home Loan
Interest Rate on the fixed rate Home Loans is approximately ________ %;
(f) Adjustable Home Loan Interest Rates. The Debt Instrument related to
approximately ______ % of the Home Loans bear an adjustable Home Loan Interest
Rate ("ARMs"). All of the terms of the Mortgage pertaining to interest rate
adjustments, payment adjustments and adjustments of the principal balance with
respect to the ARMs are enforceable, all such adjustments have been correctly
made in accordance with the terms of the related Debt Instrument and such
adjustments will not affect the priority of the Mortgage lien; all ARMs have an
index and there is no provision which would permit the Obligor to convert to a
fixed interest rate; as of the Cut-off Date, the weighted average margin on the
ARMs was approximately ________ %; the ARMs have a weighted average contractual
maximum interest rate equal to approximately _______ %; the ARMs have a weighted
average contractual minimum interest rate equal to approximately ________ %;
approximately ________ % of the ARMS are 2/28's and have a subsequent adjustment
frequency of six months, approximately _______ % of the ARMs are 3/27's and have
a subsequent adjustment frequency of six months and the remaining approximately
8.34% of the ARMs adjust every 6 months;
(g) Priority of Lien. Each Mortgage is a valid and subsisting first
lien of record on a single parcel of real estate constituting the Mortgaged
Property, subject in all cases to the exceptions to title set forth in the title
insurance policy, with respect to the related Home Loan, which exceptions are
generally acceptable to mortgage lending companies, and such other exceptions to
which similar properties are commonly subject and which do not individually, or
in the aggregate, materially and adversely affect the benefits of the security
intended to be provided by such Mortgage;
(h) Title. Except with respect to liens released immediately prior to
the transfer herein contemplated, immediately prior to the transfer and
assignment herein contemplated the Transferor held good and indefeasible title
to, and was the sole owner of, each Home Loan, subject to no liens, charges,
mortgages, encumbrances or rights of others; and immediately upon the transfer
and assignment herein contemplated, the Owner Trust will hold good and
indefeasible title to, and be the sole owner of, each Home Loan, subject to no
liens, charges, mortgages, encumbrances or rights of others;
(i) Delinquencies. As of the Cut-Off Date, _____ Home Loans are 30 or
more days delinquent; ___ Home Loans are over 60 days delinquent; and _____ Home
Loan has ever been 89 or more days delinquent;
(j) Tax Liens; Status of Property. There is no delinquent tax or
assessment lien on any Mortgaged Property, and each Mortgaged Property is free
of material damage and is in good repair;
(k) No Defenses. The Home Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of usury,
nor will the operation of any of the terms of the Debt Instrument or the
Mortgage, or the exercise of any right thereunder, render either the Debt
Instrument or the Mortgage unenforceable in whole or in part, or subject to any
right of rescission, set-off, counterclaim or defense, including the defense of
usury, and no such right of rescission, set-off, counterclaim or defense has
been asserted with respect thereto;
(l) No Mechanics Lien. There is no mechanic's lien or claim for work,
labor or material affecting any Mortgaged Property which is or may be a lien
prior to, or equal to or on a parity with, the lien of such Mortgage except
those which are insured against by the title insurance policy referred to in
Section (n) below;
(m) Origination in Compliance with Laws. Each Home Loan complies, at
the time it was made complied and at all times has complied in all material
respects with applicable local, state and federal laws and regulations,
including, without limitation, usury, truth-in-lending, real estate settlement
procedure, consumer credit protection, equal credit opportunity, disclosure and
recording laws and the Transferor has and shall maintain in its possession
available for inspection and shall deliver upon demand, evidence of compliance
with all such requirements; and, to the Transferor's knowledge, no fraud or
misrepresentation was committed by any person or entity in connection with the
origination of each Home Loan;
(n) Title Insurance. With respect to each Home Loan, a written
commitment for a lender's title insurance policy, issued in standard American
Land Title Association or California Land Title Association form, or other form
acceptable in a particular jurisdiction, by a title insurance company authorized
to transact business in the state in which the related Mortgaged Property is
situated, together with a condominium endorsement, if applicable, in an amount
at least equal to the original Principal Balance of such Home Loan insuring the
mortgagee's interest under the related Home Loan as the holder of a valid first
mortgage lien of record on the real property described in the Mortgage, subject
only to exceptions of the character referred to in paragraph (g) above, was
effective on the date of the origination of such Home Loan, and, as of the
Closing Date, such commitment will be valid and thereafter the policy issued
pursuant to such commitment shall continue in full force and effect. The
originator is the sole named insured of such mortgage title insurance policy,
the assignment to the Owner Trust, and the pledge to the Indenture Trustee, of
the originator's interest in such mortgage title insurance policy does not
require the consent of or notification to the insurer, and such mortgage title
insurance policy is in full force and effect and will be in full force and
effect and inure to the benefit of the Owner Trust upon the consummation of the
transactions contemplated by this Agreement. No claims have been made under such
mortgage title insurance policy and no prior holder of the related Mortgage,
including the originator, has done, by act or omission, anything that would
impair the coverage of such mortgage title insurance policy;
(o) Hazard Insurance. The improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy with a generally
acceptable carrier that provides for fire and extended coverage representing
coverage not less than the least of (1) the outstanding principal balance of the
related Mortgage, (2) the minimum amount required to compensate for damage or
loss on a replacement cost basis or (3) the full insurable value of the
Mortgaged Property. All individual insurance policies (collectively, the "Hazard
insurance policy") are the valid and binding obligation of the insurer and
contain a standard mortgagee clause naming the originator, its successors and
assigns, as mortgagee. All premiums thereon have been paid. The Mortgage
obligated the Obligor thereunder to maintain all such insurance at the Obligor's
cost and expense, and upon the Obligor's failure to do so, authorizes the holder
of the Mortgage to obtain and maintain such insurance at the Obligor's cost and
expense and to seek reimbursement therefor from the Obligor;
(p) Flood Insurance. If any Mortgaged Property is in an area identified
in the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Federal Insurance Administration
is in effect with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (A) the
outstanding principal balance of the related Home Loan, (B) the minimum amount
required to compensate for damage or loss on a replacement cost basis or (C) the
maximum amount of insurance that is available under the National Flood Insurance
Act of 1968, as amended; The Mortgage obligated the Obligor thereunder to
maintain all such insurance at the Obligor's cost and expense, and upon the
Obligor's failure to do so, authorizes the holder of the Mortgage to obtain and
maintain such insurance at the Obligor's cost and expense and to seek
reimbursement therefor from the Obligor;
(q) Enforceability. Each Mortgage and Debt Instrument is genuine and is
the legal, valid and binding obligation of the maker thereof and is enforceable
in accordance with its terms, except only as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (whether considered in a proceeding or action in equity or
at law), and all parties to each Home Loan had full legal capacity to execute
all Home Loan documents and convey the estate therein purported to be conveyed
and the Mortgage and Debt Instrument have been duly and properly executed by
such parties; the Obligor is a natural person who is a party to the Debt
Instrument and the Mortgage in an individual capacity and not in the capacity of
a trustee or otherwise.
(r) Notice to Insurers. The Transferor has caused or will cause to be
performed any and all acts required to be performed to preserve the rights and
remedies of the Indenture Trustee in any insurance policies applicable to the
Home Loans including, without limitation, any necessary notifications of
insurers, assignments of policies or interests therein, and establishments of
co-insured, joint loss payee and mortgagee rights in favor of the Indenture
Trustee;
(s) Geographic Concentration. No more than approximately _____ % of the
Original Pool Principal Balance is secured by Mortgaged Properties located
within any single zip code area; no more than _____ % of the Original Pool
Principal Balance is located within any single state, except as follows
______________, _____________, ______________, or___________;
(t) Primary Residence. At least approximately ________ % of the
Original Pool Principal Balance is secured by Mortgaged Properties that are
maintained by the Obligors as primary residence;
(u) No Modification. The terms of the Debt Instrument and the Mortgage
have not been impaired, altered or modified in any material respect, except by a
written instrument which has been recorded or is in the process of being
recorded, if necessary, to protect the interest of the Securityholders and which
has been or will be delivered to the Trustee or the Custodian. The substance of
any such alteration or modification is reflected on the Home Loan Schedule.
(v) Recordation. Each original Mortgage was recorded, and all
subsequent assignments of the original Mortgage have been recorded in the
appropriate jurisdictions wherein such recordation is necessary to perfect the
lien thereof as against creditors of the Transferor (or, subject to Section
2.04(d) hereof, are in the process of being recorded);
(w) No Waiver. No instrument or release or waiver has been executed in
connection with the Home Loan, and no Obligor has been released, in whole or in
part;
(x) Taxes and Insurance. All taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground rents
which previously became due and owing have been paid, or an escrow of funds has
been established in an amount sufficient to pay for every such item which
remains unpaid and which has been assessed but is not yet due and payable.
(y) No Advances. Except for payments in the nature of escrow payments,
including without limitation, taxes and insurance payments, the Master Servicer
has not advanced funds, or induced, solicited or knowingly received any advance
of funds by a party other than the Obligor, directly or indirectly, for the
payment of any amount required by the Mortgage, except for interest accruing
from the date of the Debt Instrument or date of disbursement of the Mortgage
proceeds, whichever is greater, to the day which precedes by one month the Due
Date of the first installment of principal and interest;
(z) Condemnation; Damage. There is no proceeding pending or threatened
for the total or partial condemnation of the Mortgaged Property, nor is such a
proceeding currently occurring. No Mortgaged Property is damaged by waste, fire,
earthquake or earth movement, windstorm, flood, tornado or other casualty, so as
to affect adversely the value of the Mortgaged Property as security for the Home
Loan or the use for which the premises were intended;
(aa) No Encroachments. All of the improvements which were included for
the purpose of determining the appraised value of the Mortgaged Property lie
wholly within the boundaries and building restriction lines of such property,
and no improvements on adjoining properties encroach upon the Mortgaged
Property;
(bb) Property in Compliance with Law. No improvement located on or
being part of the Mortgaged Property is in violation of any applicable zoning
law or regulation. All inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged Property
and, with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy and fire underwriting certificates, have
been made or obtained from the appropriate authorities and the Mortgaged
Property is lawfully occupied under applicable law;
(cc) No Future Advances. The proceeds of the Home Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee or any person
to make, or option on the part of the mortgagor to request, future advances
thereunder. Any and all requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefor have been
satisfied. All costs, fees and expenses incurred in making or closing or
recording the Home Loans were paid;
(dd) Mortgage as Sole Security. The related Debt Instrument is not and
has not been secured by any collateral, pledged account or other security except
the lien of the corresponding Mortgage;
(ee) No-Buy-Down Loans. No Home Loan was originated under a buydown
plan.
(ff) No Originator Payment Obligations. There is no obligation on the
part of the Master Servicer or any other party to make payments in addition to
those made by the Obligor;
(gg) Deeds of Trust. With respect to each Mortgage constituting a deed
of trust, a trustee, duly qualified under applicable law to serve as such, has
been properly designated and currently so serves and is named in such Mortgage,
and no fees or expenses are or will become payable by the Noteholders or the
Trust to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Obligor;
(hh) No Shared Appreciation. No Home Loan has a shared appreciation
feature, or other contingent interest feature;
(ii) State Qualification. All parties which have had any interest in
the Home Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (2)(A) organized under the
laws of such state, or (B) qualified to do business in such state, or (C)
federal savings and loans associations or national banks having principal
offices in such state or (D) not doing business in such state so as to require
qualification or licensing;
(jj) Due on Sale. The Mortgage contains a customary provision for the
acceleration of the payment of the unpaid principal balance of the Home Loan in
the event the related Mortgage Property is sold without the prior consent of the
mortgagee thereunder;
(kk) Obligor Bankruptcy. No Obligor is a debtor in any state or federal
insolvency or bankruptcy proceeding.
(ll) Enforcement Rights. The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security, including, (i) in the case of a Mortgage designated as
a deed of trust, by trustee's sale, and (ii) otherwise by judicial foreclosure.
There is no homestead or other exemption available to the Mortgagor which would
materially interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose upon the related Mortgage;
(mm) No Default. Other than delinquent Home Loans set forth in clause
(i) of this Section 3.04, there is no default, breach, violation or event of
acceleration existing under the Mortgage or the related Debt Instrument and no
event which, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach, violation or event of
acceleration; and neither the Master Servicer nor the Transferor has waived any
default, breach, violation or event of acceleration;
(nn) Deposit of Payments. All amounts received on and after the Cut-Off
Date with respect to the Home Loans to which the Transferor is not entitled to
have been deposited into the Collection Account and are, as of the Closing Date,
in the Collection Account;
(oo) Underwriting. All of the Home Loans were originated and
underwritten by the Transferor, or purchased and re-underwritten by the
Transferor, in each case in accordance with the underwriting criteria set forth
in the Prospectus Supplement;
(pp) Conformity to Prospectus. Each Home Loan conforms, and all such
Home Loans in the aggregate conform, to the description thereof set forth in the
Prospectus and the Prospectus Supplement;
(qq) No Adverse Selection. The Home Loans were not selected by the
Transferor for inclusion in the Trust on any basis intended to adversely affect
the Trust;
(rr) Appraisal. A full appraisal on forms approved by FNMA or FHLMC was
performed in connection with the origination of the related Home Loan. Each
appraisal meets guidelines that would be generally acceptable to prudent
mortgage lenders that regularly originate or purchase mortgage loans comparable
to the Home Loan for sale to prudent investors in the secondary market that
invest in loans such as the Home Loans;
(ss) Loan-To-Value. As of the Cut-Off Date, no Home Loan had a
Loan-To-Value Ratio in excess of 90.00% and as of the Cut-off Date, the weighted
average Loan-To-Value Ratio is _________ %;
(tt) Environmental Matters. To the best of the Transferor's knowledge,
(i) no Mortgaged Property was, as of the Cut-Off Date, (A) located within a
one-mile radius of any site containing environmental or hazardous waste risks,
and (B) in violation of any environmental law or regulation; and (ii) no
Mortgaged Property contained any environmentally hazardous material, substance
or waste; and
(uu) Status of Originators. Each Home Loan was either (i) originated by
a savings and loan association, savings bank, commercial bank, credit union,
insurance company, or similar institution which is supervised and examined by a
federal or state authority, or by a mortgagee approved by the Secretary of
Housing and Urban Development pursuant to Sections 203 and 211 of the National
Housing Act or (ii) such Home Loan was underwritten in accordance with standards
established by the Transferor, using application forms and related credit
documents approved by the Transferor; the Transferor approved each application
and the related credit documents before a commitment by the originator was
issued, and no such commitment was issued until the Transferor agreed to fund
such Home Loan; the closing documents for such Home Loan were prepared on forms
approved by the Transferor; and such Home Loan was actually funded by the
Transferor and was purchased by the Transferor at closing or soon thereafter.
(vv) Term. No Home Loan has a remaining term in excess of 360 months.
(ww) Monthly Payments. Each Debt Instrument will provide for a schedule
of substantially equal Monthly Payments which are, if timely made, sufficient to
fully amortize the principal balance of such Debt Instrument on or before its
maturity date.
Section 3.05. Purchase and Substitution.
-------------------------
(a) Repurchase and Substitution of Defective Home Loans. It is
understood and agreed that the representations and warranties set forth in
Section 3.02 and Section 3.04 hereof shall survive the conveyance of the Home
Loans from the Transferor to the Depositor and from the Depositor to the Issuer,
the pledge of the Home Loans to the Indenture Trustee and the delivery of the
Notes to the Noteholders. Upon discovery by the Depositor, the Master Servicer,
the Servicer, the Transferor, any Custodian, the Issuer, the Indenture Trustee,
the Owner Trustee, the Securities Insurer or any Securityholder of a breach of
any of the representations and warranties set forth in Section 3.02 and Section
3.04 which materially and adversely affects the value of the Home Loans or the
interests of the Owner Trustee, the Securities Insurer or the Indenture Trustee
in the related Home Loan (notwithstanding that such representation and warranty
was made to the Transferor's best knowledge), the party discovering such breach
shall give prompt written notice to the others. The Transferor shall, within 60
days of the earlier of its discovery or its receipt of notice of any breach of a
representation or warranty, promptly cure such breach in all material respects.
If within 60 days after the earlier of the Transferor's discovery of such breach
or the Transferor's receiving notice thereof such breach has not been remedied
by the Transferor or waived by the Securities Insurer and such breach materially
and adversely affects the interests of the Owner Trustee or the Indenture
Trustee in, or the value of, the related Home Loan (the "Defective Home Loan"),
the Transferor shall on or before the Determination Date next succeeding the end
of such 60-day period either (i) remove such Defective Home Loan from the Trust
(in which case it shall become a Deleted Home Loan) and substitute one or more
Qualified Substitute Home Loans in the manner and subject to the conditions set
forth in this Section 3.05 or (ii) purchase such Defective Home Loan at a
purchase price equal to the Purchase Price by depositing such Purchase Price in
the Collection Account. The Transferor shall provide the Master Servicer, the
Servicer, the Indenture Trustee, the Securities Insurer and the Owner Trustee
with a certification of a Responsible Officer on the Determination Date next
succeeding the end of such 60-day period indicating whether the Transferor is
purchasing the Defective Home Loan or substituting in lieu of such Defective
Home Loan a Qualified Substitute Home Loan.
Any substitution of Home Loans pursuant to this Section 3.05(a) shall
be accompanied by payment by the Transferor of the Substitution Adjustment, if
any, to be deposited in the Collection Account. For purposes of calculating the
Available Collection Amount for any Payment Date, amounts paid by the Transferor
pursuant to this Section 3.05 in connection with the repurchase or substitution
of any Defective Home Loan that are on deposit in the Collection Account as of
the Determination Date for such Payment Date shall be deemed to have been paid
during the related Due Period and shall be transferred to the Note Payment
Account as part of the Available Collection Amount to be retained therein or
transferred to the Certificate Distribution Account, if applicable, pursuant to
Section 5.01(c) hereof.
In addition to such cure, repurchase or substitution obligation, the
Transferor shall indemnify the Issuer, the Depositor, the Master Servicer, the
Indenture Trustee, the Securities Insurer and the Securityholders against any
losses, damages, penalties, fines, forfeitures, reasonable and necessary legal
fees and related costs, judgments, and other costs and expenses resulting from
any claim, demand, defense or assertion based on or grounded upon, or resulting
from, a breach by the Transferor of any of it representations and warranties
contained in Section 3.02 and Section 3.04.
(b) Repurchase of Defaulted Home Loans. In addition to the preceding
repurchase obligations, each of the Transferor and Master Servicer shall have
the option, exercisable in its sole discretion at any time, to repurchase from
the Owner Trustee any Home Loan that is delinquent 91 or more days (in which
case such Home Loan shall become a Deleted Home Loan); provided, however, that
any such repurchase of a Home Loan pursuant to this Subsection shall be
conducted in the same manner as the repurchase of a Defective Home Loan pursuant
to this Section 3.05. If the Home Loans repurchased pursuant to this Subsection
3.05(b) are in excess of _______ % of the Original Pool Principal Balance, then
such repurchases of Home Loans that exceed ________ % of the Original Pool
Principal Balance may be affected only with the consent of the Securities
Insurer and shall be included as Realized Losses for purposes of determining the
Realized Losses under the OC Trigger Increase Event (but not with respect to the
determination of a Master Servicer Event of Default under Section 10.01(a)
hereof).
(c) Substitutions. As to any Deleted Home Loan for which the Transferor
substitutes a Qualified Substitute Home Loan(s), the Transferor shall effect
such substitution by delivering to the Indenture Trustee, the Master Servicer
and Owner Trustee (i) a certification executed by a Responsible Officer of the
Transferor to the effect that the Substitution Adjustment has been credited to
the Collection Account and (ii) the documents constituting the Indenture
Trustee's Home Loan File for such Qualified Substitute Home Loan(s).
In accordance with Section 5.01(b)(1) hereof, the Master Servicer shall
cause the Servicer to deposit in the Collection Account all payments received in
connection with such Qualified Substitute Home Loan(s) after the date of such
substitution. Monthly Payments received with respect to Qualified Substitute
Home Loans on or before the date of substitution will be retained by the
Transferor. The Indenture Trustee will be entitled to all payments received on
the Deleted Home Loan on or before the date of substitution and the Transferor
shall thereafter be entitled to retain all amounts subsequently received in
respect of such Deleted Home Loan. The Transferor shall give written notice to
the Owner Trustee, the Master Servicer, the Servicer (if the Transferor is not
then acting as such), the Indenture Trustee[, the Securities Insurer] and Owner
Trustee that such substitution has taken place and the Servicer shall amend the
Home Loan Schedule pursuant to Subsection (g) below. Upon such substitution,
such Qualified Substitute Home Loan(s) shall be subject to the terms of this
Agreement in all respects, and the Transferor shall be deemed to have made with
respect to such Qualified Substitute Home Loan(s), as of the date of
substitution, the covenants, representations and warranties set forth in Section
3.02 and Section 3.04 hereof. On the date of such substitution, the Transferor
will deposit into the Collection Account an amount equal to the related
Substitution Adjustment, if any.
(d) Reassignment of Defective Home Loans. With respect to all Defective
Home Loans or other Home Loans repurchased by the Transferor pursuant to this
Agreement, upon the deposit of the Purchase Price therefor into the Collection
Account, the Owner Trustee shall assign to the Transferor, without recourse,
representation or warranty, all the Owner Trustee's right, title and interest in
and to such Defective Home Loans or other Home Loans, which right, title and
interest were conveyed to the Owner Trustee pursuant to the Home Loan Purchase
Agreement. The Owner Trustee shall take any actions as shall be reasonably
requested by the Transferor to effect the repurchase of any such Home Loans.
(e) Sole Remedies Against Transferor. It is understood and agreed that
the obligations of the Transferor to cure or to repurchase or substitute any
such Home Loan, and to indemnify for any breach of any representation or
warranty with respect thereto, pursuant to this Section 3.05 shall constitute
the sole remedies against it with respect to such breach of the foregoing
representations or warranties or the existence of the foregoing conditions. Any
cause of action against the Transferor relating to or arising out of a defect in
an Indenture Trustee's Home Loan File as or against the Transferor relating to
or arising out of a breach of any representations and warranties made in Section
3.02 and Section 3.04 hereof shall accrue as to any Home Loan upon (i) discovery
of such defect or breach by any party and notice thereof to the Transferor or
notice thereof by the Transferor to the Indenture Trustee, (ii) failure by the
Transferor to cure such defect or breach or purchase or substitute such Home
Loan as specified above, and (iii) demand upon the Transferor, as applicable, by
the Owner Trustee for all amounts payable in respect of such Home Loan.
(f) No Duty to Investigate. Neither [the Securities Insurer,] the
Master Servicer, the Owner Trustee nor the Indenture Trustee shall have any duty
to conduct any affirmative investigation other than as specifically set forth in
this Agreement as to the occurrence of any condition requiring the repurchase or
substitution of any Home Loan pursuant to this Section or the eligibility of any
Home Loan for purposes of this Agreement.
(g) Amendment of Home Loan Schedule. In connection with a repurchase or
substitution of any Home Loan pursuant to this Section 3.05, the Master Servicer
shall cause the Servicer shall amend the Home Loan Schedule to reflect (i) the
removal of the applicable Deleted Home Loan from the terms of this Agreement,
and (ii) if applicable, the substitution of the applicable Qualified Substitute
Home Loan. In connection with its monthly reporting here under, the Master
Servicer shall cause the Servicer shall deliver a copy of the amended Home Loan
Schedule to [the Securities Insurer,] the Master Servicer, the Indenture
Trustee, and the Transferor.
<PAGE>
ARTICLE IV
ADMINISTRATION AND SERVICING OF THE HOME LOANS
----------------------------------------------
Section 4.01. Appointment and Duties of the Master Servicer.
---------------------------------------------
(a) Appointment and Compensation of Master Servicer. The Issuer, the
Securityholders and the Indenture Trustee hereby assign and appoint the Master
Servicer to act as the Master Servicer for the Home Loans (including all of the
duties, obligations and rights of the Master Servicer) under this Agreement. The
Master Servicer hereby accepts its appointment as the Master Servicer hereunder.
The Master Servicer hereby undertakes to enter into the Servicing Agreement with
an Eligible Servicer. The Master Servicer may remove and replace the Servicer
under the terms of the Servicing Agreement, provided that the Securities Insurer
consents to such termination and such Servicer is replaced with an Eligible
Servicer. The Master Servicer shall not consent to any amendment or modification
of any Servicing Agreement [without the consent of the Securities Insurer]. The
Master Servicer shall not consent to any material amendment, modification or
waiver of the servicing provisions of this Agreement, without the consent of
[the Securities Insurer and] the Indenture Trustee. The Issuer, the
Securityholders and the Indenture Trustee hereby assign and appoint the Master
Servicer to act on behalf of the Issuer as "Owner" under the Servicing
Agreement.
As compensation for its services hereunder, the Master Servicer shall
be entitled to receive from the Note Payment Account the Master Servicer Fee. In
addition to the Master Servicer Fee, additional compensation attributable to
prepayment penalties, 20% of any late charges collected on the Home Loans,
investment earnings from the Collection Account and the Note Payment Account
shall be part of the Master Servicer Compensation payable to the Master Servicer
pursuant to Section 5.01(c) hereof. Master Servicing Compensation shall be
reduced by the amount of any due and unpaid Servicing Fee Recovery Amounts. The
Master Servicer shall be required to pay all expenses incurred by it in
connection with its Master Servicer duties and activities hereunder and shall
not be entitled to reimbursement therefor except as specifically provided for
herein.
(b) Master Servicer Assumes Servicing Responsibility. If a Servicer
Termination Event occurs, then the Master Servicer shall be obligated (1) if
instructed by the Securities Insurer, to select a successor Servicer, [that is
acceptable to the Securities Insurer,] or (2) to act as the Servicer of the Home
Loans hereunder [unless the Securities Insurer directs otherwise].
(c) Monitoring of Servicing. The Master Servicer shall: (i) review the
servicing reports and loan level information prepared by the Servicer (1) to
determine whether such reports are inaccurate or incomplete, in any material
respect, and (2) to ascertain that the Servicer is in compliance, in all
material respects, with its duties and obligations with respect to such reports
under this Agreement; (ii) otherwise monitor the performance by the Servicer of
its duties and obligations hereunder and notify the Indenture Trustee [and the
Securities Insurer] of any Servicer Event of Default of which it has received
notice or has actual knowledge; and (iii) be obligated to verify that the
Servicer has deposited all payments and proceeds required to be deposited into
the Collection Account pursuant to Section 5.01(b)(1) hereof. On the 19th
calendar day of each month (or the next Business Day, if the 19th is not a
Business Day), the Master Servicer shall provide the Indenture Trustee with an
Officer's Certificate to the effect that the Master Servicer has performed its
obligations under this Subsection 4.01(c) with respect to the servicing
information for such month.
(d) Successor Servicer. The Master Servicer agrees that it shall at all
times be prepared [(and shall take all steps reasonably required by the
Securities Insurer to ensure such preparation)], to perform the duties and
obligations of the Servicer and become the successor servicer, if the Servicer
fails to perform its duties and obligations hereunder.
(e) Servicer Termination or Non-Renewal. At the direction of [the
Securities Insurer, or] the Master Servicer [(with the prior consent of the
Securities Insurer)] or the Majority Noteholders [(with the prior consent of the
Securities Insurer)], the Master Servicer, on behalf of the Issuer and the
Securityholders, shall terminate the Servicer upon the occurrence and
continuance of a Servicer Event of Default. [The Securities Insurer will
instruct the Master Servicer not to renew the term of the Servicer and appoint a
replacement servicer (which shall be an Eligible Servicer) approved by the
Securities Insurer at the request of the Master Servicer.]
(f) Resignation of Master Servicer. The Master Servicer shall resign as
Master Servicer hereunder if it determines that its 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 and cannot be cured,
provided that such determination shall be evidenced by an Opinion of Counsel
(which shall be Independent) to such effect delivered to the Owner Trustee, the
Indenture Trustee and the Securities Insurer. In addition, the Master Servicer
may resign for any reason with 30 day's prior written notice to the Owner
Trustee, the Indenture Trustee and the Securities Insurer. No resignation of the
Master Servicer shall become effective until a successor master servicer
acceptable to the Securities Insurer shall have assumed the obligations of the
Master Servicer hereunder.
(g) Limitation on Liability of the Depositor and the Master Servicer.
Except as set forth in Section 9.01 herein, neither the Depositor nor the Master
Servicer nor any of the directors, officers, employees or agents of the
Depositor or the Master Servicer shall be under any liability to the Owner
Trustee, the Indenture Trustee, the Servicer, the Securities Insurer, the
Noteholders or any other Person for any action taken or for refraining from the
taking of any action at the direction of the Securities Insurer or any action in
good faith pursuant to this Agreement, or for errors in judgment; provided,
however, that this provision shall not protect the Depositor or the the Master
Servicer or any such Person against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in its
performance of its duties or by reason of reckless disregard for its obligations
and duties under this Agreement. The Depositor or the Master Servicer and any
directors, officer, employee or agent of the Depositor or the 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 hereunder.
(h) Monthly Advances. If any Obligor fails to make all or any portion
of its Monthly Payment for any Due Period by the related Determination Date, the
Master Servicer shall deposit such shortfall (net of the Servicing Fee and the
Master Servicer Fee in respect thereof) into the Collection Account on or before
such Determination Date, unless the Master Servicer, in its reasonable judgment,
determines that any such Monthly Advance would be non-recoverable from future
proceeds from the related Home Loan. The Indenture Trustee shall make any
Monthly Advance that the Master Servicer fails to make. The Indenture Trustee
shall be reimbursed for funds so advanced out of Master Servicing Compensation
on subsequent Payment Dates.
(i) Three Month Renewal of Master Servicer Term. The Master Servicer
hereby covenants and agrees to act as master servicer under this Agreement for
an initial term commencing on the Closing Date and expiring on _______, 199_
(the "Initial Term"). Thereafter, the Initial Term shall be extendible in the
sole discretion of the Securities Insurer by written notice (each, a "Master
Servicer Renewal Notice") of the Securities Insurer (or the Indenture Trustee if
a Securities Insurer Default is then occurring) for successive three month
terms. Each such Master Servicer Renewal Notice (if any) shall be delivered by
the Securities Insurer to the other parties to this Agreement. The Master
Servicer hereby agrees that, as of the date hereof and upon its receipt of any
Master Servicer Renewal Notice, the Master Servicer shall be bound for the
duration of the Initial Term and the term covered by any such Master Servicer
Renewal Notice to act as the Master Servicer, subject to and in accordance with
the other provisions of this Agreement. The Master Servicer agrees that if, as
of the last day of the calendar month preceding the last day of any such
servicing term, the Master Servicer shall not have received a Master Servicer
Renewal Notice from the Securities Insurer, the Master Servicer shall, within
five days thereafter, give written notice of such non-receipt to the Securities
Insurer and the Indenture Trustee. The failure of the Securities Insurer to
deliver a Master Servicer Renewable Notice by the end of any such three-month
term shall result in the automatic termination of the Master Servicer.
(j) Non-renewal or Termination. Upon any non-renewal or termination of
the Master Servicer pursuant to this Section 4.01, the master servicing of the
Home Loans hereunder shall be transferred to a successor master servicer in
accordance with the terms hereof.
(k) Compensating Interest. If Compensating Interest is owing with
respect to such Payment Date, then the Master Servicer shall cause the Servicer
to direct Compensating Interest, up to the amount of the sum of the Master
Servicer Fee and the Servicing Fee for such Payment Date, into the Collection
Account on or before the related Determination Date. The Master Servicer shall
fund the payment of Compensating Interest on any Payment Date first out of its
Master Servicer Compensation for the related Payment Date, and if and only if
such amount is not sufficient, shall cause any remaining amounts to be paid out
of the Servicing Fee for the related Payment Date. Any Servicing Fees used to
pay Compensating Interest hereunder shall be repaid to the Servicer through the
payment of Servicing Fee Recovery Amounts.
Section 4.02. Interim Servicer.
----------------
Until the transfer of servicing to the initial Servicer on the
"servicing transfer date" as specified in the Servicing Agreement, the Master
Servicer agrees, and the Issuer, Securityholders, the Security Insurer and the
Indenture Trustee hereby assign and appoint the Master Servicer as the Servicer
of the Home Loans. The Master Servicer shall be obligated to act as the Servicer
of the Home Loans and agrees to service the Home Loans in accordance with
Accepted Servicing Procedures until the transfer of servicing to the Servicer.
During the period in which the Master Servicer is acting as servicer, it shall
be entitled to any Servicing Fee earned during such period.
Section 4.03. Powers of Attorney.
------------------
The Indenture Trustee shall execute, at the written direction of the
Servicer or the Master Servicer, any limited or special powers of attorney and
other documents reasonably acceptable to the Indenture Trustee to enable the
Servicer or the Master Servicer to carry out their servicing and administrative
duties hereunder, including, without limitation, limited or special powers of
attorney with respect to any Foreclosure Property, and the Indenture Trustee
shall not be accountable for the actions of the Servicer or the Master Servicer
under such powers of attorney and shall be indemnified by the Master Servicer in
accordance with Section 9.01 hereof.
Section 4.04. Filing of Continuation Statements.
---------------------------------
On or before the fifth (or twelfth, as appropriate) anniversary of the
filing of any financing statements by the Transferor and the Depositor,
respectively, with respect to the assets conveyed to the Owner Trustee or to the
Owner Trust, the Transferor and the Depositor shall prepare, have executed by
the necessary parties and file in the proper jurisdictions at their expense all
financing and continuation statements necessary to maintain the liens, security
interests and priorities of such liens and security interests that have been
granted by the Transferor and the Depositor, respectively, the Transferor and
the Depositor shall continue to file on or before each fifth (or twelfth)
anniversary of the filing of any financing and continuation statements such
additional financing and continuation statements until the Trust has terminated
pursuant to Section 9.1 of the Owner Trust Agreement. The Indenture Trustee and
Owner Trustee agree to cooperate with the Transferor and the Depositor in
preparing, executing and filing such statements. The filing of any such
statement with respect to the Transferor and the Depositor shall not be
construed as any indication of an intent of any party contrary to the expressed
intent set forth in Section 2.03 hereof and Section 2.04 of the Home Loan
Purchase Agreement. If the Transferor or the Depositor has ceased to do business
whenever any such financing and continuation statements must be filed or the
Transferor or the Depositor fails to file any such financing statements or
continuation statements at least one month prior to the expiration thereof, each
of the Transferor and the Depositor does hereby make, constitute and appoint the
Owner Trustee its attorney-in-fact, with full power and authority, to execute
and file in its name and on its behalf any such financing statements or
continuation statements required under this Section 4.04 relating to assets
conveyed to the Owner Trustee and the Depositor does hereby make, constitute and
appoint the Indenture Trustee its attorney-in-fact, with full power and
authority, to execute and file in its name and on its behalf any such financing
statements or continuation statements required under this Section 4.04 relating
to assets conveyed to the Owner Trust.
Section 4.05. Reports to the Securities and Exchange Commission.
-------------------------------------------------
The Indenture Trustee shall, on behalf of the Issuer, cause to be filed
with the Securities and Exchange Commission all monthly reports on Form 8-K and
annual reports on Form 10-K by EDGAR electronic format (or any successor format)
required to be filed under the provisions of the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission thereunder. The Indenture Trustee shall obtain on behalf of the
Issuer, EDGAR access codes (or any successor codes) on behalf of the Issuer
required for filing with the Securities and Exchange Commission. Upon the
request of the Indenture Trustee, each of the Servicer, the Master Servicer and
the Transferor shall cooperate with the Indenture Trustee in the preparation of
any such report and shall provide to the Indenture Trustee in a timely manner
all such information or documentation as the Indenture Trustee may reasonably
request in connection with the performance of its duties and obligations under
this Section 4.05.
<PAGE>
ARTICLE V
ESTABLISHMENT OF TRUST ACCOUNTS
-------------------------------
Section 5.01. Collection Account and Note Payment Account.
-------------------------------------------
(a) (1)..Establishment of Collection Account. The Master Servicer, for
the benefit of the Securityholders, the Indenture Trustee and the Securities
Insurer, shall cause to be established and maintained by the Indenture Trustee
one or more Collection Accounts (collectively, the "Collection Account"), which
shall be separate Eligible Accounts and may be interest-bearing, and which shall
be entitled "Collection Account of _______________, as Indenture Trustee, in
trust for the _______ Home Loan Asset Backed Notes, Series 199_-_". The
Collection Account may be maintained with the Indenture Trustee or any other
depository institution, which satisfies the requirements set forth in the
definition of Eligible Account. The creation of any Collection Account other
than one maintained with the Indenture Trustee shall be evidenced by a letter
agreement between the Servicer and the depository institution acceptable to the
Indenture Trustee and the Securities Insurer. A copy of such letter agreement
shall be furnished to the Securities Insurer and the Indenture Trustee. Funds in
the Collection Account shall be invested in accordance with Section 5.03 hereof.
The Collection Account shall be established, as of the Closing Date,
with ________________ as an Eligible Account pursuant to the definition thereof.
The Collection Account may, upon written notice to the Indenture Trustee, and
upon the written consent of the Securities Insurer, be transferred to a
different depository institution so long as such transfer is to an Eligible
Account acceptable to the Securities Insurer.
(2)..Establishment of Note Payment Account. No later than the
Closing Date, the Indenture Trustee, for the benefit of the Noteholders and the
Securities Insurer, shall cause to be established and maintained with the
Indenture Trustee one or more Note Payment Accounts (collectively, the "Note
Payment Account"), which shall be separate Eligible Accounts and may be
interest-bearing, and which shall be entitled "Note Payment Account of
________________, as Indenture Trustee, in trust for the _______ Home Loan Asset
Backed Notes, Series 199_-_". Funds in the Note Payment Account shall be
invested in accordance with Section 5.03 hereof.
(b) (1)..Deposits to Collection Account. The Servicer shall use its
best efforts to deposit or cause to be deposited (without duplication), within
one (1) Business Day after receipt thereof, into the Collection Account and
retain therein in trust for the benefit of the Noteholders and the Securities
Insurer:
(i)..all payments of principal and interest on the Home Loans
collected after the Cut-Off Date;
(ii)..all Net Liquidation Proceeds;
(iii)..all Property Insurance Proceeds;
(iv)..all Released Mortgaged Property Proceeds;
(v)..any amounts payable in connection with the repurchase of any
Home Loan and the amount of any Substitution Adjustment pursuant to Section 3.05
hereof;
(vi)..the deposit of the Termination Price under Section 11.01
hereof;
(vii)..interest and gains on funds held in the Collection
Account;
(viii)..Monthly Advances pursuant to Section 4.02(h) hereof; and
(ix)..Compensating Interest pursuant to Section 4.02 (k) hereof.
The Servicer shall be entitled to retain and not deposit into the
Collection Account any amounts received with respect to a Home Loan that
constitute additional servicing compensation pursuant to Section 7.03 hereof.
(2)..Deposits to Note Payment Account. By the close of business on
the fourth Business Day prior to each Payment Date, the Master Servicer shall
cause the Servicer to withdraw from the Collection Account the Available
Collection Amount and deposit such into the Note Payment Account for such
Payment Date.
(3)..Withdrawals from Collection Account. The Master Servicer
shall cause the Servicer to also make the following withdrawals from the
Collection Account, in no particular order of priority:
(i)..to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error;
(ii)..to withdraw any Servicing Advance Reimbursement Amounts and
Monthly Advance Reimbursement Amounts; and
(iii)..to clear and terminate the Collection Account in connection
with the termination of this Agreement.
(c) Initial Withdrawals from Note Payment Account. To the extent funds
are available in the Note Payment Account, the Indenture Trustee (based on the
information provided by the Servicer contained in the Servicer's Monthly
Remittance Report for such Payment Date) shall make withdrawals therefrom by
9:00 a.m. (New York City time) on each Payment Date, for application in the
following order of priority:
(i)..to distribute on such Payment Date the following amounts
related to such Payment Date pursuant to the Indenture in the following order;
(1) to the Indenture Trustee, an amount equal to the Indenture Trustee Fee and
all unpaid Indenture Trustee Fees from prior Payment Dates; (2) to the Servicer
an amount equal to the Servicing Compensation (net of the sum of any amounts
retained prior to deposit into the Collection Account pursuant to subsection
(b)(1) above) and all unpaid Servicing Compensation from prior Payment Dates;
(3) to the Master Servicer an amount equal to the Master Servicer Compensation
and all unpaid Master Servicer Compensation from prior Payment Dates; and (4) to
the Securities Insurer, an amount equal to the Guaranty Insurance Premium and
all unpaid Guaranty Insurance Premiums from prior Payment Dates; and
(ii)..subject to the priority of payments in Subsections 5.01(d)
and (e) below, to deposit into the Certificate Distribution Account the
applicable portions of the Available Payment Amount payable to the holders of
the Residual Interest Certificates as calculated pursuant to Subsection 5.01(e)
below on such Payment Date.
(d) Regular Payment Amount Withdrawals from Note Payment Account. On
each Payment Date, the Indenture Trustee (based on the information provided by
the Servicer contained in the Servicer's Monthly Remittance Report for such
Payment Date) shall distribute the Regular Payment Amount and any Deficiency
Amount paid by the Securities Insurer in respect of such Payment Date from the
Note Payment Account (in the case of all amounts distributable to Noteholders)
and from the Certificate Distribution Account (in the case of all amounts
distributable to Certificateholders), in the following order of priority:
(i)..to pay the holders of the Notes the Noteholders' Interest
Payment Amount for such Payment Date;
(ii)..to pay the holders of the Notes principal thereof in an
amount up to the sum of the Regular Principal Payment Amount and the
Noteholders' Principal Deficiency Amount, until the Note Principal Balances
thereof are reduced to zero;
(iii)..to apply any remaining amount together with Excess Spread
in the manner specified in Subsection (e) below.
(e) Excess Spread Withdrawals from Note Payment Account. On each
Payment Date, the Indenture Trustee (based on the information provided by the
Servicer contained in the Servicer's Monthly Remittance Report for such Payment
Date) shall distribute the Excess Spread, if any, in the following order of
priority (in each case after giving effect to all payments specified in Section
5.01(d) hereof):
(i)..to pay the Securities Insurer in an amount up to the
Securities Insurer Reimbursement Amount;
(ii)..to pay the holders of the Notes, as principal thereof, any
remaining Excess Spread in an amount up to any Overcollateralization Deficiency
Amount (after giving effect to payments made pursuant to subsection (d) above),
until the Note Principal Balances thereof are reduced to zero;
(iii)..to pay the holder of the Notes, pro rata, the Noteholders'
Interest Carry-Forward Amount due and unpaid, if any; and
(iv)..to pay any remaining Excess Spread (A) first, concurrently
to the Servicer in an amount equal to any outstanding Nonrecoverable Servicing
Advances and to the Master Servicer in an amount equal to any outstanding
Nonrecoverable Monthly Advances, (B) second, to repay the Servicer the Servicing
Fee Recovery Amount, if any and (C) then, for deposit into the Certificate
Distribution Account for payment to the holders of the Residual Interest
Certificates any amount remaining after the preceding clauses (A) and (B).
(f) All payments made on the Notes on each Payment Date will be made on
a pro rata basis among the Noteholders of record of such Notes on the next
preceding Record Date, without preference or priority of any kind, and, except
as otherwise provided in the next sentence, shall be made by wire transfer of
immediately available funds to the account of such Noteholder, if such
Noteholder shall own of record Notes in original Denominations aggregating at
least $250,000 and shall have so notified the Indenture Trustee, and otherwise
by check mailed to the address of such Noteholder appearing in the Notes
Register. The final payment on each Note will be made in like manner, but only
upon presentment and surrender of such Note at the location specified in the
notice to Noteholders of such final payment.
Section 5.01A. Claims Under Guaranty Policy.
----------------------------
(a) If, on the second Business Day prior to the related Payment Date a
Deficiency Amount exists, the Indenture Trustee shall give notice to the
Securities Insurer and to its direction by telephone or telecopy of the amount
of such deficiency by 12:00 noon, New York City time, on such Business Day.
(b) At the time of the execution and delivery of this Agreement, and
for the purposes of this Agreement, the Indenture Trustee shall establish a
separate special purpose trust account for the benefit of the Noteholders called
the "Policy Payments Account" and over which the Indenture Trustee shall have
exclusive control and sole right of withdrawal. The Indenture Trustee shall
deposit any amount paid under the Guaranty Policy in the Policy Payments Account
and distribute such amount only for purposes of making the Insured Payments for
which a claim was made. Such amounts shall be disbursed by the Indenture Trustee
to Noteholders in the same manner as principal and interest payments are to be
made with respect to the Notes under Sections regarding payment of Notes hereof.
It shall not be necessary for such payments to be made by checks or wire
transfers separate from the check or wire transfer used to pay Insured Payments
with other funds available to make such payments. However, the amount of any
payment of principal of or interest on the Notes to be paid from the Policy
Payments Account shall be noted as provided in (d) below in the Payment
Statement to be furnished to Noteholders. Funds held in the Policy Payments
Account shall not be invested by the Indenture Trustee.
(c) Any funds received by the Indenture Trustee as a result of any
claim under the Guaranty Policy shall be applied by the Indenture Trustee,
subject to Section 3.03 of the Indenture, together with the funds, if any, to be
withdrawn from the Note Payment Account, directly to the payment in full of the
Insured Payments due on the Notes (including Notes held for the Indenture
Trustee's own account). Funds received by the Indenture Trustee as a result of
any claim under the Guaranty Policy shall be deposited by the Indenture Trustee
in the Policy Payments Account and used solely for payment to the Noteholders
and may not be applied to satisfy any costs, expenses or liabilities of the
Indenture Trustee. Any funds remaining in the Policy Payments Account following
a Payment Date shall promptly be remitted to the Securities Insurer except for
funds held for the payment of Noteholders pursuant to Section 3.03 of the
Indenture.
(d) The Indenture Trustee shall keep a complete and accurate record of
all funds deposited by the Securities Insurer into the Policy Payments Account
and the allocation of such funds to payment of interest on and principal paid in
respect of any Note. The Securities Insurer shall have the right to inspect such
records at reasonable times upon one Business Day's prior notice to the
Indenture Trustee.
(e) Subject to and conditioned upon payment of any interest or
principal with respect to the Notes by or on behalf of the Securities Insurer,
the Indenture Trustee shall assign to the Securities Insurer all rights to the
payment of interest or principal on the Notes which are then due to the extent
of all payments made by the Securities Insurer and the Securities Insurer may
exercise any option, vote, right, power or the like with respect to the Notes to
the extent it has made a principal payment pursuant to the Guaranty Policy. The
Indenture Trustee agrees that the Securities Insurer shall be subrogated to all
of the rights to payment of the Noteholders or in relation thereto to the extent
that any payment of principal or interest was made to such Holders with payments
made under the Guaranty Policy by the Securities Insurer.
(f) In the event that the Indenture Trustee has received a certified
copy of an order of the appropriate court that any scheduled payment of
principal of or interest on a Note has been voided in whole or in part as a
Preference Amount, the Indenture Trustee shall so notify the Securities Insurer,
shall comply with the provisions of the Guaranty Policy to obtain payment by the
Securities Insurer of such voided scheduled payment, and shall, at the time it
provides notice to the Securities Insurer, notify, by mail to Noteholders that,
in the event that any Noteholder's scheduled payment is so recovered, such
Noteholders will be entitled to payment pursuant to the terms of the Guaranty
Policy, a copy of which shall be made available through the Indenture Trustee,
the Securities Insurer or the fiscal agent, if any, and the Indenture Trustee
shall furnish to the Securities Insurer or its fiscal agent, if any, its records
evidencing the payments of principal of and interest on the Notes, if any, which
have been made by the Indenture Trustee and subsequently recovered from
Noteholders, and the dates on which such payments were made.
(g) The Indenture Trustee shall promptly notify the Securities Insurer
of either of the following as to which it has actual knowledge: (i) the
commencement of any proceeding by or against the Depositor or the Issuer
commenced under the United States Bankruptcy Code or any other applicable
bankruptcy, insolvency, receivership, rehabilitation or similar law (an
"Insolvency Proceeding") and (ii) the making of any claim in connection with any
Insolvency Proceeding seeking the avoidance as a preferential transfer (a
"Preference Claim") of any payment of principal of, or interest on, the Notes.
Each Noteholder, by its purchase of Notes, and the Indenture Trustee hereby
agree that, so long as a Securities Insurer Default shall not have occurred and
be continuing, the Securities Insurer may at any time during the continuation of
any Insolvency Proceeding direct all matters relating to such Insolvency
Proceeding, including, without limitation, (i) all matters relating to any
Preference Claim, (ii) the direction of any appeal of any order relating to any
Preference Claim at the expense of the Securities Insurer but subject to
reimbursement as provided in the Insurance Agreement and (iii) the posting of
any surety, supersedes or performance bond pending any such appeal. In addition,
and without limitation of the foregoing, as set forth (i) hereinbelow, the
Securities Insurer shall be subrogated to, and each Noteholder and the Indenture
Trustee hereby delegate and assign, to the fullest extent permitted by law the
rights of the Indenture Trustee and each Noteholder in the conduct of any
Insolvency Proceeding, including, without limitation, all rights of any party to
an adversary proceeding action with respect to any court under issued in
connection with any such Insolvency Proceeding.
(h) The Indenture Trustee shall furnish to the Securities Insurer or
its fiscal agent its records evidencing the payments of principal of and
interest on the Notes which have been made by the Indenture Trustee and
subsequently recovered from Noteholders, and the dates on which such payments
were made.
(i) Anything herein to the contrary notwithstanding, any payment with
respect to the principal of or interest on the Notes which is made with moneys
received pursuant to the terms of the Guaranty Policy shall not be considered
payment by the Issuer, shall not discharge the Issuer in respect of its
obligation to make such payment and shall not result in the payment of or the
provision for the payment of the principal of or interest on the Notes within
the meaning of Section 4.01 of the Indenture. The Issuer and the Indenture
Trustee acknowledge that without the need for any further action on the part of
the Securities Insurer, the Issuer, or the Indenture Trustee (i) to the extent
the Securities Insurer makes payments, directly or indirectly, on account of
principal of or interest on the Notes to the Noteholders, the Securities Insurer
will be fully subrogated to the rights of such Noteholders to receive such
principal and interest from the Issuer, and (ii) Noteholders shall be paid such
principal and interest in their capacity as Noteholders but only from the
sources and in the manner provided herein for the payment of such principal and
interest.
Section 5.02. Certificate Distribution Account.
--------------------------------
(a) Establishment of Certificate Distribution Account. No later than
the Closing Date, the Master Servicer, for the benefit of the
Certificateholders, shall cause to be established and maintained with the
Indenture Trustee for the benefit of the Owner Trustee, on behalf of the Issuer
and the Certificateholders, one or more Certificate Distribution Accounts
(collectively, the "Certificate Distribution Account"), which shall be separate
Eligible Accounts and may be interest-bearing, entitled "Certificate
Distribution Account, __________________, as Indenture Trustee, in trust for the
_______ Home Loan Owner Trust Series 199_-_". Funds in the Certificate
Distribution Account shall be invested in accordance with Section 5.03 hereof.
(b) Deposits to and Distributions from Certificate Distribution
Account. On each Payment Date the Indenture Trustee shall withdraw from the Note
Payment Account all amounts required to be deposited into the Certificate
Distribution Account with respect to such Payment Date pursuant to Section
5.01(c)(ii) hereof and, on behalf of the Owner Trustee, shall deposit such
amounts into the Certificate Distribution Account. The Indenture Trustee shall
make payments of all remaining amounts on deposit in the Note Payment Account to
the holders of the Notes to the extent of amounts due and unpaid on the Notes
for principal thereof and interest thereon in accordance with Section 5.01(d)
and (e) hereof. The Indenture Trustee, on behalf of the Owner Trustee, shall
distribute all amounts on deposit in the Certificate Distribution Account to the
holders of the Residual Interest Certificates. The Indenture Trustee, on behalf
of the Owner Trustee, also shall withdraw from the Certificate Distribution
Account any amount not required to be deposited in the Certificate Distribution
Account or deposited therein in error.
(c) Distributions on the Residual Interest Certificates. All
distributions made on the Residual Interest Certificates on each Payment Date
will be made pro rata among the holders of the Residual Interest Certificates of
record on the next preceding Record Date based on their percentage holdings in
the Residual Interest, without preference or priority of any kind, and, except
as otherwise provided in the next succeeding sentence, shall be made by wire
transfer of immediately available funds to the account of each such holder, if
such holder shall own of record a Residual Interest Certificate in an original
denomination aggregating at least a 50% holding of the Residual Interest and
shall have so notified the Indenture Trustee at least 5 Business Days prior
thereto, and otherwise by check mailed to the address of such Residual Interest
holder appearing in the Certificate Register. The final distribution on each
Residual Interest Certificate will be made in like manner, but only upon
presentment and surrender of such Residual Interest Certificate at the location
specified in the notice to holders of the Residual Interest Certificates of such
final distribution. Any amount distributed to the holders of the Residual
Interest Certificates on any Payment Date shall not be subject to any claim or
interest of holders of the other Notes.
Section 5.03. Trust Accounts; Trust Account Property.
--------------------------------------
(a) Control of Trust Accounts. Each of the Trust Accounts (or interests
therein) established hereunder has been pledged by the Issuer to the Indenture
Trustee under the Indenture and shall be subject to the lien of the Indenture.
In addition to the provisions hereunder, each of the Trust Accounts shall also
be established and maintained pursuant to the Indenture. Amounts distributed
from each Trust Account in accordance with the Indenture and this Agreement
shall be released from the lien of the Indenture upon such distribution
thereunder or hereunder. Subject to Sections 5.01 and 5.02 hereof, the Indenture
Trustee shall possess all right, title and interest in and to all funds on
deposit from time to time in the Trust Accounts (other than the Certificate
Distribution Account) and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Trust Estate. If, at any time, any Trust Account ceases
to be an Eligible Account, the Indenture Trustee (or the Servicer on its behalf)
shall, within ten Business Days (or such longer period, not to exceed 30
calendar days, as to which each Rating Agency and the Securities Insurer may
consent) (i) establish a new Trust Account as an Eligible Account, (ii)
terminate the ineligible Trust Account, and (iii) transfer any cash and
investments from such ineligible Trust Account to such new Trust Account.
With respect to the Trust Accounts (other than the Certificate
Distribution Account), the Indenture Trustee agrees, by its acceptance hereof,
that each such Trust Account shall be subject to the sole and exclusive custody
and control of the Indenture Trustee for the benefit of the Securityholders, the
Securities Insurer and the Issuer, as the case may be, and the Indenture Trustee
shall have sole signature and withdrawal authority with respect thereto.
In addition to this Agreement and the Indenture, the Certificate
Distribution Account established hereunder shall also be subject to and
established and maintained in accordance with the Owner Trust Agreement. Subject
to rights of the Indenture Trustee, the Noteholders and the Securities Insurer
hereunder and under the Indenture, the Owner Trustee shall possess for the
benefit of the Certificateholders and the Securities Insurer all right, title
and interest in all funds on deposit from time to time in the Certificate
Distribution Account and in all proceeds thereof (including all income thereon)
and all such funds, investments, proceeds and income shall be part of the Trust
Account Property and the Trust Estate. Subject to the rights of the Indenture
Trustee, the Noteholders and the Securities Insurer, the Owner Trustee agrees,
by its acceptance hereof, that such Certificate Distribution Account shall be
subject to the sole and exclusive custody and control of the Owner Trustee for
the benefit of the Issuer and the parties entitled to payments and distributions
therefrom, including, without limitation, the Certificateholders and the
Securities Insurer, and the Owner Trustee shall have sole signature and
withdrawal authority with respect to the Certificate Distribution Account.
Notwithstanding the preceding, the distribution of amounts from the Certificate
Distribution Account in accordance with Section 5.01(c)(ii) hereof shall also be
made for the benefit of the Indenture Trustee (including without limitation with
respect to its duties under the Indenture and this Agreement relating to the
Trust Estate), and the Indenture Trustee (in its capacity as Indenture Trustee)
shall have the right, but not the obligation, to take custody and control of the
Certificate Distribution Account and to cause the distribution of amounts
therefrom in the event that the Owner Trustee fails to distribute such amounts
in accordance with subsections (b) and (c) of Section 5.02.
In accordance with Section 5.01 and 5.02 hereof, the Servicer or the
Master Servicer shall have the power, revocable by the Indenture Trustee or by
the Owner Trustee with the consent of the Indenture Trustee, to instruct the
Indenture Trustee or Owner Trustee to make withdrawals and payments from the
Trust Accounts for the purpose of permitting the Servicer, the Master Servicer
or the Issuer to carry out their respective duties hereunder or permitting the
Indenture Trustee or Owner Trustee to carry out their respective duties herein
or under the Indenture or the Owner Trust Agreement, as applicable.
(1)..Investment of Funds. So long as no Master Servicer Event of
Default shall have occurred and be continuing, the funds held in any Trust
Account may be invested (to the extent practicable) in Permitted Investments, as
directed by the Master Servicer. Any directions for investment of funds in any
Trust Account shall be made in writing or by telephone or facsimile transmission
with confirmation in writing. In any case, funds in any Trust Account must be
available for withdrawal without penalty, and any Permitted Investments must
mature or otherwise be available for withdrawal, not later than the Business Day
immediately preceding the Payment Date next following the date of such
investment and shall not be sold or disposed of prior to its maturity subject to
subsection (a)(2) of this Section. All interest and any other investment
earnings on amounts or investments held in any Trust Account shall be deposited
into such Trust Account immediately upon receipt by the Indenture Trustee. All
Permitted Investments in which funds in any Trust Account (other than the
Certificate Distribution Account) are invested must be held by or registered in
the name of ______________, as Indenture Trustee, in trust for the _________
Home Loan Asset Backed Notes, Series 199_-_. While the Indenture Trustee holds
the Certificate Distribution Account, on behalf of the Owner Trustee, all
Permitted Investments in which funds in the Certificate Distribution Account are
invested shall be held by or registered in the name First Union National Bank,
on behalf of the Owner Trustee, in trust for the _________ Home Loan Asset
Backed Notes, Series 199_-_.
(2)..Insufficiency and Losses in Trust Accounts. If any amounts are
needed for disbursement from any Trust Account held by or on behalf of the
Indenture Trustee and sufficient uninvested funds are not available to make such
disbursement, the Indenture Trustee shall cause to be sold or otherwise
converted to cash a sufficient amount of the investments in such Trust Account.
The Indenture Trustee shall not be liable for any investment loss or other
charge resulting therefrom, unless such loss or charge is caused by the failure
of the Indenture Trustee or Owner Trustee, respectively, to perform in
accordance with this Section 5.03 hereof or the Indenture Trustee is the obligor
under the Permitted Investment and has defaulted thereon.
If any losses are realized in connection with any investment in any
Trust Account pursuant to this Agreement and the Indenture, then the Master
Servicer shall deposit the amount of such losses (to the extent not offset by
income from other investments in such Trust Account) into such Trust Account
immediately upon the realization of such loss. All interest and any other
investment earnings on amounts held in any Trust Account shall be the income of
the Issuer (or, when there is a single beneficial owner of a Residual Interest
Certificate, such owner), and for federal and state income tax purposes the
Issuer (or such single beneficial owner) shall be the owner (or beneficial owner
in the case of the Collection Account).
(b) No Liability for Losses. Subject to Section 6.01 of the Indenture,
the Indenture Trustee shall not in any way be held liable by reason of any
insufficiency in any Trust Account held by the Indenture Trustee resulting from
any investment loss on any Permitted Investment included therein (except to the
extent that the Indenture Trustee is the obligor and has defaulted thereon).
(c) Delivery of Trust Account Property. With respect to the Trust
Account Property, the Indenture Trustee acknowledges and agrees that:
(1)..any Trust Account Property that is held in deposit accounts
shall be held solely in the Eligible Accounts; and each such Eligible Account
shall be subject to the sole and exclusive dominion, custody and control of the
Indenture Trustee; [and, without limitation on the foregoing, the Indenture
Trustee shall have sole signature authority with respect thereto;]
(2)..any Trust Account Property that constitutes property within
clause (a) of the definition of "Delivery" in Section 1.1 hereof shall be
delivered to and maintained by the Indenture Trustee in accordance with the
definition of "Delivery" in Section 1.1 hereof and shall be held, pending
maturity or disposition, solely by or on behalf of the Indenture Trustee; and
(3)..any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry regulations
shall be delivered to and maintained by the Indenture Trustee in accordance with
the definition of "Delivery" in Section 1.1 hereof.
Section 5.04. Allocation of Losses.
--------------------
In the event that Net Liquidation Proceeds, Property Insurance Proceeds
or Released Mortgaged Property Proceeds on a Liquidated Home Loan are less than
the related Principal Balance plus accrued interest thereon, or any Obligor
makes a partial payment of any Monthly Payment due on a Home Loan, such Net
Liquidation Proceeds, Property Insurance Proceeds, Released Mortgaged Property
Proceeds or partial payment shall be applied to payment of the related Debt
Instrument, first, to interest accrued at the Home Loan Interest Rate and, then,
to principal.
<PAGE>
ARTICLE VI
STATEMENTS AND REPORTS; WITHHOLDING
-----------------------------------
Section 6.01. Statements.
----------
(a) No later than each Determination Date, the Master Servicer shall
cause the Servicer to deliver to the Indenture Trustee and the Master Servicer
by facsimile, the receipt and legibility of which shall be confirmed by
telephone, and with hard copy thereof to be delivered no later than one (1)
Business Day after such Determination Date, the Servicer's Monthly Remittance
Report, setting forth the date of such Report (day, month and year), the name of
the Issuer (i.e. "________ Home Loan Owner Trust 199_-_"), the Series
designation of the Notes (i.e. "Series 199_-_") and the date of this Agreement,
all in substantially the form set out in Exhibit B hereto. Furthermore, Master
Servicer shall cause the Servicer to deliver to the Master Servicer and the
Indenture Trustee no later than each Determination Date, a magnetic tape or
computer disk providing such information regarding the Servicer's activities in
servicing the Home Loans during the related Due Period as the Indenture Trustee
or the Master Servicer may reasonably require. The Master Servicer shall also
cause the Servicer to deliver any Loan Liquidation Reports pursuant to Section
4.10(a) hereof.
(b) On each Payment Date, Indenture Trustee shall distribute, based on
information provided by the Servicer, a monthly statement (the "Payment
Statement") to the Depositor, the Securities Insurer, the Master Servicer, the
Securityholders and the Rating Agencies, stating the date of original issuance
of the Notes (day, month and year), the name of the Issuer (i.e. "_______ Home
Loan Owner Trust 199_-_"), the Series designation of the Notes (i.e., "Series
199_-_"), the date of this Agreement and the following information:
(1)..the Available Collection Amount, Available Payment Amount,
the Regular Payment Amount and the Excess Spread for the related Payment Date;
(2)..the Note Principal Balance of the Notes before and after
giving effect to payments made to the holders of such Notes on such Payment
Date, and the Pool Principal Balance as of the first and last day of the related
Due Period;
(3)..the Note Factor with respect to the Notes then outstanding;
(4)..the amount of principal, if any, and interest to be
distributed to the Notes on the related Payment Date;
(5)..the Note Interest Rate and Noteholders' Interest
Carry-Forward Amount, if any, on the related Payment Date;
(6)..as of such Payment Date, the Overcollateralization Amount,
the Overcollateralization Target Amount and any Overcollateralization Deficiency
Amount or any Overcollateralization Reduction Amount, and any such amount to be
distributed to the Noteholders or the holders of the Residual Interest on such
Payment Date;
(7)..the Master Servicer Compensation, the Servicing Compensation,
the Indenture Trustee Fee, and the Guaranty Insurance Premium, for such Payment
Date;
(8)..as of such Payment Date, the Net Loan Losses incurred during
the related Due Period, the cumulative Net Loan Losses as of such Payment Date;
(9)..the weighted average maturity of the Home Loans and the
weighted average Home Loan Interest Rate of the Home Loans;
(10)..the number of and aggregate Principal Balance of all Home
Loans in foreclosure proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(11)..the number of and the aggregate Principal Balance of the
Home Loans in bankruptcy proceedings and the percent of the aggregate Principal
Balances of such Home Loans to the aggregate Principal Balances of all Home
Loans, all as of the close of business on the last day of the related Due
Period;
(12)..the number of Foreclosure Properties, the aggregate
Principal Balance of the related Home Loans, the book value of such Foreclosure
Properties and the percent of the aggregate Principal Balances of such Home
Loans to the aggregate Principal Balances of all Home Loans, all as of the close
of business on the last day of the related Due Period;
(13)..during the related Due Period (and cumulatively, from the
Closing Date through the most current Due Period), the number and aggregate
Principal Balance of Home Loans for each of the following: (A) that became
Defaulted Home Loans, (B) that became Liquidated Home Loans, (C) that became
Deleted Home Loans pursuant to Section 3.05 hereof as a result of such Deleted
Home Loans being Defective Home Loans, and (D) that became Deleted Home loans
pursuant to Section 3.05 hereof as a result of such Deleted Home Loans being
Defaulted Home Loans or a Home Loan in default or imminent default;
(14)..the scheduled principal payments and the principal
prepayments received with respect to the Home Loans during the Due Period;
(15)..the number and aggregate Principal Balance of Home Loans
that were 30, 60 or 90 days Delinquent as of the close of business on the last
day of the related Due Period and the Six Month Average Delinquency, the
Three-Month Average Annualized Losses and the cumulative Realized Losses;
(16)..the amount of any Insured Payment included in the amounts
distributed to the Noteholders on such Payment Date; and
(17)..the amount of any Securities Insurer Reimbursement Amount to
be paid to the Securities Insurer on such Payment Date and the amount of any
Securities Insurer Reimbursement Amount remaining unsatisfied following such
payment.
In the case of information furnished to Noteholders pursuant to
subclause (b)(4) of this Section 6.01, the amounts shall be expressed as a
dollar amount per Note with a $1,000 Denomination.
All reports prepared by the Indenture Trustee of the withdrawals from
and deposits in the Collection Account will be based in whole or in part upon
the information provided to the Indenture Trustee by the Servicer, and the
Indenture Trustee may fully rely upon and shall have no liability with respect
to such information provided by the Servicer. In no event shall the Indenture
Trustee be obligated to provide information required pursuant to this Section
6.01(b) if it has not timely received the necessary information form the
Servicer to provide such information.
(c) Within a reasonable period of time after the end of each calendar
year, the Indenture Trustee shall prepare and distribute to each Person who at
any time during the calendar year was a Noteholder such information as is
reasonably necessary to provide to such Person a statement containing the
information set forth in subclause (b) of this Section 6.01, aggregated for such
calendar year or applicable portion thereof during which such Person was a
Noteholder.
(d) On each Payment Date, the Indenture Trustee shall forward to The
Depository Trust Company and to the holders of the Residual Interest
Certificates a copy of the Payment Statement in respect of such Payment Date and
a statement setting forth the amounts actually distributed to such holders of
the Residual Interest Certificates on such Payment Date, together with such
other information as the Indenture Trustee deems necessary or appropriate.
(e) Within a reasonable period of time after the end of each calendar
year, the Indenture Trustee shall prepare and distribute to each Person who at
any time during the calendar year was a holder of Residual Interest
Certificates, if requested in writing by such Person, a statement containing the
information provided pursuant to the previous paragraph aggregated for such
calendar year or applicable portion thereof during which such Person was a
holder of Residual Interest Certificates.
(f) The Indenture Trustee shall forward to each Noteholder and each
holder of a Residual Interest Certificate, during the term of this Agreement,
such periodic, special or other reports, including information tax returns or
reports required with respect to the Notes and the Residual Interest
Certificates, as shall be necessary, reasonable, or appropriate with respect to
the Noteholders or the holders of Residual Interest Certificates, or otherwise
with respect to the purposes of this Agreement, all such reports or information
in the case of the Residual Interest Certificates to be provided by and in
accordance with such applicable instructions and directions as the Majority
Residual Interestholders may reasonably require.
(g) The Master Servicer promptly shall notify each Rating Agency if the
Securities Insurer waives or changes the Overcollateralization Target Amount,
the OC Trigger Increase Event, the Spread Squeeze Amount or the Step Down Test.
(h) Reports and computer tapes furnished by the Servicer and the
Indenture Trustee, to the Master Servicer and the Securities Insurer pursuant to
this Agreement shall be deemed confidential and of a proprietary nature and
shall not be copied or distributed except in connection with the purposes and
requirements of this Agreement. No Person entitled to receive copies of such
reports or tapes shall use the information therein for the purpose of soliciting
the customers of the Transferor or the Servicer or for any other purpose except
as set forth in this Agreement.
Section 6.02. Withholding.
-----------
The Indenture Trustee shall comply with all requirements of the Code,
and applicable state and local laws, with respect to the withholding from any
payments made to any Noteholder of any applicable withholding taxes imposed
thereon and with respect to any applicable reporting requirements in connection
therewith, giving due effect to any applicable exemptions from such withholding
and effective certifications or forms provided by the recipient. Any amounts
withheld pursuant to this Section 6.02 shall be deemed to have been paid to the
Noteholders for all purposes of this Agreement or the Indenture.
<PAGE>
ARTICLE VII
GENERAL SERVICING PROCEDURES
----------------------------
Section 7.01. Servicing Advances. The Master Servicer shall cause the
Servicer to make Servicing Advances under Section 6.7 of the Servicing
Agreement. The Indenture Trustee shall make any Servicing Advance that the
Servicer fails to make. The Indenture Trustee shall be reimbursed for funds so
advanced out of Servicing Compensation on subsequent Payment Dates.
Section 7.02. Release of Home Loan Files.
--------------------------
(a) If with respect to any Home Loan:
(i)..the outstanding Principal Balance of such Home Loan plus all
interest accrued thereon shall have been paid;
(ii)..the Servicer shall have received, in escrow, payment in full
of such Home Loan in a manner customary for such purposes;
(iii)..such Home Loan has become a Defective Loan and has been
repurchased or a Qualified Substitute Home Loan has been conveyed to the Owner
Trustee pursuant to Section 3.05 hereof;
(iv)..such Home Loan or the related Foreclosure Property has been
sold in connection with the termination of the Issuer pursuant to Section 11.01
hereof; or
(v)..such Home Loan is a Defaulted Home Loan or a Liquidated Home
Loan that is liquidated or disposed of or the related Foreclosure Property has
been sold ;
then in each such case, an Officer's Certificate of the Servicer pursuant to
Section 4.5 of the Servicing Agreement to the effect that the Servicer has
complied with all of its obligations under this Agreement and the Servicing
Agreement with respect to such Home Loan and requesting that the Custodian
release to the Servicer the related Indenture Trustee's Home Loan File. Upon the
receipt of such Officer's Certificate, the Custodian shall, within five Business
Days or such shorter period as may be required by applicable law, release, or
cause the applicable Custodian to release (unless such Indenture Trustee's Home
Loan File has previously been released), the related Indenture Trustee's Home
Loan File to the Servicer and execute and deliver such instruments of transfer
or assignment, in each case without recourse, as shall be necessary to vest
ownership of such Home Loan in the Servicer or such other Person as may be
specified in such certificate, the forms of any such instrument to be appended
to such certificate.
(b) If a temporary release of the Indenture Trustee's Home Loan File is
necessary or appropriate for the servicing (which may include any modification
or foreclosure) of any Home Loan, then upon the request of the Servicer pursuant
to Section 3(b) of the Custodial Agreement the Custodian shall release the
related Indenture Trustee's Home Loan File (or any requested portion thereof) to
the Servicer.
Section 7.03. Servicing Compensation.
----------------------
As compensation for its services under the Servicing Agreement, the
Servicer shall be entitled to receive from the Collection Account the Servicing
Fee, out of which the Servicer shall pay any subservicing fees to any
subservicer. Additional servicing compensation in the form of assumption fees,
80% of late charges collected, modification fees, and other administrative fees,
insufficient funds charges shall be part of the Servicing Compensation payable
to the Servicer hereunder and under Section 8.1 of the Servicing Agreement and
shall be paid either by the Servicer retaining such additional servicing
compensation prior to deposit in the Collection Account pursuant to Section
5.01(b)(1) hereof or, if deposited in the Collection Account, as part of the
Servicing Compensation withdrawn from the Collection Account or Note Payment
Account.
The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and under the Servicing
Agreement and shall not be entitled to reimbursement therefor except as
specifically provided for herein or in Section 8.1 thereof.
Section 7.04. Statement as to Compliance and Financial Statements.
---------------------------------------------------
The Master Servicer will deliver or cause to be delivered to the
Indenture Trustee, the Owner Trustee, the Depositor, the Securities Insurer, the
Master Servicer and the Rating Agencies not later than 90 days following the end
of each fiscal year of the Servicer (beginning with the fiscal year 199_), an
Officer's Certificate, required under Section 7.2 of the Servicing Agreement,
stating that (i) a review of the activities of the Servicer during the preceding
year and of performance under this Agreement and the Servicing Agreement has
been made under such officer's supervision and (ii) to the best of such
officer's knowledge, based on such review, the Servicer has fulfilled all of its
obligations under this Agreement and the Servicing Agreement throughout such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof and what action the Servicer proposes to take with respect thereto.
Contemporaneously with the submission of the Officer's Certificate
required by the preceding paragraph, the Master Servicer shall deliver or cause
to be delivered to the Indenture Trustee, the Securities Insurer, the Master
Servicer and the Owner Trustee a copy of the Servicer's annual audited financial
statements prepared in the ordinary course of business. The Master Servicer
shall, upon the request of the Depositor, deliver to such party any unaudited
quarterly financial statements of the Servicer.
The Master Servicer shall also cause the Servicer to furnish and
certify to the requesting party such other information as to (i) the Servicer's
organization, activities and personnel relating to the performance of the
obligations of the Servicer hereunder, (ii) the Servicer's financial condition,
(iii) the Home Loans and (iv) the performance of the obligations of any
subservicer under the any subservicing agreements, in each case as the Indenture
Trustee, the Owner Trustee, the Master Servicer, the Securities Insurer or the
Depositor may reasonably request from time to time.
Section 7.05. Independent Public Accountants' Servicing Report.
------------------------------------------------
Not later than 90 days following the end of each fiscal year of the
Servicer (beginning with fiscal year 199_), the Master Servicer shall require
that the Servicer comply with Section 7.3 of the Servicing Agreement and cause
any nationally recognized firm of Independent Certified Public Accountants
(which may also render other services to the Servicer) to furnish a statement to
the Indenture Trustee, the Owner Trustee, the Rating Agencies, the Securities
Insurer, the Master Servicer and the Depositor to the effect that such firm has
examined certain documents and records relating to the servicing of the Home
Loans under this Agreement, the Servicing Agreement or of mortgage loans under
pooling or sale and servicing agreements (including the Home Loans and this
Agreement) substantially similar to one another (such statement to have attached
thereto a schedule setting forth the pooling or sale and servicing agreements
covered thereby) and that, on the basis of such examination conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, such
firm confirms that such servicing has been conducted in compliance with such
pooling or sale and servicing agreements except for such significant exceptions
or errors in records that, in the opinion of such firm, the Uniform Single
Attestation Program for Mortgage Bankers or the Attestation Program for
Mortgages serviced for FHLMC requires it to report, each of which errors and
omissions shall be specified in such statement. 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 compliance with the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC (rendered
within one year of such statement) of independent public accountants with
respect to the related subservicer.
Section 7.06. Reports to the Indenture Trustee;
Collection Account Statements.
---------------------------------
If the Collection Account is not maintained with the Indenture Trustee,
then not later than 25 days after each Record Date, the Master Servicer shall
cause the Servicer to forward to the Indenture Trustee, the Securities Insurer
and the Master Servicer, a statement, certified by a Servicing Officer, setting
forth the status of the Collection Account as of the close of business on the
preceding Record Date and showing, for the period covered by such statement, the
aggregate of deposits into the Collection Account for each category of deposit
specified in Section 5.01(b)(1) hereof, the aggregate of withdrawals from the
Collection Account for each category of withdrawal specified in Section
5.01(b)(2) and (3) hereof, in each case, for the related Due Period.
Section 7.07. Financial Statements and Records of Servicer.
--------------------------------------------
The Master Servicer shall require that the Servicer agree to provide
the books, records or information, and/or access thereto, of the types required
of the Master Servicer in Sections 9.07 and 9.08 herein, to the Indenture
Trustee, the Owner Trustee, the Depositor, the Securities Insurer and each of
their respective agents, upon terms substantially similar to the terms set forth
in Sections 9.07 and 9.08.
<PAGE>
ARTICLE VIII
(RESERVED)
----------
<PAGE>
ARTICLE IX
THE MASTER SERVICER
-------------------
Section 9.01. Indemnification; Third Party Claims.
-----------------------------------
(a) The Master Servicer shall indemnify the Transferor, the Owner
Trustee, the Issuer, the Depositor, the Securities Insurer and the Indenture
Trustee (each an "Indemnified Party") and hold harmless each of them against any
and all claims, losses, damages, penalties, fines, forfeitures, reasonable legal
fees and related costs, judgments, and other costs and expenses resulting from
any claim, demand, defense or assertion based on or grounded upon, or resulting
from, a breach of any of the Master Servicer's representations and warranties
and covenants contained in this Agreement or in any way relating to the failure
of the Master Servicer to perform its duties and service the Home Loans in
compliance with the terms of this Agreement.
(b) The Transferor, the Depositor, the Owner Trustee, the Securities
Insurer or the Indenture Trustee, as the case may be, shall promptly notify the
Master Servicer if a claim is made by a third party with respect to a breach of
any of the Master Servicer's representations and warranties and covenants
contained in this Agreement or in any way relating to the failure of the Master
Servicer to perform its duties and service the Home Loans in compliance with the
terms of this Agreement. The Master Servicer shall promptly notify the Indenture
Trustee, the Owner Trustee, the Securities Insurer and the Depositor of any
claim of which it has been notified pursuant to this Section 9.01 by a Person
other than the Depositor, and, in any event, shall promptly notify the Depositor
of its intended course of action with respect to any claim.
(c) The Master Servicer shall be entitled to participate in and, upon
notice to the Indemnified Party, assume the defense of any such action or claim
in reasonable cooperation with, and with the reasonable cooperation of, the
Indemnified Party. The Indemnified Party will have the right to employ its own
counsel in any such action in addition to the counsel of the Master Servicer,
but the fees and expenses of such counsel will be at the expense of such
Indemnified Party, unless (i) the employment of counsel by the Indemnified Party
at its expense has been authorized in writing by the Master Servicer, (ii) the
Master Servicer has not in fact employed counsel to assume the defense of such
action within a reasonable time after receiving notice of the commencement of
the action, or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the Master Servicer and one or
more Indemnified Parties, and the Indemnified Parties shall have been advised by
counsel that there may be one or more legal defenses available to them which are
different from or additional to those available to the Master Servicer. The
Master Servicer shall not be liable for any settlement of any such claim or
action unless the Master Servicer shall have consented thereto or be in default
on its obligations hereunder. Any failure by an Indemnified Party to comply with
the provisions of this Section 9.01 shall relieve the Master Servicer of
liability only if such failure is materially prejudicial to the position of the
Master Servicer and then only to the extent of such prejudice.
(d) The provisions of this Section 9.01 shall survive the replacement
of the Master Servicer; provided, that no successor master servicer shall be
liable for (or required to indemnify any party for) any act or omission of any
predecessor master servicer.
Section 9.02. Merger or Consolidation of the Master Servicer..
----------------------------------------------
The Master Servicer shall keep in full effect its existence, rights and
franchises as a corporation, and will obtain and preserve its authorization or
qualification to do business as a foreign corporation and maintain, or cause an
affiliate approved by the other parties hereto to maintain, such other licenses
and permits in each jurisdiction necessary to protect the validity and
enforceability of this Agreement or any of the Home Loans and to perform its
duties under this Agreement; provided, however, that the Master Servicer may
merge or consolidate with any other corporation upon the satisfaction of the
conditions set forth in the following paragraph.
With the consent of the Securities Insurer, any Person into which the
Master Servicer may be merged or consolidated, or any corporation resulting from
any merger, conversion or consolidation to which the Master Servicer shall be a
party, or any Person succeeding to the business of the Master Servicer, shall be
an Eligible Servicer and shall be the successor of the Master Servicer, as
applicable 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 Master Servicer shall send notice of any such
merger, conversion, consolidation or succession to the Indenture Trustee, the
Owner Trustee, the Securities Insurer, the Servicer and the Issuer.
Section 9.03. Limitation on Liability of the
Master Servicer and Others.
------------------------------
The Master Servicer and any director, officer, employee or agent of the
Master Servicer may rely on any document of any kind which it in good faith
reasonably believes to be genuine and to have been adopted or signed by the
proper authorities respecting any matters arising hereunder. Subject to the
terms of Section 9.01 hereof, the Master Servicer shall have no obligation to
appear with respect to, prosecute or defend any legal action which is not
incidental to the Master Servicer's duty to service the Home Loans in accordance
with this Agreement.
Section 9.04. Master Servicer Not to Resign; Assignment.
-----------------------------------------
The Master Servicer shall not resign from the obligations and duties
hereby imposed on it except (a) with the consent of the Owner Trustee, the
Securities Insurer and Indenture Trustee or (b) upon determination that its
duties hereunder are no longer permissible under applicable law. Any such
determination pursuant to clause (b) of the preceding sentence permitting the
resignation of the Master Servicer shall be evidenced by an independent opinion
of counsel to such effect delivered (at the expense of the Master Servicer) to
the Owner Trustee, the Securities Insurer and the Indenture Trustee. No
resignation of the Master Servicer shall become effective until a successor
master servicer appointed by the Depositor and acceptable to the Rating
Agencies, the Securities Insurer and the Indenture Trustee shall have assumed
the Master Servicer's responsibilities, duties, liabilities (other than those
liabilities arising prior to the appointment of such successor) and obligations
under this Agreement.
Except as expressly provided herein, the Master Servicer shall not
assign or transfer any of its rights, benefits or privileges hereunder to any
other Person, or delegate to or subcontract with, or authorize or appoint any
other Person to perform any of the duties, covenants or obligations to be
performed by the Master Servicer hereunder and any agreement, instrument or act
purporting to effect any such assignment, transfer, delegation or appointment
shall be void.
The Master Servicer agrees to cooperate with any successor master
servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to the first paragraph of this
Section 9.04.
Section 9.05. [Reserved.]
-----------
Section 9.06. Relationship of Master Servicer
to the Issuer and the Indenture Trustee.
---------------------------------------
The relationship of the Master Servicer (and of any successor to the
Master Servicer as master servicer under this Agreement) to the Issuer and the
Indenture Trustee under this Agreement is intended by the parties hereto to be
that of an independent contractor and not of a joint venturer, agent or partner
of the Issuer or the Indenture Trustee.
Section 9.07. Master Servicer May Own Securities.
----------------------------------
Each of the Master Servicer and any Affiliate of the Master Servicer
may in its individual or any other capacity become the owner or pledgee of
Securities with the same rights as it would have if it were not the Master
Servicer or an Affiliate thereof except as otherwise specifically provided
herein. Securities so owned by or pledged to the Master Servicer or such
Affiliate shall have an equal and proportionate benefit under the provisions of
this Agreement, without preference, priority, or distinction as among all of the
Securities; provided, however, that any Securities owned by the Master Servicer
or any Affiliate thereof, during the time such Securities are owned by them,
shall be without voting rights for any purpose set forth in this Agreement. The
Master Servicer shall notify the Indenture Trustee and the Securities Insurer
promptly after it or any of its Affiliates becomes the owner or pledgee of a
Security.
Section 9.08. Right to Examine Master Servicer Records.
----------------------------------------
The Indenture Trustee, the Owner Trustee, the Depositor, the Securities
Insurer and each of their respective agents shall have the right upon reasonable
prior notice, during normal business hours and as often as reasonably required,
to examine, audit and copy, at the expense of the Person making such
examination, any and all of the books, records or other information of the
Master Servicer (including, without limitation, the Servicer), whether held by
the Master Servicer or by another on behalf of the Master Servicer, which may be
relevant to the performance or observance by the Master Servicer of the terms,
covenants or conditions of this Agreement. In the case of the supervisory agents
and examiners of the Issuer, the Indenture Trustee, the Owner Trustee, the
Securities Insurer and the Securityholders, access to the documentation
regarding the Home Loans required by applicable state and federal regulations
shall be afforded without charge but only upon reasonable request and during
normal business hours at the offices of the Master Servicer designated by it.
The Master Servicer also agrees to make available on a reasonable basis
to the Depositor, the Securityholders or any prospective Securityholder a
knowledgeable financial or accounting officer for the purpose of answering
reasonable questions respecting recent developments affecting the Servicer or
the financial statements of the Servicer and to permit the Depositor, the
Securityholders and any prospective Securityholder to inspect the Servicer's
servicing facilities during normal business hours for the purpose of satisfying
that the Servicer has the ability to service the Home Loans in accordance with
this Agreement.
Each Securityholder, the Indenture Trustee, the Securities Insurer, the
Master Servicer and the Owner Trustee agree that any information obtained
pursuant to the terms of this Agreement shall be held confidential.
Section 9.09. Financial Statements.
--------------------
The Master Servicer understands that, in connection with the transfer
of the Notes, Noteholders and the Securities Insurer may request that the Master
Servicer make available to the Noteholders and to prospective Noteholders annual
audited financial statements of the Servicer for one or more of the most
recently completed five fiscal years for which such statements are available,
which request shall not be unreasonably denied.
<PAGE>
ARTICLE X
DEFAULT
-------
Section 10.01. Master Service Events of Default.
--------------------------------
(a) Master Servicer Event of Default. A Master Servicer Event of
Default shall include the occurrence and continuation of one or more of the
following:
(i)..(1) Any failure by the Servicer to deposit in the Collection
Account in accordance with Section 5.01(b) hereof any payments in respect of the
Home Loans received by the Servicer no later than the second Business Day
following the day on which such payments were received; (2) any failure of the
Servicer to pay when due any amount payable by it under the Servicing Agreement
or this Agreement; or (3) the occurrence and continuance of any other Servicer
Event of Default (as defined in Exhibit E hereto) which Servicer Event of
Default continues unremedied for a period of 30 days after the date on which a
Notice of Default requiring such failure to be remedied shall have been given
(a) to the Servicer and the Master Servicer by the Indenture Trustee, or the
Securities Insurer, or (b) to the Servicer, the Master Servicer, the Indenture
Trustee, the Owner Trustee and the Securities Insurer by the Majority
Noteholders.
(ii)..The failure by the Master Servicer duly to observe or
perform, in any material respect, any other covenants, obligations or agreements
of the Master Servicer as set forth in this Agreement, which failure continues
unremedied for a period of 30 days after the date on which a Notice of Default
requiring such failure to be remedied shall have been given (a) to the Master
Servicer by the Indenture Trustee, the Owner Trustee or the Securities Insurer,
or (b) to the Master Servicer, the Indenture Trustee, the Owner Trustee and the
Securities Insurer by the Majority Noteholders.
(iii)..A decree or order of a court or agency or supervisory
authority having jurisdiction for the appointment of a conservator or receiver
or liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Master Servicer and such decree or
order shall have remained in force, undischarged or unstayed for a period of 60
days.
(iv)..The Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or relating to
the Master Servicer or of or relating to all or substantially all of the Master
Servicer's property; or
(v)..The Master Servicer shall admit in writing its inability to
pay its debts 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
(vi)..The Majority Noteholders and the Securities Insurer,
collectively, or the Securities Insurer, individually, shall determine, in their
reasonable judgment and based upon published reports (including wire services),
which they reasonably believe in good faith to be reliable, and shall give the
Master Servicer a Notice of Default, that:
(1)..the Master Servicer or Servicer has experienced a material
adverse change in its business, assets, liabilities, operations, condition
(financial or otherwise) or prospects; or
(2)..the Master Servicer or Servicer or any of their subsidiaries
or parent has defaulted on any of its material obligations; or
(3)..the Master Servicer is no longer able to discharge its duties
under this Agreement or the Servicer is no longer able to discharge its duties
under the Servicing Agreement; or
(4)..the Master Servicer has ceased to conduct its business in the
ordinary course;
provided, however, that the Master Servicer shall have five Business Days from
the receipt of such Notice of Default to cure such Master Servicer Event of
Default by providing the foregoing parties with written assurances that, in a
reasonable and good faith manner, substantiate the financial and operational
well-being of the Master Servicer or Servicer, as appropriate, and adequately
refute the occurrence of a material adverse change, including, without
limitation, information, reports or written assurances obtained from certain of
its lenders or lenders to the Servicer.
(vii)..An event of default has occurred and is continuing under
the Indemnification Agreement.
(b) Remedies. If a Servicer Event of Default (as defined in Exhibit E
hereto) shall occur and be continuing or the Servicer's term of service has not
been renewed pursuant to Section 3 of the Servicing Agreement, then, and in each
and every such case, so long as such Servicer Event of Default shall not have
been remedied, the Securities Insurer or the Indenture Trustee, the Owner
Trustee or the Majority Noteholders, by a Notice of Default to the Master
Servicer may, in addition to whatever rights such Person may have at law or in
equity to damages, including injunctive relief and specific performance, with
the consent of the Securities Insurer may require the Master Servicer to
terminate all the rights and obligations of the Servicer under the Servicing
Agreement and in and to the Home Loans and the proceeds thereof, as servicer
under the Servicing Agreement. Upon termination of the Servicer following such
Notice of Default, all authority and power of the Servicer under the Servicing
Agreement, whether with respect to the Home Loans or otherwise, shall, at the
direction of the Securities Insurer, pass to, be transferred to, and be vested
in either: (1) a successor servicer acceptable to the Securities Insurer; or (2)
the Master Servicer, or (3) the Indenture Trustee. If a Master Servicer Event of
Default shall occur and be continuing, then, and in each and every such case, so
long as a Master Servicer Event of Default shall not have been remedied, the
Securities Insurer or the Indenture Trustee, or the Majority Noteholders, by a
Notice of Default to the Master Servicer may, in addition to whatever rights
such Person may have at law or in equity to damages, including injunctive relief
and specific performance, with the consent of the Securities Insurer, may
terminate all the rights and obligations of the Master Servicer under this
Agreement and in and to the Home Loans and the proceeds thereof, as Master
Servicer under this Agreement. Upon termination of the Master Servicer following
such Notice of Default, all authority and power of the Master Servicer under
this Agreement, whether with respect to the Home Loans or otherwise, shall, at
the direction of the Securities Insurer pass to, be transferred to, and be
vested in either: (1) a successor master servicer reasonably acceptable to the
Securities Insurer; or (2) the Indenture Trustee.
Upon the termination of the Master Servicer and transfer to a
successor, master servicer, the Indenture Trustee is hereby 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
do or cause to be done all other acts or things necessary or appropriate to
effect the purposes of such notice of termination, including, but not limited
to, the transfer and endorsement or assignment of the Home Loans and related
documents. The Master Servicer agrees to cooperate with the successor master
servicer in effecting the termination of the Master Servicer's responsibilities
and rights hereunder.
Section 10.02. [Reserved].
----------
Section 10.03. Waiver of Defaults.
------------------
The Securities Insurer, and the Majority Noteholders may with prior
consent of the Securities Insurer, on behalf of all Noteholders, waive any
events permitting removal of the Servicer or Master Servicer pursuant to this
Article X; provided, however, that the Majority Noteholders may not waive a
default in making a required payment on a Note or distribution on a Residual
Interest Certificate without the consent of the related Noteholder or holder of
the Residual Interest Certificate. Upon any waiver of a past default, such
default shall cease to exist and any Master Servicer Event of Default arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Section 10.04. Accounting Upon Termination of Master Servicer.
----------------------------------------------
Upon termination of the Master Servicer under this Article X, the
Master Servicer shall, at its own expense execute and deliver such instruments
and perform all acts reasonably requested in order to effect the orderly and
efficient transfer of master servicing of the Home Loans to its successor and to
more fully and definitively vest in such successor all rights, powers, duties,
responsibilities, obligations and liabilities of the Master Servicer under this
Agreement.
<PAGE>
ARTICLE XI
TERMINATION
-----------
Section 11.01. Termination.
-----------
This Agreement shall terminate upon notice to the Indenture Trustee of
either:
(a) the later of (i) the satisfaction and discharge of the Indenture
and the provisions thereof, or (ii) the disposition of all funds with respect to
the last Home Loan and the remittance of all funds due hereunder and the payment
of all amounts due and payable to the Servicer, the Indenture Trustee, the Owner
Trustee, the Issuer, the Master Servicer, the Securities Insurer and any
Custodian; or
(b) the mutual consent of the Servicer, the Master Servicer, the
Depositor, the Transferor, the Securities Insurer and all Securityholders in
writing.
Section 11.02. Optional Termination.
--------------------
On or after any Payment Date on which the Pool Principal Balance
declines to 10% or less of the Original Pool Principal Balance, then the
Majority Residual Interestholders may, at their option, effect an early
termination of the Issuer. On or after any Payment Date on which the Pool
Principal Balance declines to 5% or less of the Original Pool Principal Balance,
then the Securities Insurer or the Master Servicer may, at their respective
options, effect an early termination of the Issuer. The Majority Residual
Interestholders, the Securities Insurer or the Master Servicer, as applicable,
shall effect such early termination by providing prior notice thereof to the
Servicer, the Indenture Trustee, the Master Servicer, the Securities Insurer and
Owner Trustee and by purchasing all of the Home Loans from the Issuer at a
purchase price, payable in cash, equal to or greater than the Termination Price.
The expense of any Independent appraiser required under this Section 11.02 shall
be a nonreimbursable expense of Majority Residual Interestholders, the
Securities Insurer or the Master Servicer, as applicable.
Any such early termination by the Majority Residual Interestholders,
the Securities Insurer or the Master Servicer, as applicable, shall be
accomplished by depositing into the Collection Account on the third Business Day
prior to the Payment Date on which the purchase is to occur the amount of the
Termination Price to be paid. The Termination Price and any amounts then on
deposit in the Collection Account (other than any amounts not required to have
been deposited therein pursuant to Section 5.01(b)(1) hereof and any amounts
withdrawn therefrom by the Indenture Trustee pursuant to Section 5.01(b)(3)
hereof) shall be transferred to the Note Payment Account pursuant to Section
5.01(b)(2) hereof for payment to Noteholders and the Securities Insurer on the
succeeding Payment Date; and any amounts received with respect to the Home Loans
and Foreclosure Properties subsequent to the Due Period immediately preceding
such final Payment Date shall belong to the purchaser thereof or the Securities
Insurer, as applicable. For purposes of calculating the Available Payment Amount
for such final Payment Date, amounts transferred to the Note Payment Account
immediately preceding such final Payment Date shall in all cases be deemed to
have been received during the related Due Period, and amounts so transferred
shall be applied pursuant to Section 5.01(d) and (e) hereof.
Section 11.03. Notice of Termination.
---------------------
Notice of termination of this Agreement or of early redemption and
termination of the Issuer shall be sent (i) by the Indenture Trustee to the
Noteholders and the Securities Insurer in accordance with section 10.02 of the
Indenture and (ii) by the Owner Trustee to the Certificateholders in accordance
with section 9.1(d) of the Owner Trust Agreement.
<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
Section 12.01. Acts of Noteholders.
-------------------
Except as otherwise specifically provided herein, whenever action,
consent or approval of the Noteholders is required under this Agreement, such
action, consent or approval shall be deemed to have been taken or given on
behalf of, and shall be binding upon, all Noteholders if the Majority
Noteholders agree to take such action or give such consent or approval.
Section 12.02. Amendment.
---------
(a) This Agreement may be amended from time to time by the Depositor,
the Master Servicer, the Transferor, the Indenture Trustee and the Issuer by
written agreement with notice thereof to the Securityholders, without the
consent of any of the Securityholders, but with the consent of the Securities
Insurer, to cure any error or ambiguity, to correct or supplement any provisions
hereof which may be defective or inconsistent with any other provisions hereof
or to add any other provisions with respect to matters or questions arising
under this Agreement; provided, however, that such action will not adversely
affect in any material respect the interests of the Noteholders. An amendment
described above shall be deemed not to adversely affect in any material respect
the interests of the Noteholders if either (i) an Opinion of Counsel is obtained
to such effect or (ii) the party requesting the amendment obtains the Ratings
Confirmation with respect to such amendment.
(b) This Agreement may also be amended from time to time by the
Depositor, the Master Servicer, the Transferor, the Indenture Trustee and the
Issuer by written agreement, with the prior written consent of the Majority
Noteholders and the Securities Insurer, for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of this
Agreement, or of modifying in any manner the rights of the Noteholders;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, collections of payments on Home Loans or
distributions which are required to be made on any Note, without the consent of
the holders of 100% of the Notes affected thereby and the Securities Insurer,
(ii) adversely affect in any material respect the interests of the holders of
any of the Notes or the Securities Insurer in any manner other than as described
in clause (i), without the consent of the holders of 100% of such Notes or the
Securities Insurer, or (iii) reduce the percentage of any of the Notes, the
consent of which is required for any such amendment, without the consent of the
holders of 100% of such Notes and the Securities Insurer.
(c) It shall not be necessary for the consent of Noteholders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent shall approve the substance thereof.
Prior to the execution of any amendment to this Agreement, the Issuer
and the Indenture Trustee shall be entitled to receive and rely upon an Opinion
of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Issuer and the Indenture Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Issuer's
own rights, duties or immunities of the Issuer or the Indenture Trustee, as the
case may be, under this Agreement.
Section 12.03. Recordation of Agreement.
------------------------
To the extent permitted by applicable law, this Agreement, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the Mortgaged
Properties are situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer at the Noteholders'
expense on direction of the Majority Noteholders or the Securities Insurer, but
only when accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the Noteholders
or is necessary for the administration or servicing of the Home Loans.
Section 12.04. Duration of Agreement.
---------------------
This Agreement shall continue in existence and effect until terminated
as herein provided.
Section 12.05. Governing Law.
-------------
THIS 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, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
Section 12.06. 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 overnight mail, certified mail or registered mail, postage prepaid, to:
(a) in the case of the Depositor, PaineWebber Mortgage Acceptance
Corporation IV, 1285 Avenue of the Americas, New York, New York 10019,
Attention: John Fearey, Esq., or such other addresses as may hereafter be
furnished to the Securityholders and the other parties hereto in writing by the
Depositor;
(b) in the case of the Issuer, at ________ Home Loan Owner Trust
199_-_, c/o Wilmington Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Emmett R. Harmon, or such other
address as may hereafter be furnished to the Securityholders and the other
parties hereto;
(c) in the case of the Transferor and Master Servicer, _________
_________, 175 North Riverview Drive, Anaheim, California 92808, Attention: Kyle
Walker, or such other address as may hereafter be furnished to the
Securityholders and the other parties hereto in writing by the Servicer or the
Transferor;
(d) in the case of the Indenture Trustee, _______,____________________
__________________________;
(e) in the case of the Securityholders, as set forth in the applicable
Note Register;
(f) [in the case of a claim under the Guaranty Policy, _______________
____________________________, or such other address as may be furnished to the
Securityholders and the other parties hereto in writing by the Securities
Insurer];
(g) [in the case of the Securities Insurer, ______________________,
Attention: [ ] (_________ Home Loan Asset Backed Notes, Series 199_-_);] or
(h) in the case of the Servicer, to _________________________________
_______________, Attention: _____________, _________ Series 199_-_; provided
that during the period that the Master Servicer is acting as Servicer, notices
shall be sent to the Master Servicer.
Any such notices shall be deemed to be effective with respect to any
party hereto upon the receipt of such notice by such party, except that notices
to the Securityholders shall be effective upon mailing or personal delivery.
Section 12.07. Severability of Provisions.
--------------------------
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason whatsoever, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other covenants,
agreements, provisions or terms of this Agreement.
Section 12.08. No Partnership.
--------------
Nothing herein contained shall be deemed or construed to create any
partnership or joint venture between the parties hereto and the services of the
Servicer shall be rendered as an independent contractor.
Section 12.09. Counterparts.
------------
This Agreement 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 Agreement.
Section 12.10. Successors and Assigns.
----------------------
This Agreement shall inure to the benefit of and be binding upon the
Servicer, the Transferor, the Depositor, the Indenture Trustee, the Issuer, the
Noteholders, the Securities Insurer, the Master Servicer and their respective
successors and permitted assigns.
Section 12.11. Headings.
--------
The headings of the various sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed to be part of
this Agreement.
Section 12.12. Actions of Securityholders.
--------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by
Securityholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by agent
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 Depositor, the Servicer, the Indenture Trustee or the Issuer.
Proof of execution of any such instrument or of a writing appointing any such
agent shall be sufficient for any purpose of this Agreement and conclusive in
favor of the Depositor, the Servicer, the Indenture Trustee and the Issuer if
made in the manner provided in this Section 12.12.
(b) The fact and date of the execution by any Securityholder of any
such instrument or writing may be proved in any reasonable manner, which the
Depositor, the Servicer, the Indenture Trustee or the Issuer deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder shall bind every holder of every
Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done, or omitted to be done,
by the Depositor, the Servicer, the Indenture Trustee, the Securities Insurer or
the Issuer in reliance thereon, whether or not notation of such action is made
upon such Security.
(d) The Depositor, the Servicer, the Indenture Trustee or the Issuer
may require additional proof of any matter referred to in this Section 12.12 as
it shall deem necessary.
Section 12.13. Reports to Rating Agencies.
--------------------------
(a) The Indenture Trustee shall provide to each Rating Agency copies of
statements, reports and notices, to the extent received or prepared in
connection herewith, as follows:
(i)..copies of amendments to this Agreement;
(ii)..notice of any substitution or repurchase of any Home Loans;
(iii)..notice of any termination, replacement, succession, merger
or consolidation of the Servicer, the Master Servicer, any Custodian or the
Issuer;
(iv)..notice of final payment on the Notes;
(v)..any Notice of Default;
(vi)..copies of the annual independent accountants' report
delivered pursuant to Section 7.05 hereof, and copies of any compliance reports
delivered by the Servicer including under Section 7.04 hereof; and
(vii)..copies of any Payment Date Statement pursuant to Section
6.01(b) hereof.
(b) With respect to the requirement of the Indenture Trustee to provide
statements, reports and notices to the Rating Agencies, such statements, reports
and notices shall be delivered to the Rating Agencies at the following
addresses: (i) if to Standard & Poor's Ratings Services, 25 Broadway, New York,
New York, 10004, Attention: Residential Mortgage Group; and (ii) if to Moody's
Investors Service, Inc., 99 Church Street, Corporate Department - 4th Floor, New
York, New York 10007, Attention: Residential Mortgage Monitoring Department.
Section 12.14. Holders of the Residual Interest Certificates.
---------------------------------------------
(a) Any sums to be distributed or otherwise paid hereunder or under the
Owner Trust Agreement to the holders of the Residual Interest Certificates shall
be paid to such holders pro rata based on their percentage holdings in the
Residual Interest;
(b) Where any act or event hereunder is expressed to be subject to the
consent or approval of the holders of the Residual Interest Certificates, such
consent or approval shall be capable of being given by the holder or holders of
not less than 51% of the Residual Interest in aggregate.
Section 12.15. Year 2000 Compliance.
--------------------
Each of the Servicer, the Master Sevicer and the Indenture Trustee
shall assure that their respective computer systems are year 2000 compliant by
December 31, 199_.
Section 12.16. [Grant of Noteholder Rights to Securities Insurer.
--------------------------------------------------
In consideration for the guarantee of the Insured Securities by the
Securities Insurer pursuant to the Guaranty Policy, and by acceptance of an
Insured Security, the Noteholders hereby grant to the Securities Insurer the
right to act as the holder of 100% of the outstanding Insured Securities for the
purpose of exercising the rights of the holders of the Insured Securities under
this Agreement, without the consent of any such Noteholders, including the
voting rights of such holders, but excluding those rights requiring the consent
of all such holders under Section 12.02(b), and any rights of such holders to
payments under Section 5.01 (d) and (e) hereof and under section 8.02(c) of the
Indenture; provided that the preceding grant of rights to the Securities Insurer
by the Noteholders shall be subject to Section 12.18 hereof. The rights of the
Securities Insurer to direct certain actions and consent to certain actions of
the Majority Noteholders hereunder will terminate at such time as the Principal
Balance of Insured Securities have been reduced to zero and the Securities
Insurer has been paid the Securities Insurer Reimbursement Amount in full and
all other amounts owed under the Guaranty Policy and Insurance Agreement and the
Securities Insurer has no further obligation under the Guaranty Policy.]
Section 12.17. Third Party Beneficiary.
-----------------------
The parties hereto acknowledge that the Securities Insurer is an
express third party beneficiary hereof entitled to enforce any rights reserved
to it hereunder as if it were actually a party hereto.
Section 12.18. [Suspension and Termination of
Securities Insurer's Rights.
------------------------------
(a) During the continuation of a Securities Insurer Default, the rights
granted or reserved to the Securities Insurer hereunder shall vest instead in
the Majority Noteholders; provided, however, that the Securities Insurer shall
be entitled to any payments of the Securities Insurer Reimbursement Amount, and
the Securities Insurer shall retain those rights under Section 11.01 to consent
to the termination of this Agreement and Section 12.02 to consent to any
amendment of this Agreement.
(b) At such time as either (i) the Principal Balances of the Insured
Securities have been reduced to zero or (ii) the Guaranty Policy has been
terminated, and in either case of (i) or (ii) the Securities Insurer has been
paid the Securities Insurer Reimbursement Amount in full and all other amounts
owed under the Guaranty Policy and the Insurance Agreement (and the Securities
Insurer no longer has any obligation under the Guaranty Policy, except for
breach thereof by the Securities Insurer), then the rights and benefits granted
or reserved to the Securities Insurer hereunder (including the rights to direct
certain actions and receive certain notices) shall terminate and the Noteholders
(including in certain instances the Majority Noteholders) shall be entitled to
the exercise of such rights and to receive such benefits of the Securities
Insurer following such termination to the extent that such rights and benefits
are applicable to the Noteholders (including the Majority Noteholders).]
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Depositor, the Transferor, the
Servicer, the Master Servicer and the Indenture Trustee have caused their names
to be signed by their respective officers thereunto duly authorized, as of the
day and year first above written, to this Sale and Servicing Agreement.
_________ HOME LOAN OWNER TRUST SERIES
199_-_, as Issuer
By: WILMINGTON TRUST COMPANY, not in its
individual capacity but solely as Owner
Trustee
By: _________________________________
Name:
Title:
PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, as Depositor
By: _______________________________________
Name:
Title:
_________ _________, as Transferor and Master
Servicer
By: _______________________________________
Name:
Title:
_________, not in its individual capacity but
solely as Indenture Trustee
By: _______________________________________
Name:
Title:
<PAGE>
THE STATE OF ___________...)
)
COUNTY OF ______________...)
BEFORE ME, the undersigned authority, a Notary Public, on this _____
day of _______ 199_, personally appeared _______________, known to me to be a
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said WILMINGTON TRUST
COMPANY, not in its individual capacity but in its capacity as Owner Trustee of
_________ HOME LOAN OWNER TRUST 199_-_ as Issuer, and that she executed the same
as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF WILMINGTON TRUST COMPANY, this the ____
day of ______, 199_.
Notary Public, State of ___________
<PAGE>
THE STATE OF [_________]...)
)
COUNTY OF [____________]...)
BEFORE ME, the undersigned authority, a Notary Public, on this _____
day of _______ 199_, personally appeared _______________, known to me to be a
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said PAINEWEBBER MORTGAGE
ACCEPTANCE CORPORATION IV, as the Depositor, and that he/she executed the same
as the act of such corporation for the purpose and consideration therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF PAINEWEBBER MORTGAGE ACCEPTANCE
CORPORATION IV, this the ____ day of ________, 199_.
Notary Public, State of ...
<PAGE>
THE STATE OF ___________...)
)
COUNTY OF ______________...)
BEFORE ME, the undersigned authority, a Notary Public, on this __ day
of ______ 199_, personally appeared _______________________, known to me to be
the person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said _________ _________, as
the Transferor and Master Servicer, and that he executed the same as the act of
such corporation for the purposes and consideration therein expressed, and in
the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF _________ _________, this the ____ day
of _______ 199_.
Notary Public, State of_________
<PAGE>
THE STATE OF ___________..)
)
COUNTY OF ______________..)
BEFORE ME, the undersigned authority, a Notary Public, on this __ day
of _______ 199_, personally appeared ____________________, known to me to be the
person and officer whose name is subscribed to the foregoing instrument and
acknowledged to me that the same was the act of the said _________, not in its
individual capacity, but in its capacity as Indenture Trustee, and that she
executed the same as the act of such entity for the purposes and consideration
therein expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL, this the __ day of _______ 199_.
Notary Public, State of___________
<PAGE>
EXHIBIT A
HOME LOAN SCHEDULE
<PAGE>
EXHIBIT B
Form of Servicer's Monthly Remittance Report to Indenture Trustee
<PAGE>
EXHIBIT C
Form of Loan Liquidation Report
Customer Name:
Account No.:
Original Principal Balance:
1. Type of Liquidation (REO disposition/charge-off/short pay-off) ___________
Date last paid ___________
Foreclosure
Date of Foreclosure ___________
Date of REO ___________
Date of REO Disposition ___________
Property Sale Price/Estimated Market Value at disposition $__________
Settlement (short pay-off and collection actions)
Date of Settlement Payment ___________
Defaulted Loan Sale
Date of Sale ___________
Charge-off or Bankruptcy
Date of Charge-off or Bankruptcy Discharge ___________
2. Liquidation Proceeds
Principal Prepayment $__________
Property Sale Proceeds $__________
Insurance Proceeds $__________
Settlement Payment Loan Sale Proceeds $__________
Other (Itemize) $__________
Total Proceeds $__________
Liquidation Expenses
Servicing Advances $__________
Servicing Fees $__________
Other Servicing Compensation $__________
Collection Agent or Attorney's Fees $__________
Total Advances $__________
4. Net Liquidation Proceeds $__________
(Item 2 minus Item 3)
5. Principal Balance of Mortgage Loan $__________
6. Loss, if any (Item 5 minus Item 4) $__________
<PAGE>
EXHIBIT D
Form of Master Servicer Renewal Notice
[MASTER SERVICER]
Re: _________ Home Loan Asset Backed Notes, Series 199_-_
Dear Ladies and Gentlemen:
Reference is hereby made to the Sale and Servicing Agreement dated
as of _______ 1, 199_ (the "Agreement") among _________ Home Loan Owner
Trust 199_-_, as Issuer, PaineWebber Mortgage Acceptance Corporation IV, as
Depositor, _________ _________, as Transferor, Master Servicer, and as Servicer,
and _________, as Indenture Trustee. [The Indenture Trustee has not received
notification from _________________, as the Securities Insurer, that instructs
the Indenture Trustee not to renew the term of ______________ as the Master
Servicer under the Agreement.] Therefore, pursuant to Section 9.05 of the
Agreement, the Indenture Trustee hereby notifies ________________________ that
its term as Master Servicer has been extended for a successive three calendar
month period beginning with the month of __________, _____.
___________________________________,
as Indenture Trustee
By:________________________________
Name:________________________
Title:_______________________
cc: [Securities Insurer]
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
Attn: John Fearey, Esq.
_________ Home Loan Owner Trust 199_-_
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Emmett R. Harmon
<PAGE>
EXHIBIT E
Exhibit 5.1
May 25, 1999
PaineWebber Mortgage Acceptance Corporation IV
1285 Avenue of the Americas
New York, New York 10019
Re: ASSET-BACKED CERTIFICATES AND ASSET-BACKED NOTES
------------------------------------------------
Gentlemen:
We have acted as special counsel to PaineWebber Mortgage Acceptance
Corporation IV (the "DEPOSITOR") in connection with the Registration Statement
on Form S-3 (the "REGISTRATION STATEMENT"), which Registration Statement is
being filed with the Securities and Exchange Commission (the "COMMISSION"),
pursuant to the Securities Act of 1933, as amended (the "ACT"). The Prospectus
describes Asset-Backed Certificates ("CERTIFICATES") and Asset-Backed Notes
("NOTES") to be sold by the Depositor in one or more series (each, a "SERIES")
of Certificates or Notes, as applicable. Each Series of Certificates will be
issued under a separate pooling and servicing agreement (each, a "POOLING AND
SERVICING AGREEMENT") among the Depositor, a master servicer (a "SERVICER"), a
trustee (a "Trustee") and, if applicable, such other parties to be identified in
the Prospectus Supplement for such Series. Each Series of Notes will be issued
under a separate indenture (each, an "INDENTURE") between the Depositor or a
trust formed by the Depositor (in either case, the "ISSUER"), an indenture
trustee (an "INDENTURE TRUSTEE") and, if applicable, such other parties to be
identified in the Prospectus Supplement for such Series. The form of Pooling and
Servicing Agreement (a "POOLING AND SERVICING AGREEMENT"), is filed as an
exhibit to the Registration Statement. The form of Indenture (an "INDENTURE") is
filed as an exhibit to the Registration Statement. Capitalized terms used and
not otherwise defined herein have the respective meanings given to such terms in
the Registration Statement.
In rendering the opinions set forth below, we have examined and
relied upon the following: (1) the Registration Statement, the Prospectus and
the forms of Prospectus Supplements constituting a part thereof, each
substantially in the form filed with the Commission; (2) the form of Pooling and
Servicing Agreement; (3) the form of Indenture; and (4) such other documents,
materials and authorities as we have deemed necessary in order to enable us to
render our opinion set forth below. We express no opinion with respect to any
Series of Certificates or Notes, as applicable, for which we do not act as
counsel to the Depositor.
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 and validly authorized, executed and
delivered by the Depositor, a Servicer, a Trustee and any other
party thereto, such Pooling and Servicing Agreement will constitute
a valid and legally binding agreement of the Depositor, enforceable
against the Depositor in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, receivership or other laws relating to
creditors' rights generally, and to general principles of equity
including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity), and except that the enforcement of
rights with respect to indemnification and contribution obligations
may be limited by applicable law.
2. When an Indenture for a Series of Notes has been duly and
validly authorized, executed and delivered by the Depositor, an
Indenture Trustee and any other party thereto, such Indenture will
constitute a valid and legally binding agreement of the Issuer,
enforceable against the Issuer in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, receivership or other laws relating to
creditors' rights generally, and to general principles of equity
including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity), and except that the enforcement of
rights with respect to indemnification and contribution obligations
may be limited by applicable law.
3. When a Pooling and Servicing Agreement for a Series of
Certificates has been duly and validly authorized, executed and
delivered by the Depositor, a Servicer, a Trustee and any other
party thereto, and the Certificates of such Series have been duly
executed, authenticated, delivered and sold as contemplated in the
Registration Statement, such Certificates will be legally and
validly issued, fully paid and nonassessable, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, receivership or other laws relating to creditors' rights
generally, and to general principles of equity including principles
of commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law
or in equity), and will be validly issued and outstanding and
entitled to the benefits provided by such Pooling and Servicing
Agreement.
4. When an Indenture for a Series of Notes has been duly and
validly authorized, executed and delivered by the Issuer, an
Indenture Trustee and any other party thereto, and the Notes of such
Series have been duly executed, authenticated, delivered and sold as
contemplated in the Registration Statement, such Notes will be
legally and validly issued, fully paid and nonassessable obligations
of the Issuer, enforceable against the Issuer in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, receivership or other laws
relating to creditors' rights generally, and to general principles
of equity including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought
in a proceeding at law or in equity), and will be validly issued and
outstanding and entitled to the benefits provided by such Indenture.
5. The description of federal income tax consequences
appearing under the heading "Federal Income Tax Consequences" in the
Prospectus accurately describes the material federal income tax
consequences to holders of Offered Certificates or Offered Notes, as
applicable, under existing law and subject to the qualifications and
assumptions stated therein.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to this firm under the headings
"Legal Matters" and "Federal Income Tax Consequences" in the Prospectus, which
is a part of the Registration Statement. This consent is not to be construed as
an admission that we are a person whose consent is required to be filed with the
Registration Statement under the provisions of the Act.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
