<PAGE>
PROSPECTUS SUPPLEMENT [GRAPHIC OMITTED]
(To Prospectus dated December 16, 1998)
$575,000,000 (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 1998-2
[GRAPHIC OMITTED]
Chase Funding Trust, Series 1998-2
Issuer
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
Chase Funding Trust, Series 1998-2 will issue twelve classes of certificates,
eleven of which are offered by this prospectus supplement and the attached
prospectus. The table on page S-3 identifies the various classes and specifies
certain characteristics of each class, including each class's initial
certificate principal balance, interest rate and rating.
The trust fund will consist primarily of sub-prime mortgage loans secured by
first liens on real properties which were originated or acquired by Chase
Manhattan Mortgage Corporation.
The Class IIA-1 and Class IIA-2 Certificates will have the benefit of an
irrevocable certificate guaranty insurance policy to be issued by Financial
Security Assurance Inc.
[GRAPHIC OMITTED]
Investing in these certificates involves risks. You should not purchase these
certificates unless you fully understand their risks and structure. See "Risk
Factors" beginning on page S-14 of this prospectus supplement and page 8 of the
attached prospectus.
These certificates will be beneficial interests in a trust fund, and will be
backed only by the assets of the trust. Neither these certificates nor the
assets of the trust will be obligations of Chase Funding, Inc., Advanta Mortgage
Corp. USA, Chase Manhattan Mortgage Corporation or any of their affiliates.
These certificates will not be insured or guaranteed by any governmental agency.
Underwriting Proceeds to
Price to Public Discount Depositor(1)
- ------------------- -------------- ---------------
$ 574,926,242 $ 1,437,500 $573,488,742
99.9871725% 0.25%
- ---------------
(1) Less expenses (estimated at $658,000) and plus accrued interest. See
"Underwriting."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this prospectus supplement and the attached prospectus.
Any representation to the contrary is a criminal offense.
Chase Securities Inc. Prudential Securities Incorporated
(Joint Book Lead)
The date of this Prospectus Supplement is December 16, 1998.
<PAGE>
Where to Find Information in this Prospectus Supplement
and the Attached Prospectus
Information about the certificates is contained in (a) the accompanying
prospectus, which provides general information, some of which may not apply to
the certificates, and (b) this prospectus supplement, which describes the
specific terms of the certificates.
This prospectus supplement and the attached prospectus include cross
references to sections in these materials where you can find further related
discussions. The Tables of Contents in this prospectus supplement and the
attached prospectus identify the pages where those sections are located.
In this prospectus supplement, the terms "Depositor," "we," "us" and "our"
refer to Chase Funding, Inc.
- --------------------------------------------------------------------------------
To understand the structure of these certificates, you must read carefully
both the attached prospectus and this prospectus supplement in their entirety.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
THE SERIES 1998-2 CERTIFICATES ............................. S-3
SUMMARY INFORMATION ........................................ S-4
RISK FACTORS ............................................... S-14
Overcollateralization Provisions ......................... S-14
Prepayment Considerations and Risks ...................... S-14
Risk of Higher Delinquencies Associated with
Underwriting Guidelines ............................... S-15
Effect of Mortgage Loan Yield on the Class IIA-1
Certificates Pass-Through Rate; Basis Risk ............ S-15
Subordination -- Limited Protection Afforded to
Group I Certificate ................................... S-15
Subordination -- Allocation of Losses to the Class
IM-1, Class IM-2 and Class IB Certificates ............ S-16
Cash Flow Considerations and Risks ....................... S-16
Certificate Rating on the Group I Certificates ........... S-16
Bankruptcy and Insolvency Risks .......................... S-16
Pass-Through Rate with Respect to the Class IB
Certificates .......................................... S-16
Geographic Concentration ................................. S-17
Delinquent Mortgage Loans ................................ S-17
Limited Liquidity; Lack of SMMEA Eligibility ............. S-17
Risks Associated with Year 2000 Compliance ............... S-17
Risk Associated with the Group II Certificate Insurer..... S-17
THE MORTGAGE POOL .......................................... S-19
General .................................................. S-19
Mortgage Loans ........................................... S-21
Assignment of the Mortgage Loans ......................... S-35
Representations and Warranties ........................... S-35
CHASE MANHATTAN MORTGAGE
CORPORATION .............................................. S-35
Underwriting Standards ................................... S-35
SERVICING OF THE MORTGAGE LOANS ............................ S-38
General .................................................... S-38
The Subservicer ............................................ S-38
Servicing Compensation and Payment of Expenses ............. S-40
Adjustment to Servicing Fee in Connection with Certain
Prepaid Mortgage Loans ................................... S-41
Advances ................................................... S-41
Master Servicer ............................................ S-41
DESCRIPTION OF THE CERTIFICATES ............................ S-42
General .................................................. S-42
Book-Entry Certificates .................................. S-42
Payments on Mortgage Loans; Collection Account;
Certificate Account; Distribution Account ............. S-45
<PAGE>
Distributions ............................................ S-47
Overcollateralization and Crosscollateralization
Provisions ............................................ S-52
Calculation of One-Month LIBOR ........................... S-54
Reports to Certificateholders ............................ S-54
Amendment ................................................ S-55
Optional Termination ..................................... S-56
Optional Purchase of Defaulted Loans ..................... S-56
Events of Default ........................................ S-56
Rights upon Event of Default ............................. S-56
The Trustee .............................................. S-57
THE GROUP II CERTIFICATE INSURANCE
POLICY ................................................... S-57
THE GROUP II CERTIFICATE INSURER ........................... S-59
General .................................................. S-60
Reinsurance .............................................. S-60
Ratings .................................................. S-60
Capitalization ........................................... S-61
Insurance Regulation ..................................... S-62
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS ........................................... S-62
General .................................................. S-62
Prepayments and Yields for Offered
Certificates .......................................... S-63
Additional Information ................................... S-72
FEDERAL INCOME TAX CONSEQUENCES ............................ S-72
Original Issue Discount .................................. S-72
Special Tax Attributes of the Offered
Certificates .......................................... S-72
Prohibited Transactions Tax and Other Taxes .............. S-73
STATE TAXES ................................................ S-73
ERISA CONSIDERATIONS ....................................... S-73
LEGAL INVESTMENT MATTERS ................................... S-76
USE OF PROCEEDS ............................................ S-76
METHOD OF DISTRIBUTION ..................................... S-76
LEGAL MATTERS .............................................. S-77
RATINGS .................................................... S-78
EXPERTS .................................................... S-79
INDEX OF DEFINED TERMS ..................................... S-80
ANNEX I .................................................... A-1
S-2
<PAGE>
THE SERIES 1998-2 CERTIFICATES
<TABLE>
<CAPTION>
Class IA-1 Class IA-2 Class IA-3
---------------- ---------------- ----------------
<S> <C> <C> <C>
Loan Group: Fixed Fixed Fixed
Initial Certificate Principal
Balance(1): $65,000,000 $19,000,000 $36,000,000
Pass Through Rate: 6.258% 5.960% 5.980%
ERISA Eligible: Yes Yes Yes
Prepayment Assumption(5): 23 HEP 23 HEP 23 HEP
First Principal Payment Date(6): 1/99 8/00 4/01
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 0.9 2.0 3.1
to maturity (yrs.)(6): 0.9 2.0 3.1
Expected Maturity (to call)(6): 8/00 4/01 2/03
Expected Maturity (to maturity)(6): 8/00 4/01 2/03
Last Scheduled Distribution Date: 9/13 9/13 4/22
Interest Accrual Method: 30/360 30/360 30/360
Interest Rate Index Reset Date: N/A N/A N/A
Payment Delay: 24 days 24 days 24 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AAA/AAA AAA/AAA
(S&P/Moody's):
<CAPTION>
Class IA-4 Class IA-5 Class IA-6 Class IM-1 Class IM-2
---------------- ------------------ ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Loan Group: Fixed Fixed Fixed Fixed Fixed
Initial Certificate Principal
Balance(1): $18,000,000 $18,925,000 $17,400,000 $8,075,000 $4,750,000
Pass Through Rate: 6.150% 6.650%(2) 6.160% 6.745% 7.140%
ERISA Eligible: Yes Yes Yes No No
Prepayment Assumption(5): 23 HEP 23 HEP 23 HEP 23 HEP 23 HEP
First Principal Payment Date(6): 2/03 3/05 1/02 1/02 1/02
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 5.1 8.1 6.5 5.7 5.7
to maturity (yrs.)(6): 5.1 10.3 6.6 6.1 5.9
Expected Maturity (to call)(6): 3/05 6/07 6/07 6/07 6/07
Expected Maturity (to maturity)(6): 3/05 11/15 9/13 11/11 11/09
Last Scheduled Distribution Date: 12/25 9/28 9/13 9/28 9/28
Interest Accrual Method: 30/360 30/360 30/360 30/360 30/360
Interest Rate Index Reset Date: N/A N/A N/A N/A N/A
Payment Delay: 24 days 24 days 24 days 24 days 24 days
Anticipated Ratings (S&P/Fitch): AAA/AAA AAA/AAA AAA/AAA AA/AA A/A
(S&P/Moody's):
<PAGE>
<CAPTION>
S-3
Class IB Class IIA-1 Class IIA-2
----------------- ------------------ ----------------
<S> <C> <C> <C>
Loan Group: Fixed Adjustable Adjustable
Initial Certificate Principal
Balance(1): $2,850,000 $288,750,000 $96,250,000
Pass Through Rate: 8.000%(3) (4) 5.875%
ERISA Eligible: No Yes Yes
Prepayment Assumption(5): 23 HEP 27 CPR 27 CPR
First Principal Payment Date(6): 1/02 1/99 4/00
Weighted Avg. Life At Issuance:
to call (yrs.)(6): 5.4 2.9 2.0
to maturity (yrs.)(6): 5.4 3.3 2.0
Expected Maturity (to call)(6): 6/07 2/06 3/02
Expected Maturity (to maturity)(6): 7/07 2/15 3/02
Last Scheduled Distribution Date: 9/28 9/28 3/17
Interest Accrual Method: 30/360 actual/360 30/360
Interest Rate Index Reset Date: N/A (7) N/A
Payment Delay: 24 days 0 days 24 days
Anticipated Ratings (S&P/Fitch): BBB/BBB
(S&P/Moody's): AAA/Aaa AAA/Aaa
</TABLE>
- --------
(1) Subject to a permitted variance of plus or minus 10%.
(2) After the optional termination date described herein, the pass-through rate
for the Class IA-5 Certificates will increase to 7.150%.
(3) Subject to adjustment. Under certain circumstances, your pass-through rate
may be lower. See "Description of the Certificates--Distributions
--Distributions of Interest."
(4) One-month LIBOR plus 0.51%. Subject to adjustment. Under certain
circumstances your pass-through rate may be lower. See "Description of the
Certificates--Distributions--Distributions of Interest."
(5) See "Yield, Prepayment and Maturity Considerations" for a description of
HEP and CPR.
(6) Based on the modeling assumptions described on page S-65 and 23 HEP or 27
CPR.
(7) Two business days prior to the start of each interest period.
<TABLE>
<S> <C>
Credit Enhancement:
Group One Group Two
Excess Interest Excess Interest
Overcollateralization Overcollateralization
Crosscollateralization Crosscollateralization
Subordination FSA Certificate Insurance Policy
Overcollateralization Requirements:
Group One Group Two
Initial Percentage: 0.00% Initial Percentage: 0.00%
Stepdown Percentage: 2.20% of current balance Stepdown Percentage: 7.00% of current balance
Targeted Percentage: 1.10% of original balance Targeted Percentage: 3.50% of original balance
Minimum Required Percentage: 0.50% of original balance Minimum Required Percentage: 0.50% of original balance
Earliest Possible Stepdown Date: January 2002 Earliest Possible Stepdown Date: June 2001
</TABLE>
S-3
<PAGE>
SUMMARY INFORMATION
This section briefly summarizes certain major characteristics of the
certificates and the mortgage loans. It does not contain all of the information
that you need to consider in making your investment decision. To fully
understand the terms of the certificates, you should read both this prospectus
supplement and the attached prospectus in their entirety.
Principal Parties
Issuer: Chase Funding Trust, Series 1998-2.
Depositor: Chase Funding, Inc.
Seller and Master Servicer: Chase Manhattan Mortgage Corporation. See
"Chase Manhattan Mortgage Corporation."
Subservicer: Advanta Mortgage Corp. USA. See "Servicing of the Mortgage
Loans--The Subservicer."
Trustee: Citibank, N.A.
Group II Certificate Insurer: Financial Security Assurance, Inc. See
"The Group II Certificate Guaranty Insurance Policy" and "The Group II
Certificate Insurer."
Cut-off Date
The cut-off date will be December l, 1998.
Closing Date
The closing date will be on or about December 18, 1998.
Distribution Date
The 25th day of each month, beginning in January 1999. If the 25th day is not a
business day, then the distribution date will be the next business day.
The Trust Fund
The name of the trust fund is Chase Funding Mortgage Loan Asset-Backed
Certificates, Series 1998-2. We are forming the trust to own a pool of
sub-prime mortgage loans secured by first liens on real properties. The
mortgage pool is divided into two loan groups: a group of the fixed rate
mortgage loans (group I), and a group of the adjustable rate mortgage loans
(group II). Each class of certificates represents an interest in one of these
loan groups. However, due to the crosscollateralization features of the trust
fund, certificates of one group may receive credit support payments from
mortgage loans in the other group.
The Series 1998-2 Certificates
The certificates represent beneficial ownership interests in the underlying
trust fund assets. The certificates will have the original certificate
principal balance, pass-through rate and other features set forth in the table
on page S-3. The trust fund will issue the certificates under a Pooling and
Servicing Agreement dated as of December 1, 1998 among Chase Funding, Inc., as
depositor, Advanta Mortgage Corp. USA, as subservicer, Chase Manhattan Mortgage
Corporation, as master servicer and Citibank, N.A., as trustee. When we refer
to the group I certificates or the group II certificates, we mean the
certificates representing interests in the fixed rate mortgage loans or the
adjustable rate mortgage loans, respectively. Any collections on the trust
assets will be used to pay a servicing fee to Advanta Mortgage Corp. USA and
Chase Manhattan Mortgage Corporation, to pay an insurance premium to Financial
Security Assurance Inc. and to make interest or principal payments. All
principal collections will be paid to one or more classes of the certificates
offered through this prospectus supplement or to the residual certificates,
based on the outstanding certificate balances and the remaining principal
amount in each loan group. Any interest collections in excess of the amount
paid to certificateholders--either as interest or principal--
or the servicers or Financial Security Assurance Inc. will be paid to the owner
of the residual certificates. See "Description of the Certificates--
Distributions."
Interest Distributions
Interest will accrue on each class of certificates at the pass-through rate for
that class. Interest will accrue on each class of certificates (other than the
S-4
<PAGE>
Class IIA-1 Certificates) during the calendar month preceding each distribution
date. Interest will accrue on the Class IIA-1 Certificates during the one-month
period ending on the day prior to each distribution date.
The pass-through rate on the Class IIA-1 Certificates will be subject to an
available amount interest rate cap. If the amount of interest due on the
mortgage loans in group II, less certain amounts, is less than the interest
accrued on the Class IIA-1 Certificates based on one-month LIBOR plus 0.51%,
the Class IIA-1 Certificates will not receive such interest shortfall on the
related distribution date. Instead, such interest shortfall will be carried
forward on a subordinated basis with accrued interest at the pass-through rate
and paid from excess cash flow in a later distribution, if available. Any such
interest shortfalls will not be covered by the group II certificate insurance
policy. The pass-through rate on the Class IIA-1 Certificates will be also
subject to a maximum amount interest rate cap based on the maximum lifetime
rate on the adjustable rate mortgage loans. Any interest shortfall due to the
maximum amount cap will not be reimbursed. See "Description of the
Certificates--Distributions-- Distributions of Interest."
Principal Distributions
Principal payments to the group I certificates and the group II certificates
will generally reflect principal collections on the loans in the related loan
group. Principal payments will also include a portion of interest collections
to the extent necessary to reach or maintain the required overcollateralization
percentage, as described below.
Denominations
The trust fund will issue the offered certificates in minimum denominations of
$25,000 in original principal amount and integral multiples of $1,000 in excess
thereof.
Book-Entry Registration
The trust fund will initially issue the certificates in book-entry form. You
may elect to hold your interest in the certificates through The Depository
Trust Company in the United States, or CEDEL Bank, S.A. or the Euroclear System
in Europe, or indirectly through participants in such systems.
You will not be entitled to receive a definitive certificate representing your
interest except under limited circumstances. See "Description of the
Certificates--Book-Entry Certificates" in this prospectus supplement and
"Description of the Certificates" in the attached prospectus.
Credit Enhancement
Credit enhancement is intended to reduce the harm caused to holders of the
certificates as a result of shortfalls in payments received and losses realized
on the mortgage loans. The credit enhancement for the group I certificates and
the group II certificates will consist of overcollateralization and
crosscollateralization. Additional credit enhancement will consist of
subordination (in the case of the group I certificates), and a certificate
guaranty insurance policy (in the case of the group II
certificates).
Overcollateralization. Generally, because more interest is paid by the
mortgagors than is necessary to pay the interest accrued on the certificates
and the expenses of the trust fund, there will be excess interest each month.
The trust fund will apply some or all of such excess interest as principal
payments on the certificates, resulting in a limited acceleration of principal
of the certificates relative to the mortgage loans in the related loan group.
This acceleration feature creates overcollateralization, which equals the
excess of the outstanding principal balance of the mortgage loans in a loan
group over the outstanding principal balance of the related certificates. Once
the required level of overcollateralization is reached, the acceleration
feature will cease, unless it becomes necessary again to maintain the required
level of overcollateralization. The actual level of overcollateralization may
increase or decrease over time based upon whether the step-down criteria of the
trust have been met. This could result in a temporarily faster or slower
amortization of one or both groups of the certificates. See "Description of the
Certificates-- Overcollateralization and Crosscollateralization Provisions."
Crosscollateralization. The trust fund provides for
crosscollateralization through the
S-5
<PAGE>
application of excess interest generated by one loan group to fund certain
shortfalls and the required level of overcollateralization in the other loan
group. See "Description of the Certificates-- Overcollateralization and
Crosscollateralization Provisions."
Subordination. The rights of the holders of the Class IB Certificates to
receive distributions will be subordinated to the rights of the holders of the
group I Class A, Class IM-1 and Class IM-2 Certificates to receive
distributions. The rights of the holders of the Class IM-2 Certificates to
receive distributions will be subordinated to the rights of the holders of the
group I Class A and Class IM-1 Certificates to receive distributions. The
rights of the holders of the Class IM-1 Certificates to receive distributions
will be subordinated to the rights of the holders of the group I Class A
Certificates to receive distributions. See "Description of the
Certificates--Distributions."
In general, the protection afforded the holders of more senior classes of group
I certificates by means of this subordination will be effected in two ways:
Priority of Distributions. By the preferential right of the holders of such
classes to receive, prior to any distribution being made on any
distribution date to the holders of the more junior classes of
certificates, the amount of interest and principal due on the more senior
classes of certificates and, if necessary, by the right of such more senior
holders to receive future distributions on the mortgage loans that would
otherwise have been allocated to the holders of the more junior classes of
certificates; and
Allocation of Losses. By the allocation to the more junior classes of
certificates (in inverse order of seniority), until their respective
certificate principal balances have been reduced to zero, of losses
resulting from the liquidation of defaulted mortgage loans or the
bankruptcy of mortgagors prior to the allocation of such losses to the more
senior classes of certificates.
The chart below summarizes the relative seniority of the various classes of
group I certificates and indicates the initial level of credit support provided
to the various classes of group I certificates:
Group I Initial Credit
Class(es) Credit Support Support
- ----------- ---------------- ---------------
A Class IM-1, 8.25%
Class IM-2
and Class IB
IM-1 Class IM-2 4.00%
and Class IB
IM-2 Class IB 1.50%
The Group II Certificate Guaranty Insurance Policy. The Class IIA-1 and
Class IIA-2 Certificates will have the benefit of an irrevocable certificate
guaranty insurance policy issued by Financial Security Assurance Inc., which
will guaranty that you will receive the timely payment of interest on, and
ultimate payment of the principal amount of, the Class IIA-1 and Class IIA-2
Certificates. However, there are certain limitations on the coverage of this
policy. See "The Group II Certificate Guaranty Insurance Policy" and "The Group
II Certificate Insurer."
Optional Termination
Subject to certain restrictions, Chase Manhattan Mortgage Corporation will have
the option (but not the obligation) to purchase all of the mortgage loans in a
loan group after the aggregate unpaid principal balance of such mortgage loans
is reduced to less than 10% of the aggregate unpaid principal balance of such
mortgage loans as of December 1, 1998. In addition, under certain
circumstances, Financial Security Assurance Inc. may, at its sole option pay
off any or all of the group II certificates. See "Description of the
Certificates--Optional Termination" and "The Group II Certificate Insurance
Policy."
Legal Investment
The certificates will not constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984, as amended. We are not
making any representation as to the appropriate characterization of the
certificates under any laws relating to investment restrictions, and you should
consult your own counsel as to whether you have the legal authority to invest
in non-SMMEA securities such as the certificates.
S-6
<PAGE>
See "Risk Factors--Limited Liquidity; Lack of SMMEA Eligibility" and "Legal
Investment Considerations" in this prospectus supplement and "Legal Investment"
in the attached prospectus.
Federal Income Tax Consequences
For federal income tax purposes, the trust fund will elect to be treated as two
Real Estate Mortgage Investment Conduits. The certificates will represent
ownership of regular interests in the trust fund and will generally be treated
as debt instruments of the trust fund for federal income tax purposes. You will
be required to include in income all interest and original issue discount, if
any, on your certificates in accordance with the accrual method of accounting
regardless of your usual method of accounting. See "Federal Income Tax
Consequences" in this prospectus supplement and in the attached prospectus.
ERISA Considerations
In general, the certificates (except for the Class IM-1, Class IM-2 and Class
IB Certificates) will be eligible for purchase by retirement or other employee
benefit plans subject to the Employee Retirement Income Security Act of 1986,
as amended. You should consult with your counsel with respect to the legal
consequences of an ERISA plan's acquisition and ownership of the Certificates.
See "ERISA Considerations" in this prospect supplement and in the attached
prospectus.
Ratings
The certificates are required to receive the ratings indicated under the
heading "Anticipated Ratings" in the chart shown on page S-3 of this prospectus
supplement. The ratings on the Class IIA-1 and Class IIA-2 Certificates are
based primarily on the claims-paying ability of Financial Security Assurance
Inc.
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 any rating agency. The
ratings on the certificates address the likelihood of the receipt by holders of
the certificates of all distributions on the underlying mortgage loans to which
they are entitled. They do not represent any assessment of the likelihood or
rate of principal prepayments or the likelihood that any interest carry forward
amount will be paid. See "Ratings."
The Mortgage Loans
We will divide the mortgage loans into two separate groups based on whether the
interest rate for the related mortgage loan is fixed or adjustable. The
following tables summarize certain approximate characteristics of each mortgage
group as of December 1, 1998. When we refer to percentages of mortgage loans in
the following tables, we are describing the percentage of the aggregate
principal balance of the mortgage loans in the related mortgage group as of
December 1, 1998. The mortgage pool as of the closing date will include
approximately $87,050,874 in aggregate principal balance of mortgage loans
(approximately $26,778,231 of fixed rate mortgage loans and approximately
$60,272,642 of adjustable rate mortgage loans) that are not included in the
statistical information in this prospectus supplement. Other than increasing
the aggregate principal balance of the mortgage loans, we do not expect that
the inclusion of these additional mortgage loans will materially change the
characteristics of either mortgage loan group. Within fifteen days of the
closing date, we will file a Form 8-K with the Securities and Exchange
Commission which will include the statistical characteristics of the final
mortgage pool. For additional information on the mortgage loans, see "The
Mortgage Loans."
S-7
<PAGE>
Fixed Rate Mortgage Loan Group
Number of loans 2,059
Aggregate outstanding principal balance $163,221,769
Number of loans with prepayment penalties 1,576
Average or
Weighted Average Range
------------------ --------------------
Outstanding principal balance $79,272 $9,968 -- $732,669
Original principal balance $79,506 $10,075 -- $735,000
Mortgage rate 9.522% 6.500% -- 14.500%
Loan-to-value ratio 73.272% 12.882% -- 95.000%
Stated remaining term to
maturity (months) 269.178 111 -- 360
Mortgage Rates for the
Fixed Rate Mortgage Loan Group
Up to 8.00% 11.1%
8.01-9.00% 27.4%
9.01-10.00% 33.6%
10.01-11.00% 17.0%
11.01-12.00% 7.1%
12.01 and greater 3.8%
S-8
<PAGE>
Original Principal Balances
for the Fixed Rate Mortgage Loan Group
Up to $50,000 14.6%
$50,001-$75,000 23.2%
$75,001-$100,000 17.1%
$100,001-$150,000 19.7%
$150,001-$250,000 18.0%
$250,001 and greater 7.4%
Product Types for the
Fixed Rate Mortgatge Loan Group
10 year Fixed 0.8%
15 year Fixed 10.7%
20 year Fixed 13.0%
25 year Fixed 0.2%
30 year Fixed 46.9%
Balloon Loan 28.3%
S-9
<PAGE>
Credit Grades for the Fixed Rate
Mortgage Loan Group
AO 46.1%
A- 35.4%
B 10.5%
B- 3.9%
C 2.9%
C- 0.4%
D 0.7%
For a description of the credit grades shown
in the above table, see "Chase Manhattan Mortgage
Corporation -- Underwriting Standards."
Loan-to-Value Ratios
for the Fixed Rate Mortgage Loan Group
50.00% or Less 6.6%
50.01-60.00% 10.0%
60.01-70.00% 18.2%
70.01-80.00% 42.8%
80.01-90.00% 22.1%
90.01% and greater 0.4%
S-10
<PAGE>
Adjustable Rate Loan Group
Number of loans 2,695
Aggregate outstanding principal balance $324,727,358
Number of loans with prepayment penalties 1,452
<TABLE>
<CAPTION>
Average or
Weighted Average Range
------------------ ----------------------
<S> <C> <C>
Outstanding principal balance $120,493 $11,952 -- $999,425
Original principal balance $120,724 $12,000 -- $1,000,000
Current mortgage rates 9.536% 6.200% -- 13.500%
Maximum mortgage rates 16.479% 12.200% -- 20.500%
Minimum mortgage rates 9.533% 6.200% -- 13.500%
Loan-to-value ratio 78.144% 21.765% -- 95.000%
Stated remaining term to
maturity (months) 357.106 236 -- 360
</TABLE>
Current Mortgages Rates for the
Adjustable Rate Mortgage Loan Group
Up to 8.00% 8.1%
8.01-9.00% 25.8%
9.01-10.00% 37.2%
10.01-11.00% 21.4%
11.01-12.00% 6.0%
12.01 and greater 1.3%
S-11
<PAGE>
Original Principal Balances
for the Adjustable Rate Group
Up to $50,000 4.1%
$50,001-$75,000 10.2%
$75,001-$100,000 13.3%
$100,001-$150,000 27.0%
$150,001-$250,000 25.6%
$250,001 and greater 19.9%
Product Types for the
Adjustable Rate Mortgage Loan Group
6 month LIBOR 5.06%
1/29 Loan 6.18%
2/28 Loan 59.15%
3/27 Loan 26.23%
5/25 Loan 3.20%
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Credit Grades for the adjustable Rate
Mortgage Loan Group
AO 35.4%
A- 39.6%
B 13.8%
B- 4.4%
C 5.1%
C- 1.1%
D 0.6%
For a description of the credit grades shown
in the above table, see "Chase Manhattan Mortgage
Corporation -- Underwriting Standards."
Loan-to-Value Ratios
for the Adjustable Rate Mortgage Loan Group
50.00% or Less 2.7%
50.01-60.00% 4.8%
60.01-70.00% 13.5%
70.01-80.00% 42.1%
80.01-90.00% 36.3%
90.01% and greater 0.8%
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RISK FACTORS
Overcollateralization Provisions
The overcollateralization provisions of the trust will affect the weighted
average life of the certificates of each certificate group and consequently the
yield to maturity of such certificates. Unless and until the required amount of
overcollateralization for such certificate group is reached, net excess
cashflow for the related loan group will be applied as distributions of
principal of the class A certificates of such certificate group, thereby
reducing the weighted average lives of such classes of certificates. The actual
required amount of overcollateralization for a certificate group may change
from distribution date to distribution date, producing uneven distributions of
accelerated payments in respect of principal for such certificate group. We
cannot predict when or whether the required amount of overcollateralization for
a certificate group will be reached.
"Net excess cashflow" for a particular loan group generally is the excess
of interest collected or advanced on the mortgage loans in such loan group over
the interest required to pay interest on the certificates in the related
certificate group and certain trust fund expenses allocable to such certificate
group. Mortgage loans with higher interest rates will contribute more interest
to the net excess cashflow. Mortgage loans with higher interest rates may
prepay faster than mortgage loans with relatively lower interest rates in
response to a given change in market interest rates. Any such disproportionate
prepayments of mortgage loans in a loan group that have higher interest rates
may adversely affect the amount of net excess cashflow for such loan group.
As a result of the interaction of the foregoing factors, the effect of the
overcollateralization provisions on the weighted average life of the offered
certificates may vary significantly over time. See "Yield, Prepayment and
Maturity Considerations" herein and "Yield, Maturity and Weighted Average Life
Considerations" in the Prospectus.
Prepayment Considerations and Risks
Each loan group's prepayment experience may be affected by many factors,
including general economic conditions, interest rates and the availability of
alternative financing, homeowner mobility and the solicitation of mortgagors to
refinance their mortgage loans. In addition, substantially all of the mortgage
loans contain due-on-sale provisions. The subservicer intends to enforce such
provisions unless (i) such enforcement is not permitted by applicable law or
(ii) the subservicer, in a manner consistent with accepted servicing practices,
permits the purchaser of the related mortgaged property to assume the mortgage
loan. To the extent permitted by applicable law, such assumption will not
release the original borrower from its obligation under any such mortgage loan.
See "Yield, Prepayment and Maturity Considerations" herein and "Certain Legal
Aspects of Mortgage Loans-Enforceability of Due-on-Sale Clauses" in the
Prospectus for a description of certain provisions of the mortgage loans that
may affect the prepayment experience thereof. The yield to maturity and
weighted average life of the offered certificates in each certificate group
will be affected primarily by the rate and timing of principal payments
(including prepayments, liquidations, repurchases and defaults) of, and losses
on, the mortgage loans in the related loan group.
The yield to investors on the Class IIA-1 Certificates will also be
sensitive to the level of one-month LIBOR, the level of the mortgage index and
the additional limitations on the pass-through rate for such class described
herein. In addition, the yield to maturity of the offered certificates
purchased at a discount or premium will be more sensitive to the rate and
timing of payments thereon. You should consider, in the case of the offered
certificates purchased at a discount, the risk that a slower than anticipated
rate of principal payments could result in an actual yield that is lower than
the anticipated yield and, in the case of the offered certificates purchased at
a premium, the risk that a faster than anticipated rate of principal payments
could result in an actual yield that is lower than the anticipated yield.
Because certain of the mortgage loans contain prepayment penalties, the rate of
principal prepayments may be less than the rate of principal prepayments for
mortgage loans which do not contain prepayment penalties. We cannot make any
representation as to the anticipated rate of prepayments on the mortgage loans,
the amount and timing of losses thereon, the level of one-month LIBOR or the
mortgage index or the resulting yield to maturity of any offered certificates.
Any
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reinvestment risks resulting from a faster or slower incidence of prepayments
on the mortgage loans will be borne entirely by the offered certificateholders
as described herein. See "Yield, Prepayment and Maturity Considerations" herein
and "Yield Considerations" in the Prospectus.
Risk of Higher Delinquencies Associated with Underwriting Guidelines
The B&C Underwriting Guidelines (as described herein under "Chase
Manhattan Mortgage Corporation--Underwriting Standards--B&C Quality Loans")
consider the credit quality of a mortgagor and the value of the mortgaged
property. The originators provide loans primarily to mortgagors who do not
qualify for loans conforming to Fannie Mae or FHLMC guidelines. Furthermore,
the B&C Underwriting Guidelines do not prohibit a borrower from obtaining
secondary financing on the mortgaged property. Secondary financing would reduce
the borrower's equity in the related mortgaged property.
As a result of the B&C Underwriting Guidelines, the mortgage loans are
likely to experience rates of delinquency, foreclosure and bankruptcy that are
higher, and that may be substantially higher, than those experienced by
mortgage loans underwritten to Fannie Mae and FHLMC conforming guidelines.
Furthermore, changes in the values of mortgaged properties may have a greater
effect on the delinquency, foreclosure, bankruptcy and loss experience of the
mortgage loans than on mortgage loans originated in a more traditional manner.
Similarly, an overall general decline in residential real estate values could
cause a particularly severe decline in the value of the mortgaged properties
relating to mortgage loans in the trust fund. We cannot provide any assurance
that the mortgaged properties will not experience an overall decline in value.
Effect of Mortgage Loan Yield on the Class IIA-1 Certificates Pass-Through
Rate; Basis Risk
The calculation of the pass-through rate on the Class IIA-1 Certificates
is based upon the value of an index (one-month LIBOR) which is different from
the value of the index applicable to substantially all of the adjustable rate
mortgage loans (six-month LIBOR) as described under "The Mortgage Pool-General"
and is subject to a cap based on the then-current mortgage rates on the
adjustable rate mortgage loans, net of an additional 0.50% per annum. This cap
effectively limits the amount of interest accrued on the Class IIA-1
Certificates to the weighted average of the mortgage rates on the adjustable
rate mortgage loans, less the servicing fee rate, the master servicer fee rate
and the premium rate, net of an additional 0.50% per annum. Furthermore, even
if one-month LIBOR and six-month LIBOR were at the same level, various factors
may cause the interest rate cap described above to limit the amount of interest
that would otherwise accrue on the Class IIA-1 Certificates, especially if some
of the adjustable rate mortgage loans are not yet subject to adjustment. In
particular, the pass-through rate on the Class IIA-1 Certificates adjusts
monthly, while the interest rates of the adjustable rate mortgage loans adjust
less frequently, with the result that the operation of the interest rate cap
described above may cause the pass-through rates to be reduced for extended
periods in a rising interest rate environment. In addition, the adjustable rate
mortgage loans are subject to periodic (i.e., semi-annual) adjustment caps and
maximum rate caps, and the weighted average margin is subject to change based
upon prepayment experience, which also may result in the interest rate cap
described above limiting increases in the pass-through rate for the Class IIA-1
Certificates. Finally, the adjustable rate mortgage loans accrue interest on
the basis of a 360-day year assumed to consist of twelve 30-day months, while
calculations of interest on the Class IIA-1 Certificates will be made on the
basis of the actual number of days elapsed and a year of 360 days. This may
result in the interest rate cap described above limiting the pass-through rate
for the Class IIA-1 Certificates in certain periods. Consequently, the interest
which becomes due on the adjustable rate mortgage loans (net of the sum of the
servicing fee, the master servicer fee, the premium paid to Financial Security
Assurance and an additional 0.50% per annum) with respect to any distribution
date may not equal the amount of interest that would accrue at one-month LIBOR
plus the margin on the Class IIA-1 Certificates during the related period.
Furthermore, if the interest rate cap described above determines the
pass-through rate for the Class IIA-1 Certificates for a distribution date, the
market value of such class of certificates may be temporarily or permanently
reduced.
Subordination--Limited Protection Afforded to Group I Certificates
The rights of the Class IM-1 Certificates to receive distributions with
respect to the group I mortgage loans will be subordinate to the rights of the
Class IA Certificates to receive such distributions; the rights of
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the Class IM-2 Certificates to receive distributions with respect to the group
I mortgage loans will be subordinate to the rights of the Class IA and the
Class IM-1 Certificates to receive such distributions; and the rights of the
Class IB Certificates to receive distributions with respect to the group I
mortgage loans will be subordinate to the rights of the Class IA, Class IM-1
and Class IM-2 Certificates to receive such distributions. This subordination
is intended to enhance the likelihood of regular receipt by higher-ranking
classes of certificates of the full amount of the monthly distributions
allocable to them, and to afford protection against losses.
Subordination--Allocation of Losses to the Class IM-1, Class IM-2 and Class IB
Certificates
If realized losses are incurred with respect to the mortgage loans in
group I to the extent that the aggregate principal balance of the group I
certificates exceeds the stated principal balances of the mortgage loans in
such loan group, the principal balances of the Class IM-1, Class IM-2 and Class
IB Certificates will be reduced in reverse order of seniority (first Class IB,
second Class IM-2 and third Class IM-1) by the amount of the excess.
Consequently, the yields to maturity on the Class IM-1 and Class IM-2
Certificates and Class IB Certificates will be sensitive, in varying degrees,
to defaults on the mortgage loans in group I (and the timing thereof).
Investors should fully consider the risks associated with an investment in the
Class IM-1, Class IM-2 or Class B Certificates, including the possibility that
such investors may not fully recover their initial investment as a result of
realized losses.
Cash Flow Considerations and Risks
Even assuming that the mortgaged properties provide adequate security for
the mortgage loans, there could be substantial delays in connection with the
liquidation of mortgage loans that are delinquent and resulting shortfalls in
distributions to you could occur. Further, liquidation expenses (such as legal
fees, real estate taxes and maintenance and preservation expenses) will reduce
the security for such mortgage loans and thereby reduce the proceeds payable to
you. If any of the mortgaged properties fail to provide adequate security for
the related mortgage loans, you could experience a loss (particularly if you
are a holder of one of the most subordinate classes).
Certificate Rating on the Group I Certificates
The rating of each class of the group I certificates will depend primarily
on an assessment by the rating agencies of the mortgage loans as well as the
structure of the transaction. The rating by the rating agencies of any class of
group I certificates is not a recommendation to purchase, hold or sell any such
certificates, inasmuch as such rating does not comment as to the market price
or suitability for a particular investor. There is no assurance that the
ratings will remain in place for any given period of time or that the ratings
will not be lowered or withdrawn by the rating agencies. In general, the
ratings address credit risk and do not address the likelihood of prepayments.
Bankruptcy and Insolvency Risks
The sale of the mortgage loans from Chase Manhattan Mortgage Corporation
to Chase Funding Inc. will be treated as a sale of the mortgage loans. However,
in the event of an insolvency of Chase Manhattan Mortgage Corporation, the
trustee in bankruptcy of Chase Manhattan Mortgage Corporation may attempt to
recharacterize the sale of the mortgage loans as a borrowing by such company,
secured by a pledge of the applicable mortgage loans. If the trustee in
bankruptcy decided to challenge such transfer, delays in payments of the
certificates and reductions in the amounts thereof could occur.
In the event of a bankruptcy or insolvency of Advanta Mortgage Corp. USA,
as subservicer, the bankruptcy trustee or receiver may have the power to
prevent Citibank, N.A., as trustee or the certificateholders from appointing a
successor subservicer.
Pass-Through Rate With Respect to the Class IB Certificates
On any distribution date, the pass-through rate for the Class IB
Certificates will equal the lesser of (i) 8.000% per annum and (ii) the
weighted average net mortgage rate on the group I mortgage loans. Therefore, to
the extent that the net mortgage rate on the group I mortgage loans is ever
reduced to less than 8.000% per annum, investors in the Class IB Certificates
may experience a lower than anticipated yield.
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Geographic Concentration
As of the cut-off date, approximately 19.08% of the mortgaged properties
of the fixed rate mortgage loan group and approximately 9.24% of the mortgaged
properties of the adjustable rate mortgage loan group were located in the State
of Florida. An overall decline in the Florida residential real estate market
could adversely affect the values of the mortgaged properties securing such
mortgage loans. As the residential real estate market is influenced by many
factors, including the general condition of the economy and interest rates, we
cannot assure you that the Florida residential real estate market will not
weaken. If the Florida residential real estate market should experience an
overall decline in property values, the rates of losses on such mortgage loans
would be expected to increase, and could increase substantially.
Delinquent Mortgage Loans
The trust fund may include mortgage loans which are 59 or fewer days
delinquent as of the cut-off date. It is expected that not more than
approximately 1.60% of the mortgage loans (by cut-off date principal balance)
will be between 30 days and 59 days delinquent. If there are not sufficient
funds from amounts collected on the mortgage loans, the aggregate amount of
principal returned to any class of offered certificateholders may be less than
the certificate principal balance thereof on the day that such class of offered
certificates were issued.
Limited Liquidity; Lack of SMMEA Eligibility
The underwriters intend to make a secondary market in the offered
certificates, but will have no obligation to do so. We cannot assure you that a
secondary market for any class of offered certificates will develop, or if one
does develop, that it will continue or provide sufficient liquidity of
investment or that it will remain for the term of the related class of offered
certificates. The offered certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended. Accordingly, many institutions with legal authority to invest
in SMMEA securities will not be able to invest in the offered certificates,
thereby limiting the market for the offered certificates. In light of the
foregoing, you should consult your own counsel as to whether you have the legal
authority to invest in non-SMMEA securities such as the offered certificates.
See "Legal Investment Considerations" herein and "Legal Investment" in the
Prospectus.
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 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.
We have been advised by each of Chase Manhattan Mortgage Corporation,
Advanta Mortgage Corp. USA and Citibank, N.A. that they each are committed to
either (i) implementing modifications to their respective existing systems to
the extent required to cause them to be year 2000 compliant or (ii) acquiring
computer systems that are year 2000 compliant, in each case prior to January 1,
2000. However, neither we nor any of our affiliates have made any independent
investigation of the computer systems of Advanta Mortgage Corp. USA or
Citibank, N.A. 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 Chase Manhattan Mortgage Corporation, Advanta Mortgage Corp. USA or
Citibank, N.A. are not fully year 2000 compliant, the resulting disruptions in
the collection or distribution of receipts on the mortgage loans could
materially adversely affect the holders of the offered certificates.
Risk Associated with the Group II Certificate Insurer
If the protection afforded by overcollateralization is insufficient and if
Financial Security Assurance Inc. fails to meet its obligations under the
certificate insurance policy described herein, holders of the Class IIA-1
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or Class IIA-2 Certificates could experience a loss. The ratings on the Class
IIA-1 and Class IIA-2 Certificates are based primarily on the claims-paying
ability of Financial Security Assurance Inc. Any reduction in a rating assigned
to the claims-paying ability of Financial Security Assurance Inc. could result
in a reduction of the rating of the Class IIA-1 and Class IIA-2 Certificates.
See "The Group II Certificate Insurance Policy."
Under certain circumstances, Financial Security Assurance Inc. may take
certain actions or elect not to take certain actions (such as replacing the
subservicer or the master servicer) without the consent of the holders of the
group I certificates.
For a discussion of additional risks pertaining to the offered
certificates, see "Risk Factors" in the Prospectus.
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THE MORTGAGE POOL
General
The mortgage pool with respect to the Certificates (the "Mortgage Pool")
consisted as of November 24, 1998 of approximately 4,754 conventional mortgage
loans (the "Mortgage Loans") evidenced by promissory notes (each, a "Mortgage
Note") having an aggregate principal balance of approximately $487,949,126,
which aggregate principal balance was calculated based on the outstanding
principal balances of such Mortgage Loans as of November 24, 1998, "rolled
forward" to give effect to Scheduled Payments (defined herein) due on or prior
to December 1, 1998 (the "Cut-off Date"), whether or not received. The Mortgage
Loans will be divided into two groups (each, a "Loan Group") based on whether
the interest rate for the related Mortgage Loan is fixed (each, a "Fixed Rate
Mortgage Loan") or adjustable (each, an "Adjustable Rate Mortgage Loan"). The
Mortgage Pool as of December 18, 1998 (the "Closing Date") will include
approximately $87,050,874 in aggregate principal balance of Mortgage Loans
(approximately $26,778,231 of Fixed Rate Mortgage Loans and approximately
$60,272,642 of Adjustable Rate Mortgage Loans) that are not included in the
statistical information set forth in this Prospectus Supplement. Updated
statistical information on the final Mortgage Pool (giving effect to the
inclusion of such Mortgage Loans) will be attached as an exhibit to the Current
Report on Form 8-K of the Depositor that will be available to purchasers of the
Certificates at, and will be filed with the Securities and Exchange Commission
within fifteen days of, the initial delivery of the Certificates. References
herein to percentages of Mortgage Loans refer in each case to the percentage of
the aggregate principal balance of the Mortgage Loans or, as the case may be,
the Mortgage Loans in the applicable Mortgage Group, as of November 24, 1998,
based on the outstanding principal balances of the Mortgage Loans as of
November 24, 1998, "rolled forward" to give effect to Scheduled Payments due on
or prior to the Cut-off Date, whether or not received. References to
percentages of Mortgaged Properties (defined herein) refer, in each case, to
the percentages of aggregate principal balances of the related Mortgage Loans
(determined as described in the preceding sentence). The Mortgage Notes are
secured by mortgages or deeds of trust or other similar security instruments
creating first liens on real properties (the "Mortgaged Properties"), including
single-family residences, two- to-four family dwelling units, attached planned
unit developments, condominiums, detached planned unit developments,
manufactured housing and small mixed use properties. The Trust Fund (defined
herein) includes, in addition to the Mortgage Pool, (i) certain amounts held
from time to time in one or more accounts (collectively, the "Accounts")
maintained in the name of the Trustee pursuant to the Pooling and Servicing
Agreement (the "Pooling and Servicing Agreement") to be dated as of December 1,
1998 by and among Chase Funding, Inc., as depositor (the "Depositor"), Advanta
Mortgage Corp. USA, as subservicer ("Advanta" or the "Subservicer"), Chase
Manhattan Mortgage Corporation, as master servicer (the "Master Servicer") and
Citibank, N.A., as trustee (the "Trustee"), (ii) any property which initially
secured a Mortgage Loan and which is acquired by foreclosure or deed-in-lieu of
foreclosure, (iii) all insurance policies and the proceeds thereof described
below, (iv) the Group II Certificate Insurance Policy (defined herein) and (v)
certain rights to require repurchase of the Mortgage Loans by the Seller for
breach of representation or warranty.
The Mortgage Loans to be included in the Trust Fund will have been
originated or purchased by Chase Manhattan Mortgage Corporation (the "Seller")
and will have been originated substantially in accordance with the Seller's
underwriting criteria for sub-prime ("B&C") quality mortgage loans described
herein under "Chase Manhattan Mortgage Corporation--Underwriting Standards--B&C
Quality Mortgage Loans." Sub-prime mortgage loans are generally mortgage loans
made to borrowers who do not qualify for financing under conventional
underwriting criteria due to prior credit difficulties, the inability to
satisfy conventional documentation standards and/or conventional debt to income
ratios.
Scheduled monthly payments made by the obligors (the "Mortgagors") on the
Mortgage Loans ("Scheduled Payments") either earlier or later than the
scheduled due dates thereof will not affect the amortization schedule or the
relative application of such payments to principal and interest. Substantially
all of the Mortgage Notes will provide for a fifteen (15) day grace period for
monthly payments. Any Mortgage Loan may be prepaid in full or in part at any
time; however, approximately 76.93% of the Fixed Rate Mortgage Loans and
approximately 53.76% of the Adjustable Rate Mortgage Loans provide for the
payment by the borrower of a prepayment charge in limited circumstances on full
or partial prepayments made during the prepayment penalty term. The weighted
average prepayment penalty term is approximately 43 months with respect to the
Fixed Rate
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Mortgage Loans which have prepayment penalties and approximately 30 months with
respect to the Adjustable Rate Mortgage Loans which have prepayment penalties.
In general, the related Mortgage Note will provide that a prepayment charge
will apply if, during the prepayment penalty term, the borrower prepays such
Mortgage Loan in full or in part. The amount of the prepayment charge will
generally be equal to six months' interest calculated on the basis of the rate
in effect at the time of such prepayment on the amount prepaid in excess of 20%
of the original balance of such Mortgage Loan. The enforceability of prepayment
penalties is unclear under the laws of many states. See "Certain Legal Aspects
of the Mortgage Loans-Late Charges, Default Interest and Limitations on
Payment" in the Prospectus.
Approximately 5.06% of the Adjustable Rate Mortgage Loans (the "Six Month
LIBOR Loans") will have a Mortgage Rate which is subject to semi-annual
adjustment on the first day of the months specified in the related Mortgage
Note (each such date, an "Adjustment Date") to equal the sum, rounded to the
nearest 0.125%, of (i) the average of the London interbank offered rates for
six-month U.S. dollar deposits in the London market, as set forth in The Wall
Street Journal, or, if such rate ceases to be published in The Wall Street
Journal or becomes unavailable for any reason, then based upon a new index
selected by the Trustee, as holder of the related Mortgage Note, based on
comparable information, in each case as most recently announced as of a date 45
days prior to such Adjustment Date (the "Mortgage Index"), and (ii) a fixed
percentage amount specified in the related Mortgage Note (the "Gross Margin");
provided, however, that the Mortgage Rate will not increase or decrease by more
than 1.00% on any Adjustment Date (the "Periodic Rate Cap") and, provided
further, that it will not be higher than the Maximum Mortgage Rate or lower
than the Minimum Mortgage Rate (each as defined below). Substantially all of
the Six Month LIBOR Loans were originated with Mortgage Rates less than the sum
of the then applicable Mortgage Index and the related Gross Margin.
Substantially all of the Six Month LIBOR Loans will provide that the related
Mortgage Rate will never exceed the initial Mortgage Rate plus 6.00% (such sum,
the "Maximum Mortgage Rate"). Substantially all of the Six Month LIBOR Loans
provide that the related Mortgage Rate will never be less than the initial
Mortgage Rate (such rate, the "Minimum Mortgage Rate"). Effective with the
first payment due on an Adjustable Rate Mortgage Loan after each related
Adjustment Date, the monthly payment will be adjusted to an amount which will
fully amortize the outstanding principal balance of the Mortgage Loan over its
remaining term.
Approximately 6.18% of the Adjustable Rate Mortgage Loans as of the
Cut-off Date (the "1/29 Loans"), bear interest at a fixed rate for a period of
one year after origination and thereafter have semiannual interest rate and
payment adjustments in substantially the same manner as the Six-Month LIBOR
Loans. Substantially all of the 1/29 Loans are subject to a 2.00% Periodic Rate
Cap with respect to the first Adjustment Date and a 1.00% Periodic Rate Cap
with respect to each Adjustment Date thereafter, and have a Maximum Mortgage
Rate equal to the initial Mortgage Rate plus 7.00%.
Approximately 59.15% of the Adjustable Rate Mortgage Loans as of the
Cut-off Date (the "2/28 Loans"), bear interest at a fixed rate of interest for
a period of two years after origination and thereafter have semiannual interest
rate and payment adjustments in substantially the same manner as the Six-Month
LIBOR Loans. Substantially all of the 2/28 Loans are subject to a 3.00%
Periodic Rate Cap with respect to the first Adjustment Date and a 1.50%
Periodic Rate Cap with respect to each Adjustment Date thereafter, and have a
Maximum Mortgage Rate equal to the initial Mortgage Rate plus 7.00%.
Approximately 26.23% of the Adjustable Rate Mortgage Loans as of the
Cut-off Date (the "3/27 Loans"), bear interest at a fixed rate of interest for
a period of three years after origination and thereafter have semiannual
interest rate and payment adjustments in substantially the same manner as the
Six-Month LIBOR Loans. Substantially all of the 3/27 Loans are subject to a
3.00% Periodic Rate Cap with respect to the first Adjustment Date and a 1.50%
Periodic Rate Cap with respect to each Adjustment Date thereafter, and have a
Maximum Mortgage Rate equal to the initial Mortgage Rate plus 7.00%.
Approximately 3.20% of the Adjustable Rate Mortgage Loans as of the
Cut-off Date (the "5/25 Loans"), bear interest at a fixed rate for a period of
five years after origination and thereafter substantially all have semiannual
interest rate and payment adjustments in substantially the same manner as the
Six-Month LIBOR Loans. Substantially all of the 5/25 Loans are subject to a
3.00% Periodic Rate Cap with respect to the first Adjustment Date and a 1.50%
Periodic Rate Cap with respect to each Adjustment Date thereafter, and have a
Maximum Mortgage Rate equal to the initial Mortgage Rate plus 7.00%.
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Fixed Rate Mortgage Loan Group. As of the Cut-off Date, the aggregate
principal balance of the Fixed Rate Mortgage Loans was approximately
$163,221,769. As of the Cut-off Date, the average outstanding principal balance
of the Fixed Rate Mortgage Loans was approximately $79,272, the minimum
outstanding principal balance was approximately $9,968, the maximum outstanding
principal balance was approximately $732,669, the lowest Mortgage Rate and the
highest Mortgage Rate were 6.500% and 14.500% per annum, respectively, and the
weighted average Mortgage Rate was approximately 9.522% per annum.
Approximately 28.30% of the Fixed Rate Mortgage Loans (each, a "Balloon Loan")
have original terms to stated maturity of approximately 15 years and provide
for level monthly payments based on a 30-year amortization schedule with a
balloon payment of the remaining outstanding principal balance (a "Balloon
Amount") due on each such Mortgage Loan at its stated maturity.
Adjustable Rate Mortgage Loan Group. As of the Cut-off Date, the aggregate
principal balance of the Adjustable Rate Mortgage Loans was approximately
$324,727,358. As of the Cut-off Date the average outstanding principal balance
of the Adjustable Rate Mortgage Loans was approximately $120,493, the minimum
outstanding principal balance was approximately $11,952, the maximum
outstanding principal balance was approximately $999,425, the lowest current
Mortgage Rate and the highest current Mortgage Rate were approximately 6.200%
and 13.500% per annum, respectively, and the weighted average Mortgage Rate was
approximately 9.536% per annum.
The "Loan-to-Value Ratio" of a Mortgage Loan is equal to (i) the principal
balance of such Mortgage Loan at the date of origination, divided by (ii) the
Collateral Value of the related Mortgaged Property. With respect to a Mortgage
Loan the proceeds of which were used to purchase the related Mortgage Property,
the "Collateral Value" of a Mortgaged Property is the lesser of (x) the
appraised value based on an appraisal made for the Seller by an independent fee
appraiser at the time of the origination of the related Mortgage Loan, and (y)
the sales price of such Mortgaged Property at such time of origination. With
respect to a Mortgage Loan the proceeds of which were used to refinance an
existing mortgage loan, the "Collateral Value" is the appraised value of the
Mortgaged Property based upon the appraisal obtained at the time of
refinancing. The weighted average Loan-to-Value Ratio as of the Cut-off Date
for the Fixed Rate Mortgage Loans was approximately 73.272% and the weighted
average Loan-to-Value Ratio as of the Cut-off Date for the Adjustable Rate
Mortgage Loans was approximately 78.144%.
The Depositor will represent that as of the Cut-off Date, not more than
approximately 1.60% of the Mortgage Loans were contractually delinquent for
thirty or more days.
Mortgage Loans
The following tables describe the Mortgage Loans and the related Mortgaged
Properties as of the close of business on November 24, 1998, with the principal
balance of each Mortgage Loan "rolled forward" to give effect to scheduled
payments due on or prior to the Cut-off Date, whether or not received. The sum
of the columns below may not equal the total indicated due to rounding.
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<PAGE>
FIXED RATE LOAN GROUP
Mortgage Rates for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Rate Mortgage Loans Balance Outstanding Loan Group
- -------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Up to 6.500% ............. 1 $ 65,910 0.0%
6.501%-7.000% ............ 15 1,493,308 0.9
7.001%-7.500% ............ 42 3,459,369 2.1
7.501%-7.750% ............ 58 4,601,666 2.8
7.751%-8.000% ............ 89 8,572,155 5.3
8.001%-8.250% ............ 83 7,953,695 4.9
8.251%-8.500% ............ 140 10,538,979 6.5
8.501%-8.750% ............ 170 13,416,340 8.2
8.751%-9.000% ............ 138 12,848,831 7.9
9.001%-9.250% ............ 135 12,395,378 7.6
9.251%-9.500% ............ 166 13,564,558 8.3
9.501%-9.750% ............ 216 16,224,516 9.9
9.751%-10.000% ........... 167 12,705,292 7.8
10.001%-10.250% .......... 101 6,821,515 4.2
10.251%-10.500% .......... 114 7,953,390 4.9
10.501%-10.750%. ......... 99 7,195,902 4.4
10.751%-11.000% .......... 79 5,722,065 3.5
11.001%-11.250% .......... 53 4,248,259 2.6
11.251%-11.500% .......... 44 2,710,572 1.7
11.501%-11.750% .......... 44 2,746,961 1.7
11.751%-12.000% .......... 27 1,835,120 1.1
12.001%-12.250% .......... 18 1,747,580 1.1
12.251%-12.500% .......... 20 1,419,709 0.9
12.501%-12.750% .......... 12 1,044,184 0.6
12.751%-13.000% .......... 9 402,831 0.2
13.001%-13.250% .......... 7 599,692 0.4
13.251%-13.500% .......... 4 178,273 0.1
13.501%-13.750% .......... 2 79,927 0.0
13.751%-14.000% .......... 5 632,600 0.4
14.001%-14.500% .......... 1 43,193 0.0
--- ------------ -----
Totals ................ 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the interest rates (the "Mortgage Rates") borne by
the Fixed Rate Mortgage Loans ranged from 6.500% per annum to 14.500% per
annum and the weighted average Mortgage Rate of the Fixed Rate Mortgage
Loans was approximately 9.522% per annum.
Remaining Months to Stated Maturity for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Remaining Term Mortgage Loans Balance Outstanding Loan Group
- --------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
109 to 120. ......... 29 $ 1,336,691 0.8%
157 to 168 .......... 2 154,995 0.1
169 to 180. ......... 807 63,429,198 38.9
229 to 240 .......... 311 21,295,915 13.0
289 to 300 .......... 5 386,080 0.2
337 to 348 .......... 2 317,739 0.2
349 to 360 .......... 903 76,301,151 46.7
----- ------------ -----
Totals ........... 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the Fixed
Rate Mortgage Loans ranged from 111 months to 360 months and the weighted
average remaining term to stated maturity of the Fixed Rate Mortgage Loans
was approximately 269 months.
S-22
<PAGE>
Original Mortgage Loan Principal Balances for the Fixed Rate Mortgage Loan
Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Original Mortgage Loan Principal Balances Mortgage Loans Balance Outstanding Loan Group
- ---------------------------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Up to $25,000 ...................................... 112 $ 2,308,775 1.4%
$25,000.01-$50,000.00 .............................. 552 21,492,405 13.2
$50,000.01-$75,000.00 .............................. 612 37,869,583 23.2
$75,000.01-$100,000.00 ............................. 325 27,934,257 17.1
$100,000.01-$150,000.00 ............................ 268 32,072,487 19.6
$150,000.01-$175,000.00 ............................ 60 9,654,000 5.9
$175,000.01-$200,000.00 ............................ 41 7,720,781 4.7
$200,000.01-$250,000.00 ............................ 54 12,094,847 7.4
$250,000.01-$300,000.00 ............................ 19 5,249,618 3.2
$300,000.01-$350,000.00 ............................ 6 1,937,526 1.2
$350,000.01-$400,000.00 ............................ 1 369,032 0.2
$400,000.01-$450,000.00 ............................ 3 1,256,985 0.8
$450,000.01-$500,000.00 ............................ 4 1,899,839 1.2
$600,000.01-$750,000.00 ............................ 2 1,361,633 0.8
----- ------------ -----
Totals ............................................. 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the outstanding principal balances of the Fixed
Rate Mortgage Loans ranged from approximately $9,968 to approximately
$732,669 and the average outstanding principal balance of the Fixed Rate
Mortgage Loans was approximately $79,272.
S-23
<PAGE>
State Distributions of Fixed Rate Mortgaged Properties(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
State Mortgage Loans Balance Outstanding Loan Group
- ------------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
Arizona ...................... 87 $ 6,991,915 4.3%
Arkansas ..................... 7 384,715 0.2
California ................... 77 11,446,731 7.0
Colorado ..................... 74 7,794,375 4.8
Connecticut .................. 23 3,219,291 2.0
Delaware ..................... 1 24,679 0.0
District of Columbia ......... 5 378,183 0.2
Florida ...................... 425 31,144,549 19.1
Georgia ...................... 114 9,738,541 6.0
Idaho ........................ 21 1,327,473 0.8
Illinois ..................... 43 3,456,251 2.1
Indiana ...................... 120 5,974,070 3.7
Iowa ......................... 8 379,149 0.2
Kansas ....................... 2 74,774 0.0
Kentucky ..................... 40 2,356,435 1.4
Louisiana .................... 53 3,382,897 2.1
Maine ........................ 2 152,366 0.1
Maryland ..................... 18 1,728,173 1.1
Massachusetts ................ 14 1,274,374 0.8
Michigan ..................... 101 6,392,823 3.9
Minnesota .................... 16 1,299,171 0.8
Mississippi .................. 13 899,172 0.6
Missouri ..................... 22 1,582,294 1.0
Montana ...................... 4 433,473 0.3
Nebraska ..................... 6 457,469 0.3
Nevada ....................... 7 541,811 0.3
New Hampshire ................ 6 508,307 0.3
New Jersey ................... 32 3,383,856 2.1
New Mexico ................... 16 1,239,708 0.8
New York ..................... 115 13,142,237 8.1
North Carolina ............... 51 3,656,151 2.2
Ohio ......................... 99 6,171,999 3.8
Oklahoma ..................... 18 835,481 0.5
Oregon ....................... 34 3,633,301 2.2
Pennsylvania ................. 49 3,193,788 2.0
Rhode Island ................. 8 836,372 0.5
South Carolina ............... 29 1,824,328 1.1
South Dakota ................. 5 329,788 0.2
Tennessee .................... 152 8,842,713 5.4
Texas ........................ 38 2,816,455 1.7
Utah ......................... 32 2,969,257 1.8
Vermont ...................... 2 244,555 0.1
Virginia ..................... 22 1,956,522 1.2
Washington ................... 27 3,503,374 2.1
West Virginia ................ 6 392,115 0.2
Wisconsin .................... 11 543,634 0.3
Wyoming ...................... 4 362,674 0.2
----- ------------ -----
Totals .................... 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) No more than approximately 0.45% of the Fixed Rate Mortgage Loans will be
secured by Mortgaged Properties located in any one zip code area.
S-24
<PAGE>
Loan-to-Value Ratios for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Loan-to-Value Ratio Mortgage Loans Balance Outstanding Loan Group
- ------------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
15.00% or less ............... 2 $ 133,771 0.1%
15.01%-20.00% ................ 6 125,046 0.1
20.01%-25.00% ................ 13 539,811 0.3
25.01%-30.00% ................ 17 504,030 0.3
30.01%-35.00% ................ 19 908,800 0.6
35.01%-40.00% ................ 34 1,613,108 1.0
40.01%-45.00% ................ 47 2,942,254 1.8
45.01%-50.00% ................ 61 3,944,626 2.4
50.01%-55.00% ................ 58 4,160,712 2.5
55.01%-60.00% ................ 162 12,087,858 7.4
60.01%-65.00% ................ 171 13,284,146 8.1
65.01%-70.00% ................ 205 16,388,226 10.0
70.01%-75.00% ................ 292 22,492,093 13.8
75.01%-80.00% ................ 553 47,360,019 29.0
80.01%-85.00% ................ 260 22,117,101 13.6
85.01%-90.00% ................ 154 13,931,693 8.5
90.01%-95.00% ................ 5 688,474 0.4
----- ------------ -----
Totals .................... 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Fixed Rate Mortgage
Loans ranged from 12.882% to 95.000% and the weighted average
Loan-to-Value Ratio of the Fixed Rate Mortgage Loans was approximately
73.272%.
Loan Purpose for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Loan Purpose Mortgage Loans Balance Outstanding Loan Group
- ------------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
Purchase ..................... 331 $ 26,088,717 16.0%
Refinance--Rate/Term ......... 475 34,769,896 21.3
Refinance--Cashout ........... 1,253 102,363,155 62.7
----- ------------ -----
Totals ....................... 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
Type of Mortgaged Properties for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Property Type Mortgage Loans Balance Outstanding Loan Group
- ------------------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Single-family Residence ................... 1,665 $132,542,668 81.2%
Two- to Four-Family Dwelling Unit ......... 120 10,862,703 6.7
Planned Unit Development .................. 59 6,430,537 3.9
Condominium ............................... 58 4,451,882 2.7
Townhouses ................................ 16 1,030,723 0.6
Small Mixed Use ........................... 9 746,912 0.5
Manufactured Housing ...................... 132 7,156,344 4.4
----- ------------ -----
Totals .................................. 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
S-25
<PAGE>
Documentation Summary for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Documentation Mortgage Loans Balance Outstanding Loan Group
- --------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Full Documentation .............. 1,671 $126,348,567 77.4%
24 Month Bank Statement ......... 135 16,218,607 9.9
Stated Income ................... 197 15,712,724 9.6
Reduced Documentation ........... 56 4,941,871 3.0
----- ------------ -----
Totals ........................ 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
Occupancy Types for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Occupancy Mortgage Loans Balance Outstanding Loan Group
- ------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
Owner-occupied ......... 1,792 $147,090,112 90.1%
Second Home ............ 23 1,631,633 1.0
Investment ............. 244 14,500,023 8.9
----- ------------ -----
Totals ............... 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) Based upon representations of the related Mortgagor at the time of
origination.
Mortgage Loan Age Summary for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Loan Age (Months) Mortgage Loans Balance Outstanding Loan Group
- ---------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
0 .......................... 135 $ 11,570,289 7.1%
1 - 12 ..................... 1,923 151,601,232 92.9
Greater than 12 ............ 1 50,247 0.0
----- ------------ -----
Totals ................... 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average age of the Fixed Rate Mortgage Loans is approximately
3 months.
Credit Grade Summary for the Fixed Rate Mortgage Loan Group
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
- ------------------ ---------------- --------------------- -----------
AO ............... 891 $ 75,304,614 46.1%
A- ............... 705 57,766,605 35.4
B ................ 243 17,199,898 10.5
B- ............... 100 6,393,237 3.9
C ................ 90 4,788,513 2.9
C- ............... 13 588,102 0.4
D ................ 17 1,180,799 0.7
--- ------------ -----
Totals ......... 2,059 $163,221,769 100.0%
===== ============ =====
S-26
<PAGE>
Year of Origination for the Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Year of Origination Mortgage Loans Balance Outstanding Loan Group
- --------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
1997 ................ 7 $ 596,558 0.4%
1998 ................ 2,052 162,625,211 99.6
----- ------------ -----
Totals ............ 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
Prepayment Penalties for the Fixed Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Prepayment Penalty Term Mortgage Loans Balance Outstanding Loan Group
- ------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
No Prepayment Penalty ......... 483 $ 37,647,327 23.1%
Prepayment Penalty ............ 1,576 125,574,441 76.9
----- ------------ -----
Totals ...................... 2,059 $163,221,769 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average prepayment penalty term with respect to the Fixed Rate
Mortgage Loans having prepayment penalties is approximately 43 months.
S-27
<PAGE>
ADJUSTABLE RATE LOAN GROUP
Current Mortgage Rates for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Rate Mortgage Loans Balance Outstanding Loan Group
- ------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Up to 6.500% ............ 1 $ 479,078 0.1%
6.501%-7.000% ........... 9 1,097,563 0.3
7.001%-7.500% ........... 32 4,227,622 1.3
7.501%-7.750% ........... 41 5,650,915 1.7
7.751%-8.000% ........... 84 14,997,326 4.6
8.001%-8.250% ........... 89 12,896,676 4.0
8.251%-8.500% ........... 133 17,774,647 5.5
8.501%-8.750% ........... 173 25,061,651 7.7
8.751%-9.000% ........... 209 28,198,942 8.7
9.001%-9.250% ........... 203 26,184,887 8.1
9.251%-9.500% ........... 268 30,916,840 9.5
9.501%-9.750% ........... 264 30,576,073 9.4
9.751%-10.000% .......... 276 33,247,569 10.2
10.001%-10.250% ......... 170 18,365,169 5.7
10.251%-10.500% ......... 190 19,966,545 6.1
10.501%-10.750% ......... 184 19,571,770 6.0
10.751%-11.000% ......... 120 11,713,091 3.6
11.001%-11.250% ......... 77 8,022,883 2.5
11.251%-11.500% ......... 56 4,862,379 1.5
11.501%-11.750% ......... 41 4,056,259 1.2
11.751%-12.000% ......... 27 2,530,736 0.8
12.001%-12.250% ......... 26 2,136,124 0.7
12.251%-12.500% ......... 8 604,079 0.2
12.501%-12.750% ......... 5 740,223 0.2
12.751%-13.000% ......... 5 417,180 0.1
13.001%-13.250% ......... 1 30,874 0.0
13.251%-13.500% ......... 3 400,255 0.1
----- ------------ -----
Totals ................ 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the current Mortgage Rates borne by the Adjustable
Rate Mortgage Loans ranged from 6.200% per annum to 13.500% per annum and
the weighted average Mortgage Rate borne by the Adjustable Rate Mortgage
Loans was approximately 9.536% per annum.
Remaining Months to Stated Maturity for the Adjustable Rate Mortgage Loan
Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Remaining Term Mortgage Loans Balance Outstanding Loan Group
- -------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
229 to 240 ......... 2 $ 88,466 0.0%
313 to 324 ......... 1 72,309 0.0
337 to 348 ......... 11 1,492,363 0.5
349 to 360 ......... 2,681 323,074,220 99.5
----- ------------ -----
Totals ............ 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the remaining terms to stated maturity of the
Adjustable Rate Mortgage Loans ranged from 236 months to 360 months and
the weighted average remaining term to stated maturity of the Adjustable
Rate Mortgage Loans was approximately 357 months.
S-28
<PAGE>
Original Mortgage Loan Principal Balances for the Adjustable Rate Mortgage Loan
Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Original Mortgage Loan Principal Balances Mortgage Loans Balance Outstanding Loan Group
- ---------------------------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Up to $15,000 ...................................... 6 $ 81,841 0.0%
$15,000.01-$20,000.00 .............................. 13 228,664 0.1
$20,000.01-$25,000.00 .............................. 15 347,285 0.1
$25,000.01-$30,000.00 .............................. 35 988,766 0.3
$30,000.01-$35,000.00 .............................. 44 1,432,922 0.4
$35,000.01-$40,000.00 .............................. 75 2,887,013 0.9
$40,000.01-$45,000.00 .............................. 76 3,250,167 1.0
$45,000.01-$50,000.00 .............................. 84 3,998,935 1.2
$50,000.01-$55,000.00 .............................. 105 5,526,144 1.7
$55,000.01-$60,000.00 .............................. 124 7,092,230 2.2
$60,000.01-$65,000.00 .............................. 97 6,060,340 1.9
$65,000.01-$70,000.00 .............................. 98 6,606,963 2.0
$70,000.01-$75,000.00 .............................. 105 7,624,869 2.3
$75,000.01-$80,000.00 .............................. 119 9,246,023 2.8
$80,000.01-$85,000.00 .............................. 102 8,461,082 2.6
$85,000.01-$90,000.00 .............................. 97 8,511,245 2.6
$90,000.01-$95,000.00 .............................. 72 6,670,112 2.1
$95,000.01-$100,000.00 ............................. 107 10,485,535 3.2
$100,000.01-$105,000.00 ............................ 109 11,202,090 3.4
$105,000.01-$110,000.00 ............................ 69 7,417,260 2.3
$110,000.01-$115,000.00 ............................ 87 9,745,463 3.0
$115,000.01-$120,000.00 ............................ 91 10,718,028 3.3
$120,000.01-$125,000.00 ............................ 72 8,820,651 2.7
$125,000.01-$130,000.00 ............................ 62 7,904,500 2.4
$130,000.01-$135,000.00 ............................ 61 8,075,440 2.5
$135,000.01-$140,000.00 ............................ 62 8,521,527 2.6
$140,000.01-$145,000.00 ............................ 50 7,139,404 2.2
$145,000.01-$150,000.00 ............................ 54 7,983,751 2.5
$150,000.01-$200,000.00 ............................ 289 49,798,576 15.3
$200,000.01-$250,000.00 ............................ 149 33,230,837 10.2
$250,000.01-$300,000.00 ............................ 55 15,040,262 4.6
$300,000.01-$350,000.00 ............................ 33 10,883,587 3.4
$350,000.01-$400,000.00............................. 23 8,605,717 2.7
$400,000.01-$450,000.00 ............................ 12 5,206,195 1.6
$450,000.01-$500,000.00 ............................ 27 13,002,695 4.0
$500,000.01-$550,000.00 ............................ 3 1,577,838 0.5
$550,000.01-$600,000.00 ............................ 3 1,727,216 0.5
$600,000.01-$650,000.00 ............................ 1 623,865 0.2
$650,000.01-$700,000.00 ............................ 2 1,346,150 0.4
Greater than $700,000.00 ........................... 7 6,656,171 2.0
----- ------------ -----
Totals ............................................ 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the outstanding principal balances of the
Adjustable Rate Mortgage Loans ranged from approximately $11,952 to
approximately $999,425 and the average outstanding principal balance of
the Adjustable Rate Mortgage Loans was approximately $120,493.
S-29
<PAGE>
State Distributions of Adjustable Rate Mortgaged Properties(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
State Mortgage Loans Balance Outstanding Loan Group
- ------------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
Arizona ...................... 61 $ 5,786,954 1.8%
Arkansas ..................... 6 733,565 0.2
California ................... 171 33,886,994 10.4
Colorado ..................... 149 19,199,493 5.9
Connecticut .................. 69 10,305,563 3.2
District of Columbia ......... 7 836,545 0.3
Florida ...................... 263 29,996,985 9.2
Georgia ...................... 88 11,602,698 3.6
Idaho ........................ 25 2,493,821 0.8
Illinois ..................... 85 10,731,832 3.3
Indiana ...................... 64 3,888,222 1.2
Iowa ......................... 2 108,406 0.0
Kansas ....................... 5 295,640 0.1
Kentucky ..................... 53 5,046,472 1.6
Louisiana .................... 25 3,368,164 1.0
Maine ........................ 6 561,838 0.2
Maryland ..................... 55 8,630,676 2.7
Massachusetts ................ 89 11,522,517 3.5
Michigan ..................... 175 19,548,109 6.0
Minnesota .................... 57 6,082,652 1.9
Mississippi .................. 22 1,848,749 0.6
Missouri ..................... 56 5,804,900 1.8
Montana ...................... 2 257,599 0.1
Nebraska ..................... 3 362,900 0.1
Nevada ....................... 8 985,398 0.3
New Hampshire ................ 18 1,764,240 0.5
New Jersey ................... 115 16,684,341 5.1
New Mexico ................... 26 2,345,781 0.7
New York ..................... 116 17,527,386 5.4
North Carolina ............... 58 7,326,791 2.3
North Dakota ................. 10 680,828 0.2
Ohio ......................... 152 13,058,118 4.0
Oklahoma ..................... 15 1,232,800 0.4
Oregon ....................... 35 4,230,467 1.3
Pennsylvania ................. 62 6,701,335 2.1
Rhode Island ................. 24 2,465,726 0.8
South Carolina ............... 18 1,726,912 0.5
South Dakota ................. 1 107,909 0.0
Tennessee .................... 67 6,774,749 2.1
Texas ........................ 93 10,951,096 3.4
Utah ......................... 95 12,798,699 3.9
Vermont ...................... 18 1,887,749 0.6
Virginia ..................... 43 5,352,770 1.6
Washington ................... 48 7,412,224 2.3
West Virginia ................ 7 470,382 0.1
Wisconsin .................... 126 9,252,982 2.8
Wyoming ...................... 2 87,380 0.0
----- ------------ -----
Totals ...................... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) No more than approximately 0.58% of the Adjustable Rate Mortgage Loans will
be secured by Mortgaged Properties located in any one zip code area.
S-30
<PAGE>
Loan-to-Value Ratios for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Loan-to-Value Ratio Mortgage Loans Balance Outstanding Loan Group
- ------------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
20.00%-25.00% ................ 3 $ 69,412 0.0%
25.01%-30.00% ................ 8 388,059 0.1
30.01%-35.00% ................ 13 669,449 0.2
35.01%-40.00% ................ 16 1,439,299 0.4
40.01%-45.00% ................ 21 2,202,074 0.7
45.01%-50.00% ................ 35 3,991,880 1.2
50.01%-55.00% ................ 49 4,680,740 1.4
55.01%-60.00% ................ 73 10,765,237 3.3
60.01%-65.00% ................ 118 12,501,720 3.8
65.01%-70.00% ................ 240 31,229,214 9.6
70.01%-75.00% ................ 343 38,245,811 11.8
75.01%-80.00% ................ 780 98,355,371 30.3
80.01%-85.00% ................ 514 61,022,622 18.8
85.01%-90.00% ................ 459 56,702,641 17.5
90.01%-95.00% ................ 23 2,463,828 0.8
----- ------------ -----
Totals ...................... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Loan-to-Value Ratios of the Adjustable Rate
Mortgage Loans ranged from 21.765% to 95.000% and the weighted average
Loan-to-Value Ratio of the Adjustable Rate Mortgage Loans was
approximately 78.144%.
Loan Purpose for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Loan Purpose Mortgage Loans Balance Outstanding Loan Group
- ------------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
Purchase ..................... 1,154 $141,488,360 43.6%
Refinance--Rate/Term ......... 429 49,732,932 15.3
Refinance--Cashout ........... 1,112 133,506,066 41.1
----- ------------ -----
Totals ...................... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
Type of Mortgaged Properties for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Property Type Mortgage Loans Balance Outstanding Loan Group
- ------------------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Single-family Residence ................... 2,213 $265,956,265 81.9%
Two- to Four-Family Dwelling Unit ......... 217 23,183,708 7.1
Attached Planned Unit Development ......... 166 25,947,629 8.0
Condominium ............................... 89 8,611,712 2.7
Townhouses ................................ 8 748,097 0.2
Detached Planned Unit Development ......... 1 213,081 0.1
Manufactured Housing ...................... 1 66,865 0.0
----- ------------ -----
Totals ................................... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
S-31
<PAGE>
Documentation Summary for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Documentation Mortgage Loans Balance Outstanding Loan Group
- --------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
Full Documentation .............. 2,062 $233,683,337 72.0%
24 Month Bank Statement ......... 233 37,038,520 11.4
Stated Income ................... 294 36,243,687 11.2
Reduced Documentation ........... 106 17,761,814 5.5
----- ------------ -----
Totals ....................... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
Occupancy Types for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Occupancy Mortgage Loans Balance Outstanding Loan Group
- ------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
Owner-occupied ......... 2,402 $301,395,520 92.8%
Second Home ............ 27 2,132,570 0.7
Investment ............. 266 21,199,268 6.5
----- ------------ -----
Totals .............. 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1)Based upon representations of the related Mortgagor at the time of
origination.
Mortgage Loan Age Summary for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Mortgage Loan Age (Months) Mortgage Loans Balance Outstanding Loan Group
- ---------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
0 .......................... 164 $ 18,433,814 5.7%
1-12 ....................... 2,520 304,803,475 93.9
12-24 ...................... 10 1,417,759 0.4
36-48 ...................... 1 72,309 0.0
----- ------------ -----
Totals .................. 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average age of the Fixed Rate Mortgage Loans is approximately
3 months.
Credit Grade Summary for the Adjustable Rate Mortgage Loan Group
Number of Aggregate Principal Percent of
Credit Grade Mortgage Loans Balance Outstanding Loan Group
- ------------------- ---------------- --------------------- -----------
AO ................ 889 $114,966,031 35.4%
A-- ............... 985 128,524,421 39.6
B ................. 419 44,892,217 13.8
B-- ............... 154 14,209,679 4.4
C ................. 181 16,639,099 5.1
C-- ............... 36 3,441,561 1.1
D ................. 31 2,054,350 0.6
----- ------------ -----
Totals ......... 2,695 $324,727,358 100.0%
===== ============ =====
S-32
<PAGE>
Year of Origination for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Year of Origination Mortgage Loans Balance Outstanding Loan Group
- --------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
1995 ................ 1 $ 72,309 0.0%
1997 ................ 12 1,544,178 0.5
1998 ................ 2,682 323,110,870 99.5
----- ------------ -----
Totals ........... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
Prepayment Penalties for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Prepayment Penalty Term Mortgage Loans Balance Outstanding Loan Group
- ------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
No Prepayment Penalty ......... 1,243 $150,153,807 46.2%
Prepayment Penalty ............ 1,452 174,573,550 53.8
----- ------------ -----
Totals ..................... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) The weighted average prepayment penalty term with respect to the Adjustable
Rate Mortgage Loans having prepayment penalties is approximately 30
months.
Maximum Mortgage Rates for the Adjustable Rate Mortgage Loan Group(1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Range of Maximum Mortgage Rates Mortgage Loans Balance Outstanding Loan Group
- --------------------------------- ---------------- --------------------- -----------
<S> <C> <C> <C>
12.000%-12.500% ................. 1 $ 479,078 0.1%
12.501%-13.000% ................. 4 572,904 0.2
13.001%-13.500% ................. 8 1,149,845 0.4
13.501%-14.000% ................. 21 3,021,895 0.9
14.001%-14.500% ................. 48 7,260,700 2.2
14.501%-15.000% ................. 126 21,179,080 6.5
15.001%-15.500% ................. 213 28,372,570 8.7
15.501%-16.000% ................. 378 52,113,794 16.0
16.001%-16.500% ................. 462 55,551,701 17.1
16.501%-17.000% ................. 535 63,394,688 19.5
17.001%-17.500% ................. 356 38,250,533 11.8
17.501%-18.000% ................. 298 30,258,401 9.3
18.001%-18.500% ................. 133 12,871,116 4.0
18.501%-19.000% ................. 66 6,161,135 1.9
19.001%-19.500% ................. 32 2,501,387 0.8
19.501%-20.000% ................. 10 1,157,403 0.4
20.001%-20.500% ................. 4 431,129 0.1
----- ------------ -----
Totals ....................... 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
- ------------
(1) As of the Cut-off Date, the Maximum Mortgage Rates for the Adjustable Rate
Mortgage Loans ranged from 12.200% per annum to 20.500% per annum and the
weighted average Maximum Mortgage Rate for the Adjustable Rate Mortgage
Loans was 16.479% per annum.
S-33
<PAGE>
Next Adjustment Date for the Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Number of Aggregate Principal Percent of
Next Adjustment Date Mortgage Loans Balance Outstanding Loan Group
- ------------------------ ---------------- --------------------- -----------
<S> <C> <C> <C>
January 1999 ........... 6 $ 1,295,654 0.4%
February 1999 .......... 22 3,012,765 0.9
March 1999 ............. 21 3,207,912 1.0
April 1999 ............. 26 3,328,165 1.0
May 1999 ............... 21 4,271,740 1.3
June 1999 .............. 22 3,542,595 1.1
July 1999 .............. 7 731,684 0.2
August 1999 ............ 33 3,592,279 1.1
September 1999 ......... 31 4,269,146 1.3
October 1999 ........... 35 4,491,131 1.4
November 1999 .......... 36 4,570,013 1.4
December 1999 .......... 12 1,293,429 0.4
January 2000 ........... 1 51,815 0.0
February 2000 .......... 1 33,452 0.0
March 2000 ............. 3 283,893 0.1
April 2000 ............. 12 1,446,461 0.4
May 2000 ............... 26 2,843,961 0.9
June 2000 .............. 50 5,587,668 1.7
July 2000 .............. 84 11,584,729 3.6
August 2000 ............ 312 37,035,295 11.4
September 2000 ......... 340 42,081,172 13.0
October 2000 ........... 322 39,695,146 12.2
November 2000 .......... 304 38,678,667 11.9
December 2000 .......... 102 11,707,794 3.6
March 2001 ............. 3 194,497 0.1
April 2001 ............. 7 776,092 0.2
May 2001 ............... 17 1,633,391 0.5
June 2001 .............. 39 4,028,096 1.2
July 2001 .............. 67 8,568,112 2.6
August 2001 ............ 144 16,168,427 5.0
September 2001 ......... 147 17,202,520 5.3
October 2001 ........... 129 13,796,450 4.2
November 2001 .......... 168 18,578,660 5.7
December 2001 .......... 44 4,219,175 1.3
March 2003 ............. 2 133,173 0.0
April 2003 ............. 2 142,300 0.0
May 2003 ............... 2 244,520 0.1
June 2003 .............. 3 660,117 0.2
July 2003 .............. 6 1,067,520 0.3
August 2003 ............ 23 2,779,067 0.9
September 2003 ......... 23 2,088,333 0.6
October 2003 ........... 20 1,964,054 0.6
November 2003 .......... 16 1,429,269 0.4
December 2003 .......... 4 417,020 0.1
----- ------------ -----
Totals .............. 2,695 $324,727,358 100.0%
===== ============ =====
</TABLE>
S-34
<PAGE>
Assignment of the Mortgage Loans
The Depositor will cause the Mortgage Loans to be assigned to the Trustee,
together with the rights to all principal and interest due on or with respect
to the Mortgage Loans after the Cut-off Date other than interest accrued on the
Mortgage Loans prior to the Cut-off Date. The Chase Manhattan Bank, as
authenticating agent, will, concurrently with such assignment, authenticate and
deliver the Certificates. Each Mortgage Loan will be identified in a schedule
appearing as an exhibit to the Pooling and Servicing Agreement (the "Mortgage
Loan Schedule"). The Mortgage Loan Schedule will specify, among other things,
with respect to each Mortgage Loan, the original principal balance and the
unpaid principal balance as of the close of business on the Cut-off Date; the
Scheduled Payment; the months remaining to stated maturity of the Mortgage
Note; and the Mortgage Rate.
In addition, the Depositor will, as to each Mortgage Loan, deliver or
cause to be delivered to the Trustee the Mortgage Note (together with all
amendments and modifications thereto) endorsed without recourse to the Trustee
or its designee, the original or a certified copy of the mortgage (together
with all amendments and modifications thereto) with evidence of recording
indicated thereon and an original or certified copy of an assignment of the
Mortgage in recordable form. The Depositor will cause the assignments to be
recorded in the appropriate public records.
Representations and Warranties
The Depositor will make certain representations and warranties for the
benefit of the Trustee with respect to the Mortgage Loans as described in the
Prospectus under "The Trust Fund-The Mortgage Pools" and will be obligated to
repurchase any Mortgage Loan as to which there is a material breach of any such
representation or warranty. Such repurchase will constitute the sole remedy
available to Certificate Owners for a breach of such representations or
warranties. The Trustee will enforce the repurchase obligations of the
Depositor. In lieu of such repurchase obligation, the Depositor may, within two
years after the date of initial delivery of the Certificates, substitute for
the affected Mortgage Loans substitute mortgage loans, as described under "The
Mortgage Pools" in the Prospectus.
CHASE MANHATTAN MORTGAGE CORPORATION
Chase Manhattan Mortgage Corporation ("Chase Manhattan Mortgage" or the
"Seller") is a New Jersey corporation, formed in 1920. It is a wholly-owned
indirect subsidiary of Chase Manhattan Bank USA, National Association. Chase
Manhattan Mortgage is engaged in the mortgage origination and servicing
businesses. Chase Manhattan Mortgage is a HUD-approved mortgagee. Chase
Manhattan Mortgage is subject to supervision, examination and regulation by the
Office of the Comptroller of the Currency and various state regulatory bodies.
The address of Chase Manhattan Mortgage is 343 Thornall Street, Edison, New
Jersey 08837 and its telephone number is (732) 205-0600. Chase Manhattan
Mortgage makes loans in all 50 states and the District of Columbia primarily
for the purpose of enabling borrowers to purchase or refinance residential real
property, secured by first liens on such property. Chase Manhattan Mortgage's
real estate loans primarily are made to homeowners based on the security of
one- to four-family residences.
Underwriting Standards
B&C Quality Mortgage Loans. The following is a description of the
underwriting procedures customarily employed by Chase Manhattan Mortgage with
respect to B&C quality mortgage loans (the "B&C Underwriting Guidelines").
Prior to the funding or acquiring of any B&C quality mortgage loan, Chase
Manhattan Mortgage underwrites the related mortgage loan in accordance with the
then-current underwriting standards established by Chase Manhattan Mortgage.
The B&C Underwriting Guidelines consider the value and adequacy of the
mortgaged property as collateral for the proposed mortgage loan but also take
into consideration the borrower's credit standing and repayment ability. On a
case by case basis, Chase Manhattan Mortgage may determine that, based upon
compensating factors, a prospective borrower not strictly qualifying under the
underwriting risk category guidelines described below warrants an underwriting
exception. Compensating factors may include, without limitation, relatively low
S-35
<PAGE>
loan-to-value ratio, relatively low debt-to-income ratio, stable employment and
time in the same residence. It is expected that a significant number of the
Mortgage Loans underwritten in accordance with the B&C Underwriting Guidelines
will have been originated based on such underwriting exceptions.
The B&C Underwriting Guidelines permit loans with loan-to-value ratios at
origination of up to 95%, depending on among other things, the program, type
and use of the property, creditworthiness of the borrower and debt-to-income
ratio.
Chase Manhattan Mortgage requires title insurance on all B&C quality
mortgage loans secured by liens on real property. Chase Manhattan Mortgage also
requires that fire and hazard insurance coverage be maintained on the mortgaged
property in an amount at least equal to the principal balance or the
replacement cost of the mortgaged property, whichever is less. Flood insurance
is also required for any mortgage loan with respect to which the related
mortgaged property is located in either flood zone "A" or "V" as determined by
the Federal Emergency Management Agency.
The B&C Underwriting Guidelines are less stringent than the standards
generally acceptable to FNMA and FHLMC with regard to the borrower's credit
standing and repayment ability. Borrowers who qualify generally would not
satisfy FNMA and FHLMC underwriting guidelines for any number of reasons,
including, without limitation, original principal balance, unsatisfactory
payment histories or debt-to-income ratios, or a record of major derogatory
credit items such as outstanding judgments or prior bankruptcies.
Chase Manhattan Mortgage offers four types of income documentation
programs under the B&C Underwriting Guidelines: Full Documentation, 24 Month
Bank Statement, Reduced Documentation and Stated Income. In general, for
mortgage loans underwritten pursuant to the Full Documentation program, Chase
Manhattan Mortgage verifies income and assets through alternate documentation
or written third party verifications. The 24 Month Bank Statement program
utilizes the last 24 months of bank statements to support income. In general,
this documentation type is available to AO, A-, B and B- credit grades. In
general, the Reduced Documentation program is available for AO through D credit
grades in the case of self-employed borrowers and AO, A- and B credit grades in
the case of salaried borrowers. Under the Reduced Documentation program, the
maximum loan-to-value ratio for salaried borrowers is 70%, and asset
verification for source of down payment is required if the loan-to-value ratio
is 70% or greater. In general, the Stated Income program is a no income/no
asset (except that asset verification is required if the loan-to-value ratio is
70% or greater) program for credit grades AO through C, in the case of
self-employed borrowers, and for credit grades AO, A- and B, in the case of
salaried borrowers. The maximum loan-to-value for salaried borrowers is 70%.
Income from the application as stated by the borrower is used to qualify.
The B&C Underwriting Guidelines utilize various credit grade categories to
grade the likelihood that the mortgagor will satisfy the repayment conditions
of the mortgage loan. These credit grade categories establish the maximum
permitted loan-to-value ratio, debt-to-income ratio and loan amount, given the
borrower's credit history considered in a manner generally consistent with
subprime mortgage industry practice, the occupancy status of the mortgaged
property, the type of mortgaged property and documentation type. A summary of
such categories is set forth below.
Credit Grade Category: "A--"
Debt-to-Income Ratio: Maximum of 45%
Mortgage History: No delinquencies of 30 days or more during the previous
12 months; no more than one such delinquency during the previous 24
months.
Consumer/Revolving Credit History: No more than one delinquency (in the
case of "major" credit) or two delinquencies (in the case of "minor"
credit) during the previous 12 months; provided that no such delinquencies
may have exceeded 59 days; no more than two ("major" credit) or three
("minor" credit) such delinquencies during the previous 24 months ("major"
credit being defined as installment debt with monthly payments over $100
and revolving accounts with credit limits over $2,500).
Collections/Chargeoffs: All in previous 36 months must be satisfied.
S-36
<PAGE>
Bankruptcy/Foreclosure: Must be discharged over three years from the date
of application; substantial re-establishment of credit required.
Credit Grade Category: "A-"
Debt-to-Income Ratio: Maximum of 45%
Mortgage History: No more than two delinquencies of 30 days or more during
the previous 12 months; provided that no such delinquencies may have
exceeded 59 days.
Consumer/Revolving Credit History: No delinquencies of 60 days or more
during the previous 12 months (during the case of "major" credit) or no
delinquencies of 90 days or more during the previous 12 months (in the
case of "minor" credit).
Collections/Chargeoffs: All except for up to $1,000 in previous 36 months
must be satisfied.
Bankruptcy/Foreclosure: Must be discharged over two years from the date of
application (or three years, if the loan-to-value ratio exceeds 85%);
substantial re-establishment of credit required.
Credit Grade Category: "B"
Debt-to-Income Ratio: Maximum of 50%
Mortgage History: No more than three delinquencies of 30 days or more
during the previous 12 months; provided that no such delinquencies may
have exceeded 59 days.
Consumer/Revolving Credit History: No delinquencies of 90 days or more
during the previous 12 months (in the case of "major" credit) and no
delinquencies of 120 days or more during the previous 12 months (in the
case of "minor" credit).
Collections/Chargeoffs: All except for up to $2,500 in previous 36 months
must be satisfied.
Bankruptcy/Foreclosure: Must be discharged over eighteen months from the
date of application; substantial re-establishment of credit required.
Credit Grade Category: "B-"
Debt-to-Income Ratio: Maximum of 50%
Mortgage History: No more than four delinquencies of 30 days or more
during the previous 12 months, provided that no such delinquency may have
exceeded 59 days; and no more than one delinquency of 60 days or more
during the previous 12 months, provided that no such delinquency may have
exceeded 89 days.
Consumer/Revolving Credit History: No delinquencies of 90 days or more
during the previous 12 months (in the case of "major" credit) and no
delinquencies of 120 days or more during the previous 12 months (in the
case of "minor" credit).
Collections/Chargeoffs: All except for up to $2,500 in previous 36 months
must be satisfied.
Bankruptcy/Foreclosure: Must be discharged over eighteen months from the
date of application; substantial re-establishment of credit required.
Credit Grade Category: "C"
Debt-to-Income Ratio: Maximum of 55%
Mortgage History: No more than five delinquencies of 30 days or more
during the previous 12 months, provided that no such delinquency may have
exceeded 59 days; and no more than two delinquencies of 60 days or more
during the previous 12 months, provided that no such delinquency may have
exceeded 89 days; and no more than one delinquency of 90 days or more
during the previous 12 months, provided that; such delinquency may not
have exceeded 119 days.
S-37
<PAGE>
Consumer/Revolving Credit History: No delinquencies of 120 days or more on
any "major" credit during the previous 12 months.
Collections/Chargeoffs: All except for up to $5,000 in previous 36 months
must be satisfied.
Bankruptcy/Foreclosure: Must be discharged over one year from date of
application; substantial re-establishment of credit required.
Credit Grade Category: "C-"
Debt-to-Income Ratio: Maximum of 55%
Mortgage History: Borrower cannot be more than four months delinquent at
time of loan closing.
Consumer/Revolving Credit History: Borrower exhibits significant past or
present credit problems.
Collections/Chargeoffs: All except for up to $5,000 in previous 36 months
must be satisfied.
Bankruptcy/Foreclosure: Chapter 13 and foreclosures must be discharged or
consummated prior to loan application. Chapter 7 must be discharged or
consummated over one year from date of application.
Credit Grade Category: "D"
Debt-to-Income Ratio: Maximum of 60%
Mortgage History: History disregarded; default action allowable.
Consumer/Revolving Credit History: "Major" and "minor" credit disregarded.
Collections/Chargeoffs: All except for up to $5,000 in previous 36 months
must be satisfied.
Bankruptcy/Foreclosure: Current Chapter 13 bankruptcy and foreclosures
paid through loan. Chapter 7 bankruptcy must be discharged prior to loan
application.
SERVICING OF THE MORTGAGE LOANS
General
The Subservicer will service the Mortgage Loans in accordance with the
terms set forth in the Pooling and Servicing Agreement. The Subservicer may
perform any of its obligations under the Pooling and Servicing Agreement
through one or more subservicers. Notwithstanding any such subservicing
arrangement, the Subservicer will remain liable for its servicing duties and
obligations under the Pooling and Servicing Agreement as if the Subservicer
alone were servicing the Mortgage Loans.
The Subservicer
The information set forth below concerning the Subservicer has been
provided to the Depositor by the Subservicer. Neither the Depositor, the
Seller, the Trustee, the Underwriters nor any of their respective affiliates
have made any independent investigation of such information.
Advanta
Advanta Mortgage Corp. USA ("Advanta") will act as the Subservicer of the
Mortgage Loans pursuant to the Pooling and Servicing Agreement. Advanta is an
indirect subsidiary of Advanta Corp., a Delaware corporation ("Advanta
Parent"), a publicly traded company based in Springhouse, Pennsylvania with
assets as of September 30, 1998 of approximately $3.3 billion.
Advanta Parent, through its subsidiaries (including Advanta) had managed
assets (including mortgage loans) in excess of $11.3 billion as of September
30, 1998.
The ability of Advanta Parent's subsidiaries to honor their financial and
other obligations is to some extent influenced by the financial conditions of
Advanta Parent. Such obligations of Advanta, insofar as they relate to the
Trust with respect to the Mortgage Loans, primarily consist of Advanta's
limited advancing obligation and its obligation to service the Mortgage Loans.
S-38
<PAGE>
As of September 30, 1998, Advanta and its subsidiaries were servicing
approximately 101,700 mortgage loans in the Owned and Managed Servicing
Portfolio representing an aggregate outstanding principal balance of
approximately $6.9 billion, and approximately 111,400 mortgage loans in the
Third-Party Servicing Portfolio representing an aggregate outstanding principal
balance of approximately $7.6 billion.
The Certificates will not represent an interest in or obligation of, nor
are the Mortgage Loans guaranteed by, Advanta or the Advanta Parent. Additional
information with respect to Advanta and Advanta Parent is available in the
various reports filed by Advanta and Advanta Parent with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended.
Owned and Managed Servicing Portfolio.
The following tables set forth information relating to the delinquency,
loan loss and foreclosure experience of Advanta for its servicing portfolio,
excluding certain loans serviced by Advanta that were not originated or
purchased and are underwritten by affiliates of Advanta (the "Owned and Managed
Servicing Portfolio"), of fixed and adjustable rate mortgage loans as of
September 30, 1998, and for each of the four prior years ended December 31. In
addition to the Owned and Managed Servicing Portfolio, Advanta serviced as of
September 30, 1998, approximately 111,400 mortgage loans with an aggregate
principal balance as of such date of approximately $7.6 billion; such loans
were not originated by Advanta or affiliates of Advanta and are being serviced
for third parties on a contract servicing basis (the "Third Party Servicing
Portfolio"). No loans in the Third Party Servicing Portfolio are included in
the tables set forth below.
DELINQUENCY AND FORECLOSURE EXPERIENCE OF
ADVANTA'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ending December 31,
-------------------------------------------------------------------------------------
1994 1995 1996
--------------------------- --------------------------- ---------------------------
By By By
Dollar Dollar Dollar
By No. Amount By No. Amount By No. Amount
of Loans of Loans of Loans of Loans of Loans of Loans
---------- --------------- ---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Portfolio 26,446 $ 1,346,100 32,592 $ 1,797,582 43,303 $ 2,595,981
Delinquency
percentage(1)
30-59 days 2.01% 1.57% 2.67% 2.44% 3.07% 2.90%
60-89 days 0.57 0.45 0.72 0.71 0.85 0.90
90 days or more 1.85 1.51 1.69 1.23 1.45 1.26
Total 4.43% 3.53% 5.08% 4.38% 5.37% 5.06%
Foreclosure
rate(2) 1.35% 1.38% 1.29% 1.53% 1.62% 1.92%
REO properties(3) 0.47% -- 0.52% -- 0.42% --
<PAGE>
<CAPTION>
Year Ending December 31, Nine Months Ending
--------------------------- ---------------------------
1997 September 30, 1998
--------------------------- ---------------------------
By By
Dollar Dollar
By No. Amount By No. Amount
of Loans of Loans of Loans of Loans
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Portfolio 74,525 $ 4,888,936 101,673 $ 6,922,697
Delinquency
percentage(1)
30-59 days 3.13% 2.99% 2.70% 2.49%
60-89 days 0.98 0.98 1.03 0.94
90 days or more 1.39 1.28 1.62 1.52
Total 5.50% 5.25% 5.35% 4.95%
Foreclosure
rate(2) 2.10% 2.32% 2.15% 2.21%
REO properties(3) 0.40% -- 0.88% --
</TABLE>
- ------------
(1) The period of delinquency is based on the number of days payments are
contractually past due. The delinquency statistics for the period exclude
loans in foreclosure.
(2) "Foreclosure Rate" is the number of mortgage loans or the dollar amount of
mortgage loans in foreclosure as a percentage of the total number of
mortgage loans or the dollar amount of mortgage loans, as the case may be,
as of the date indicated.
(3) REO Properties (i.e., "real estate owned" properties-properties relating to
mortgages foreclosed or for which deeds in lieu of foreclosure have been
accepted, and held by Advanta pending disposition) percentages are
calculated using the number of loans, not the dollar amount.
S-39
<PAGE>
LOAN LOSS EXPERIENCE
OF ADVANTA'S OWNED AND MANAGED SERVICING PORTFOLIO
OF MORTGAGE LOANS*
<TABLE>
<CAPTION>
Nine Months
Ending
Year Ending December 31, September 30,
1994 1995 1996 1997 1998
--------------- --------------- --------------- --------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average amount outstanding(1) ......... $ 1,225,529 $ 1,540,238 $ 2,102,643 $ 3,677,342 $ 5,864,729
Gross losses(2) ....................... $ 20,886 $ 13,978 $ 15,184 $ 18,897 $ 23,990
Recoveries(3) ......................... $ 179 $ 148 $ 117 $ 45 $ 40
Net losses(4) ......................... $ 20,707 $ 13,830 $ 15,067 $ 18,852 $ 23,950
Net losses as a percentage of average
amount outstanding(5) ................ 1.69% 0.90% 0.72% 0.51% 0.54%
</TABLE>
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(1) "Average Amount Outstanding" during the period is the arithmetic average of
the principal balances of the mortgage loans outstanding on the last
business day of each month during the period.
(2) "Gross Losses" are amounts which have been determined to be uncollectible
relating to mortgage loans for each respective period.
(3) "Recoveries" are recoveries from liquidation proceeds and deficiency
judgments.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries."
(5) September 30, 1998 percentage has been based on annualized net losses.
Advanta experienced an increase in the net loss rate on its Owned and
Managed Servicing Portfolio during the period 1990 through 1994. It believes
that such increase was due to four primary factors; the seasoning of its
portfolio, economic conditions, a decline in property values in certain regions
and the acceleration of charge-offs on loans in 1994. In addition, the level of
net losses during such period was negatively impacted by the performance of the
Non-Income Verification ("NIV") loan program. The net loss rate as a percentage
of the average amount outstanding on its Owned and Managed Servicing Portfolio,
excluding NIV loans, is 1.42% for the period ending December 31, 1994.*
Collection Procedures. Advanta employs a variety of collection techniques
during the various stages of delinquency. The primary purpose of all collection
efforts performed by Advanta is to bring a delinquent mortgage loan current in
as short a time as possible. Phone calls are used as the principal form of
contacting a mortgagor. Advanta utilizes a predictive dialing system for the
effective management of collection calling activity. Prior to initiating
foreclosure proceedings, Advanta makes every reasonable effort to determine the
reason for the default; whether the delinquency is a temporary or permanent
condition; and the mortgagor's attitude toward the obligation. Advanta will
take action to foreclose a mortgage only once every reasonable effort to cure
the default has been made and a projection of the ultimate gain or loss on REO
sale is determined. Foreclosures are processed within individual state
guidelines and in accordance with the provisions of the mortgage and applicable
state law.
Servicing Compensation and Payment of Expenses
The Subservicer will be paid a monthly fee from interest collected with
respect to each Mortgage Loan (as well as from any liquidation proceeds from a
liquidated Mortgage Loan that are applied to accrued and unpaid interest) equal
to the unpaid principal balance (the "Stated Principal Balance") thereof
multiplied by one-twelfth of the Servicing Fee Rate (such product, the
"Servicing Fee"). The "Servicing Fee Rate" for each Mortgage Loan will equal
0.50% per annum. The amount of the monthly Servicing Fee is subject to
adjustment with respect to prepaid Mortgage Loans, as described herein under
"--Adjustment to Servicing Fee in Connection with Certain Prepaid Mortgage
Loans." The Subservicer is also entitled to receive, as additional servicing
compensation, all assumption fees and other similar charges and all investment
income earned on amounts on deposit in the Collection Account. The Subservicer
is obligated to pay certain ongoing expenses associated with the Mortgage Loans
in connection with its responsibilities under the Pooling and Servicing
Agreement.
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Adjustment to Servicing Fee in Connection with Certain Prepaid Mortgage Loans
When a Mortgagor prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates ("Due Dates"), the Mortgagor pays interest on
the amount prepaid only to the date of prepayment. Prepayments received during
the prior Due Period (defined herein) are included in the distribution to
Certificate Owners on the Distribution Date thereby causing a shortfall in
interest. In order to mitigate the effect of any such shortfall in interest
distributions to Certificate Owners on any Distribution Date, the amount of the
Servicing Fee otherwise payable to the Subservicer for such month shall, to the
extent of such shortfall, be deposited by the Subservicer in the Collection
Account for distribution to the Certificate Owners on such Distribution Date
(the amount of such deposit, "Compensating Interest"). However, any such
reduction in the Servicing Fee will be limited to the product of (i)
one-twelfth of 0.35% and (ii) the aggregate outstanding principal balance of
the Mortgage Loans with respect to the related Distribution Date. Any such
deposit by the related Subservicer will be reflected in the distributions to
the Owners of the Certificates made on the Distribution Date to which such Due
Period relates. Any such shortfall in excess of Compensating Interest (such
excess, the "Prepayment Interest Shortfall") will be allocated on such
Distribution Date pro rata among the outstanding Classes of Certificates based
upon the amount of interest each such Class would otherwise be paid on such
Distribution Date.
Advances
Subject to the following limitations, on the Business Day prior to each
Servicer Remittance Date, the Subservicer will be required to advance its own
funds, or funds in the Collection Account that are not required to be
distributed on the related Distribution Date, in an amount equal to the
aggregate of payments of principal and interest on the Mortgage Loans (adjusted
to the applicable Net Mortgage Rate) that were due on the related Due Date and
delinquent on the related Servicer Remittance Date, together with an amount
equivalent to interest (adjusted to the applicable Net Mortgage Rate) deemed
due on each Mortgage Loan as to which the related Mortgaged Property has been
acquired by the Subservicer through foreclosure or deed-in-lieu of foreclosure
in connection with a defaulted Mortgage Loan ("REO Property"), such latter
amount to be calculated after taking into account any rental income from such
Mortgaged Property (any such advance, an "Advance", and the date of any such
Advance, as described herein, a "Servicer Advance Date").
Advances are intended to maintain a regular flow of scheduled interest and
principal payments on the Offered Certificates rather than to guarantee or
insure against losses. The Subservicer is obligated to make Advances with
respect to delinquent payments of principal of or interest on each Mortgage
Loan (with such payments of interest adjusted to the related Net Mortgage Rate)
to the extent that such Advances are, in its judgment, reasonably recoverable
from future payments and collections or insurance payments or proceeds of
liquidation of the related Mortgage Loan; provided, however, that the
Subservicer need not make Advances with respect to the principal portion of any
Balloon Amount but the Subservicer will be required to Advance monthly interest
on a Balloon Loan until the principal balance thereof is reduced to zero. If
the Subservicer determines on any Servicer Remittance Date to make an Advance,
such Advance will be included with the distribution to holders of the Offered
Certificates on the related Distribution Date. Any failure by the Subservicer
to make an Advance as required under the Pooling and Servicing Agreement will
constitute an event of default thereunder, in which case the Trustee, as
successor servicer, or such other entity as may be appointed as successor
servicer, will be obligated to make any such Advance in accordance with the
terms of the Pooling and Servicing
Agreement.
Master Servicer
Chase Manhattan Mortgage will act as "Master Servicer." The Master
Servicer will (a) provide certain administrative services and file certain
reports with regard to the Certificates, (b) provide certain reports to the
Trustee regarding the Mortgage Loans and the Certificates and (c) receive
payments with respect to the Mortgage Loans from the Subservicer and, in its
capacity as paying agent for the Certificates, remit such payments to the
Certificateholders as described herein. The Master Servicer will pay certain
administrative expenses of the Trust including the fees of the Trustee. The
Master Servicer will be entitled to a monthly "Master Servicer Fee" with
respect to each Mortgage Loan, payable with respect to each Distribution Date,
in an amount equal to the sum of (i) one-twelfth of the Master Servicer Fee
Rate multiplied by the principal balance of such Mortgage Loan and (ii) all
late payment fees and prepayment penalties and all investment income earned on
funds in the Certificate Account and the Distribution Account. The "Master
Servicer Fee Rate" is 0.0073% per annum.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will represent the entire beneficial ownership interest
in a trust fund (the "Trust Fund") to be created pursuant to the Pooling and
Servicing Agreement. A copy of the Pooling and Servicing Agreement will be
attached as an exhibit to the Current Report on Form 8-K of the Depositor that
will be available to purchasers of the Certificates at, and will be filed with
the Securities and Exchange Commission within 15 days of, the initial delivery
of the Certificates. Reference is made to the attached prospectus (the
"Prospectus") for additional information regarding the terms and conditions of
the Pooling and Servicing Agreement.
The following summaries do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
Pooling and Servicing Agreement. When particular provisions or terms used in
the Pooling and Servicing Agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.
The Chase Funding Mortgage Loan Asset-Backed Certificates, Series 1998-2
(the "Certificates") will consist of: (a) the Class IA-1, Class IA-2, Class
IA-3, Class IA-4, Class IA-5 and Class IA-6 Certificates (collectively, the
"Class A Group I Certificates"), the Class IM-1 Certificates (the "Class IM-1
Certificates") and Class IM-2 Certificates (the "Class IM-2 Certificates" and
together with the Class IM-1 Certificates, the "Mezzanine Group I
Certificates") and the Class IB Certificates (the "Class IB Certificates" and,
together with the Mezzanine Group I Certificates, the "Subordinated Group I
Certificates" and the Subordinated Group I Certificates together with the Class
A Group I Certificates, the "Group I Certificates"); (b) the Class IIA-1 and
Class IIA-2 Certificates (together, the "Group II Certificates" or the "Class A
Group II Certificates" and, together with the Class A Group I Certificates, the
"Class A Certificates") and (c) the Class R Certificates (the "Residual
Certificates"). The Group I Certificates and the Group II Certificates are
referred to as the "Offered Certificates". As used herein, a "Certificate
Group" is either the Group I Certificates or the Group II Certificates, as the
context requires.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar denominations
of $25,000 and integral multiples of $1,000 in excess thereof.
Book-Entry Certificates
The Offered Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the Offered
Certificates ("Certificate Owners") may elect to hold their Offered
Certificates through the Depository Trust Company ("DTC") in the United States,
or CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates which equal
the aggregate principal balance of the Offered Certificates and will initially
be registered in the name of Cede & Co. ("Cede"), the nominee of DTC. CEDEL and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank, N.A. will act as depositary for CEDEL and Chase will act as
depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries"). Investors may hold
such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal balances ("Certificate Principal
Balances") of $25,000 and integral multiples of $1,000 in excess thereof.
Except as described below, no person acquiring a Book-Entry Certificate (each,
a "beneficial owner") will be entitled to receive a physical certificate
representing such Offered Certificate (a "Definitive Certificate"). Unless and
until Definitive Certificates are issued, it is anticipated that the only
Certificateholder of the Offered Certificates will be Cede & Co., as nominee of
DTC. Certificate Owners will not be Certificateholders as that term is used in
the Pooling and Servicing Agreement. Certificate Owners are only permitted to
exercise their rights indirectly through the participating organizations that
utilize the services of DTC, including securities brokers and dealers, banks
and trust companies and clearing corporations and certain other organizations
("Participants") and DTC.
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<PAGE>
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of CEDEL or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and organizations which have indirect access to the DTC system,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"), with whom Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates, the Rules provide a mechanism by which
Certificate Owners will receive distributions and will be able to transfer
their interest.
Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificate Owners who are not Participants may
transfer ownership of Offered Certificates only through Participants and
Indirect Participants by instructing such Participants and Indirect
Participants to transfer Offered Certificates, by book-entry transfer, through
DTC for the account of the purchasers of such Offered Certificates, which
account is maintained with their respective Participants. Under the Rules and
in accordance with DTC's normal procedures, transfers of ownership of Offered
Certificates will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and Indirect Participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificate 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
(as defined, below) or Euroclear Participant (as defined below) 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. For information with respect to tax
documentation procedures, relating to the Offered Certificates, see "Federal
Income Tax Consequences--Taxation of Certain Foreign Investors" in the
Prospectus and "Global, Clearance, Settlement And Tax Documentation
Procedures--Certain U.S. Federal Income Tax Documentation Requirements" in
Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterpart in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action
S-43
<PAGE>
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same day funds settlement applicable to DTC. CEDEL Participants and
Euroclear Participants may not deliver instructions directly to the European
Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC participant in the Book-Entry Certificates, whether
held for its own account or as a nominee for another person. In general,
beneficial ownership of Book-Entry Certificates will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes
in accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "Euroclear Operator"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing
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such payments to the beneficial owners of the Book-Entry Certificates that it
represents and to each Financial Intermediary for which it acts as agent. Each
such Financial Intermediary will be responsible for disbursing funds to the
beneficial owners of the Book-Entry Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with respect
to Offered Certificates held through CEDEL or Euroclear will be credited to the
cash accounts of CEDEL Participants or Euroclear Participants in accordance
with the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "Federal
Income Tax Consequences--Taxation of Certain Foreign Investors" and "--Backup
Withholding" in the Prospectus. Because DTC can only act on behalf of Financial
Intermediaries, the ability of a beneficial owner to pledge Book-Entry
Certificates to persons or entities that do not participate in the depository
system, or otherwise take actions in respect of such Book-Entry Certificates,
may be limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in
book-entry form may reduce the liquidity of such Offered Certificates in the
secondary market since certain potential investors may be unwilling to purchase
Offered Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust Fund provided by the Subservicer
to Cede, as nominee of DTC, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting DTC or the Relevant Depositary, and to the Financial Intermediaries
to whose DTC accounts the Book-Entry Certificates of such beneficial owners are
credited.
DTC has advised the Depositor and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Certificates under the Pooling and
Servicing Agreement only at the direction of one or more Financial
Intermediaries to whose DTC accounts the Book-Entry Certificates are credited,
to the extent that such actions are taken on behalf of Financial Intermediaries
whose holdings include such Book-Entry Certificates. CEDEL or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by a Holder of an Offered Certificate under the Pooling and Servicing Agreement
on behalf of a CEDEL Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to the ability of the
Relevant Depositary to effect such actions on its behalf through DTC. DTC may
take actions, at the direction of the related Participants, with respect to
some Offered Certificates which conflict with actions taken with respect to
other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC
or the Depositor advises the Trustee in writing that DTC is no longer willing,
qualified or able to discharge properly its responsibilities as nominee and
depositary with respect to the Book-Entry Certificates and the Depositor or the
Trustee is unable to locate a qualified successor, (b) the Depositor at its
sole option, elects to terminate a book-entry system through DTC or (c) after
the occurrence of an Event of Default (as defined herein), beneficial owners
having not less than 51% of the voting rights evidenced by the Offered
Certificates advise the Trustee and DTC through the Financial Intermediaries
and the DTC participants in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the best interests
of beneficial owners of such Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
holders of the Offered Certificates under the Pooling and Servicing Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Certificates among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Payments on Mortgage Loans; Collection Account; Certificate Account;
Distribution Account
The Pooling and Servicing Agreement provides that the Subservicer for the
benefit of the Certificateholders shall establish and maintain a Collection
Account (the "Collection Account"), into which the Subservicer is
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<PAGE>
generally required to deposit or cause to be deposited, promptly upon receipt
and in any event within two Business Days, the payments and collections
described in "Description of the Certificates--Certificates Evidencing
Interests in Mortgage Loans--Payments on Mortgage Loans" in the Prospectus,
except that the Subservicer may deduct its Servicing Fee and any expenses of
liquidating defaulted Mortgage Loans or property acquired in respect thereof.
The Pooling and Servicing Agreement permits the Master Servicer to direct any
depository institution maintaining the Collection Account to invest the funds
in the Collection Account in one or more investments acceptable to S&P, Fitch
and Moody's (as provided in the Pooling and Servicing Agreement), that mature,
unless payable on demand, no later than the Business Day preceding the 18th day
of each month, or, if such day is not a business day, the preceding business
day (the "Servicer Remittance Date"). The Subservicer will be entitled to all
income and gain realized from any such investment, and such income and gain
will be subject to withdrawal by the Subservicer from time to time. The
Subservicer will be required to deposit the amount of any losses incurred in
respect to any such investments out of its own funds as such losses are
realized.
The Master Servicer will be obligated to establish an account (the
"Certificate Account"), into which the Subservicer will deposit or cause to be
deposited not later than 1:00 p.m. Pacific Time on the Servicer Remittance Date
from amounts on deposit in the Collection Account, the Interest Funds and
Principal Funds for each Loan Group and the Master Servicer Fee with respect to
such Distribution Date. Subject to the restrictions set forth in the Pooling
and Servicing Agreement, the Master Servicer is permitted to direct that the
funds in the Certificate Account be invested so long as such investments
mature, unless payable on demand, no later than the Business Day prior to the
Distribution Date. All income and gain realized from any such investment will
belong to the Master Servicer and is subject to its withdrawal or order from
the Certificate Account. The Master Servicer will be required to deposit in the
Certificate Account out of its own funds the amount of any losses incurred in
respect of any such investment, as such losses are realized.
The Master Servicer, as initial paying agent, is obligated under the
Pooling and Servicing Agreement to establish and maintain a separate trust
account (the "Distribution Account"), into which the Master Servicer is
obligated to deposit on the Business Day preceding each Distribution Date, an
amount equal to the Interest Funds and Principal Funds for each Loan Group with
respect to such Distribution Date. Subject to the restrictions set forth in the
Pooling and Servicing Agreement, the Master Servicer is permitted to direct
that the funds in the Distribution Account be invested so long as such
investments mature, unless payable on demand, no later than the related
Distribution Date. All income and gain realized from any such investment will
belong to the Master Servicer and is subject to its withdrawal or order from
the Distribution Account. The Master Servicer will be required to deposit in
the Distribution Account out of its own funds the amount of any losses incurred
in respect of any such investment, as such losses are realized.
The "Interest Funds" with respect to each Loan Group are equal to the sum,
without duplication, of (i) all scheduled interest collected during the related
Due Period less the Servicing Fee and Master Servicer Fee, (ii) all Advances
relating to interest, (iii) all Compensating Interest, (iv) Liquidation
Proceeds (to the extent such Liquidation Proceeds relate to interest) less all
non-recoverable Advances relating to interest and certain expenses reimbursed
during the related Due Period and (v) in the case of the Adjustable Rate
Mortgage Loan Group, the portion of any Insured Payment (defined herein)
required to pay Current Interest (defined herein) on the related Distribution
Date with respect to the Class A Group II Certificates.
The "Principal Funds" with respect to each Loan Group are equal to the
sum, without duplication, of (i) the scheduled principal collected during the
related Due Period or advanced on or before the related Servicer Remittance
Date, (ii) prepayments collected in the related Prepayment Period, (iii) the
Stated Principal Balance of each Mortgage Loan that was repurchased by the
Depositor, (iv) the amount, if any, by which the aggregate unpaid principal
balance of any replacement Mortgage Loans is less than the aggregate unpaid
principal balance of any Mortgage Loans delivered by the Seller in connection
with a substitution of a Mortgage Loan, (v) all Liquidation Proceeds collected
during the related Due Period (to the extent such Liquidation Proceeds related
to principal) less all non-recoverable Advances relating to principal and all
non-recoverable servicing advances reimbursed during the related Due Period and
(vi) in the case of the Adjustable Rate Mortgage Loan Group, the portion of any
Insured Payment with respect to the related Distribution Date required to pay
the amounts described in clauses (ii) and (iii) of the definition of "Insured
Distribution Amount."
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<PAGE>
The "Due Period" with respect to any Distribution Date is the period
beginning on the second day of the calendar month preceding the calendar month
in which such Distribution Date occurs (or, in the case of the first
Distribution Date, on the Cut-off Date) and ending on the Due Date in the month
in which such Distribution Date occurs. The "Prepayment Period" with respect to
any Distribution Date is the calendar month preceding the month in which such
Distribution Date occurs.
Distributions
General. Distributions on the Certificates will be made by the Paying
Agent on the 25th day of each month, or if such day is not a Business Day, on
the first Business Day thereafter, commencing in January 1999 (each, a
"Distribution Date"), to the persons in whose names such Certificates are
registered at the close of business on the last Business Day of the month
preceding the month of such Distribution Date (the "Record Date").
Distributions on each Distribution Date will be made by check mailed to
the address of the person entitled thereto as it appears on the Certificate
Register or, in the case of any Certificateholder that holds 100% of a Class of
Certificates or who holds a Class of Certificates with an aggregate initial
Certificate Principal Balance of $1,000,000 or more and that has so notified
the Master Servicer in writing in accordance with the Pooling and Servicing
Agreement, by wire transfer in immediately available funds to the account of
such Certificateholder at a bank or other depository institution having
appropriate wire transfer facilities; provided, however, that the final
distribution in retirement of the Certificates will be made only upon
presentation and surrender of such Certificates at the Corporate Trust Office
of the Master Servicer. On each Distribution Date, a Holder of a Certificate
will receive such Holder's Percentage Interest of the amounts required to be
distributed with respect to the applicable Class of Certificates. The
"Percentage Interest" evidenced by a Certificate will equal the percentage
derived by dividing the denomination of such Certificate by the aggregate
denominations of all Certificates of the applicable Class.
Distributions of Interest. On each Distribution Date, the interest
distributable with respect to the Group I Certificates and the Class IIA-2
Certificates is the interest which has accrued thereon at the related
Pass-Through Rate during the calendar month immediately preceding the calendar
month in which such Distribution Date occurs less Prepayment Interest
Shortfalls, if any, and the interest distributable with respect to the Class
IIA-1 Certificates is the interest which has accrued thereon at the then
applicable related Pass-Through Rate from and including the preceding
Distribution Date (or from the Closing Date in the case of the first
Distribution Date) to and including the day prior to the current Distribution
Date less Prepayment Interest Shortfalls, if any. Each period referred to in
the prior sentence relating to the accrual of interest is the "Accrual Period"
for the related Class of Offered Certificates.
All calculations of interest of the Group I Certificates and the Class
IIA-2 Certificates will be made on the basis of a 360-day year assumed to
consist of twelve 30-day months. All calculations of interest on the Class
IIA-1 Certificates will be made on the basis of a 360-day year and the actual
number of days elapsed in the applicable Accrual Period.
On each Distribution Date, the Interest Funds for such Distribution Date
with respect to the Group I Certificates are required to be distributed in the
following order of priority, until such Interest Funds have been fully
distributed:
(i) to each Class of the Class A Group I Certificates, the Current
Interest and any Interest Carry Forward Amount with respect to each such
Class; provided, however, that if the Interest Funds for the Group I
Certificates are insufficient to make a full distribution of the aggregate
Current Interest and the aggregate Interest Carry Forward Amount to the
Class A Group I Certificates, the Interest Funds for such Certificate Group
will be distributed pro rata among each Class of the Class A Group I
Certificates based upon the ratio of (x) the Current Interest and Interest
Carry Forward Amount for each Class of the Class A Group I Certificates to
(y) the total amount of Current Interest and any Interest Carry Forward
Amount for the Class A Group I Certificates;
(ii) to the Class IM-1 Certificates, the Current Interest for such Class
and any Interest Carry Forward Amount with respect to such Class;
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<PAGE>
(iii) to the Class IM-2 Certificates, the Current Interest for such
Class and any Interest Carry Forward Amount with respect to such Class;
(iv) to the Class IB Certificates, the Current Interest for such Class
and any Interest Carry Forward Amount with respect to such Class; and
(v) any remainder to be distributed as described below under
"--Overcollateralization and Crosscollateralization Provisions".
On each Distribution Date, the Interest Funds for such Distribution Date
with respect to the Group II Certificates are required to be distributed in the
following order of priority, until such Interest Funds have been fully
distributed:
(i) to the Group II Certificate Insurer, the Premium Amount with respect
to such Distribution Date;
(ii) to each Class of the Class A Group II Certificates, the Current
Interest and any Interest Carry Forward Amount with respect to each such
Class;
(iii) to the Group II Certificate Insurer, up to the amount necessary to
reimburse the Group II Certificate Insurer for draws previously made under
the Group II Certificate Insurance Policy and any other amounts owed to the
Group II Certificate Insurer pursuant to the Insurance Agreement (defined
herein) and not previously reimbursed; and
(iv) any remainder to be distributed as described under
"--Overcollateralization and Crosscollateralization Provisions".
"Current Interest", with respect to each Class of the Offered Certificates
and each Distribution Date, is the interest accrued at the applicable
Pass-Through Rate for the applicable Accrual Period on the Certificate
Principal Balance of such Class plus any amount previously distributed with
respect to interest for such Class that is recovered as a voidable preference
by a trustee in bankruptcy less any Prepayment Interest Shortfalls allocated to
such Class on such Distribution Date.
"Interest Carry Forward Amount", with respect to each Class of the Offered
Certificates and each Distribution Date, is the sum of (i) the excess of (A)
Current Interest for such Class with respect to prior Distribution Dates
(excluding any Adjustable Rate Certificate Carryover) over (B) the amount
actually distributed to such Class with respect to interest on such prior
Distribution Dates and (ii) interest on such excess (to the extent permitted by
applicable law) at the applicable Pass-Through Rate.
The "Pass-Through Rate" with respect to each Class of Group I Certificates
and the Class IIA-2 Certificates is the per annum rate set forth for each such
Class in the table on page S-3; provided, however, that the "Pass-Through Rate"
for the Class IB Certificates on any Distribution Date will equal the lesser of
(i) the per annum rate for such Class set forth in the table on page S-3 and
(ii) the weighted average Net Mortgage Rates on the Fixed Rate Mortgage Loans
and; provided, further, that the Pass-Through Rate for the Class IA-5
Certificates on any Distribution Date after the Optional Termination Date will
equal 7.150%. The "Pass Through Rate" with respect to the Class IIA-1
Certificates will be determined as described below.
The "Pass-Through Rate" for the Class IIA-1 Certificates will be equal to
the least of (i) the London interbank offered rate for one month United States
dollar deposits, calculated as described under "Description of the
Certificates--Calculation of One-Month LIBOR" ("One-Month LIBOR"), plus the
Pass-Through Margin (defined below) for such Class, (ii) the "Maximum Funds
Cap," which is defined as the weighted average of the maximum lifetime Mortgage
Rates on the Adjustable Rate Mortgage Loans less the Servicing Fee Rate, the
Master Servicer Fee Rate and the Premium Amount Rate (defined herein) and (iii)
the "Available Funds Cap" for the Class IIA-1 Certificates, which is defined as
a per annum rate equal to 12 times the quotient of (x)
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<PAGE>
the total scheduled interest on the Adjustable Rate Mortgage Loans in the
Adjustable Rate Mortgage Loan Group based on the Net Mortgage Rates in effect
on the related Due Date, net of an additional 0.50% per annum divided by (y)
the aggregate principal balance of the Group II Certificates.
With respect to any Mortgage Loan, the "Net Mortgage Rate" is the Mortgage
Rate with respect to such Mortgage Loan less the sum of (i) the Servicing Fee
Rate, (ii) the Master Servicer Fee Rate and (iii) in the case of each
Adjustable Rate Mortgage Loan, the Premium Amount Rate.
The "Pass-Through Margin" for the Class IIA-1 Certificates is as follows:
for any Distribution Date on or before the Optional Termination Date with
respect to the Group II Certificates, 0.51; and for any Distribution Date after
the Optional Termination Date with respect to the Group II Certificates, 1.02%.
If on any Distribution Date, the Pass-Through Rate for the Class IIA-1
Certificates is based upon its Available Funds Cap, the excess of (i) the
amount of interest that such Class would have been entitled to receive on such
Distribution Date had the Pass-Through Rate for that Class not been calculated
based on the Available Funds Cap, up to but not exceeding the Maximum Funds Cap
over (ii) the amount of interest such Class received on such Distribution Date
based on the Available Funds Cap, up to but not exceeding the Maximum Funds
Cap, together with the unpaid portion of any such excess from prior
Distribution Dates (and interest accrued thereon at the then applicable
Pass-Through Rate, without giving effect to the Available Funds Cap) is the
"Adjustable Rate Certificate Carryover" for the Class IIA-1 Certificates. Any
Adjustable Rate Certificate Carryover will be paid on future Distribution Dates
from and to the extent of funds available therefor as described herein. The
ratings of the Class IIA-1 Certificates do not address the likelihood of the
payment of any Adjustable Rate Certificate Carryover. The Group II Certificate
Insurance Policy will not cover the payment of any Adjustable Rate Certificate
Carryover.
Distributions of Principal. On each Distribution Date, the Principal
Distribution Amount (as defined below) for such Distribution Date with respect
to the Group I Certificates is required to be distributed as follows until such
Principal Distribution Amount has been fully distributed:
(i) with respect to Class A Group I Certificates, the Class A Principal
Distribution Amount for the Group I Certificates will be distributed as
follows: first, an amount up to the Class IA-6 Distribution Amount to the
Class IA-6 Certificates, and second, the remaining Class A Principal
Distribution Amount for the Group I Certificates will be paid sequentially
to the Class IA-1, Class IA-2, Class IA-3, Class IA-4, Class IA-5 and Class
IA-6 Certificates, in that order, until the respective Certificate
Principal Balances thereof have been reduced to zero; provided, however,
that, on any Distribution Date on which the aggregate Certificate Principal
Balances of the Class A Group I Certificates are equal to or greater than
the Stated Principal Balances of the Fixed Rate Mortgage Loans, the Class A
Principal Distribution Amount for the Class A Group I Certificates will be
distributed pro rata and not as described above;
(ii) to the Class IM-1 Certificates, the Class IM-1 Principal
Distribution Amount;
(iii) to the Class IM-2 Certificates, the Class IM-2 Principal
Distribution Amount;
(iv) to the Class IB Certificates, the Class IB Principal Distribution
Amount; and
(v) any remainder will be distributed as described under
"-Overcollateralization and Crosscollateralization Provisions" below.
On each Distribution Date, the Principal Distribution Amount for the Group
II Certificates will be distributed as follows:
(i) first, an amount up to the Class IIA-2 Principal Distribution Amount
to the Class IIA-2 Certificates, and second, the remaining Class A
Principal Distribution Amount shall be paid sequentially to the Class IIA-1
and Class IIA-2 Certificates, in that order, until the respective
Certificate Principal Balances thereof have been reduced to zero; provided,
however, that, on any Distribution Date on which the aggregate Certificate
Principal Balances of the Class A Group II Certificates are equal to or
greater than the Stated Principal Balances of the Adjustable Rate Mortgage
Loans (which could only occur if the Group II Certificate Insurer was in
default of its obligations under the Group II Certificate Insurance
Policy), the Class A Principal Distribution Amount for the Class A Group II
Certificates will be distributed pro rata and not as described above; and
S-49
<PAGE>
(ii) any remainder will be distributed as described under
"--Overcollateralization and Crosscollateralization Provisions" below.
The "Principal Distribution Amount", with respect to each Distribution
Date and a Certificate Group, is the sum of (i) the Principal Funds for such
Distribution Date for such Certificate Group and (ii) any Extra Principal
Distribution Amount (defined below) for such Distribution Date for the related
Certificate Group.
The "Class A Principal Distribution Amount", for the Group I Certificates
is (i) with respect to any Distribution Date prior to the Group I Stepdown Date
(defined below) or as to which a Group I Trigger Event (defined below) exists,
100% of the Principal Distribution Amount for the Group for such Distribution
Date and (ii) with respect to any Distribution Date on or after the Group I
Stepdown Date and as to which a Group I Trigger Event does not exist, the
excess of (A) the Certificate Principal Balance of the Class A Group I
Certificates immediately prior to such Distribution Date over (B) the lesser of
(i) approximately 81.30% of the aggregate Stated Principal Balances of the
Fixed Rate Mortgage Loans on the preceding Due Date and (ii) the aggregate
Stated Principal Balances of the Fixed Rate Mortgage Loans on the preceding Due
Date less approximately $950,000. The "Class A Principal Distribution Amount"
for the Group II Certificates with respect to any Distribution Date is equal to
the Principal Distribution Amount for the Group II Certificates with respect to
such Distribution Date (subject to reduction as set forth in the Agreement).
The "Class IA-6 Distribution Amount", for any Distribution Date, is the
product of (i) a fraction, the numerator of which is the Certificate Principal
Balance of the Class IA-6 Certificates and the denominator of which is the
aggregate Certificate Principal Balance of all Class A Certificates for the
Fixed Rate Mortgage Loan Group, in each case immediately prior to such
Distribution Date, (ii) the Class A Principal Distribution Amount with respect
to the Fixed Rate Mortgage Loan Group for such Distribution Date and (iii) the
applicable percentage for such Distribution Date set forth in the following
table:
Distribution Date Occurring In Percentage
January 1999 through December 2001 ......... 0%
January 2002 through December 2003 ......... 45%
January 2004 through December 2004 ......... 80%
January 2005 through December 2005 ......... 100%
January 2006 and thereafter ................ 300%
The "Class IIA-2 Principal Distribution Amount", for any Distribution Date
prior to the Distribution Date occurring in January 2002, is the product of (i)
a fraction, the numerator of which is the Certificate Principal Balance of the
Class IIA-2 Certificates and the denominator of which is the aggregate
Certificate Principal Balance of all Group II Class A Certificates, in each
case immediately prior to such Distribution Date, (ii) the Class A Principal
Distribution Amount with respect to the Adjustable Rate Mortgage Loan Group for
such Distribution Date and (iii) the applicable percentage for such
Distribution Date set forth in the following table:
Distribution Date Occurring In Percentage
January 1999 through March 2000 .......... 0%
April 2000 through December 2001 ......... 500%
With respect to the Distribution Date occurring in January 2002 and each
Distribution Date thereafter until the Certificate Principal Balance of the
Class IIA-2 Certificates has been reduced to zero, the Class IIA-2 Principal
Distribution Amount will be the Class A Principal Distribution Amount with
respect to the Adjustable Rate Mortgage Loan Group for such Distribution Date.
The "Class IM-1 Principal Distribution Amount" with respect to any
Distribution Date on or after the Group I Stepdown Date is 100% of the
Principal Distribution Amount with respect to the Group I Certificates if the
Certificate Principal Balance of each Class of Class A Group I Certificates has
been reduced to zero and a Group I Trigger Event has occurred, or, if any Group
I Class A Certificates are still outstanding, and as long as a Group I Trigger
Event is not in effect, is the excess of (i) the sum of (A) the Certificate
Principal Balance
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<PAGE>
of the Class A Group I Certificates (after taking into account distributions of
the related Class A Principal Distribution Amount to such Class A Certificates
for such Distribution Date) and (B) the Certificate Principal Balance of the
Class IM-1 Certificates immediately prior to such Distribution Date over (ii)
the lesser of (A) approximately 89.80% of the Stated Principal Balances of the
Fixed Rate Mortgage Loans on the preceding Due Date and (B) the Stated
Principal Balances of the Fixed Rate Mortgage Loans on the preceding Due Date
less approximately $950,000. Notwithstanding the foregoing, on any Distribution
Date prior to the Group I Stepdown Date on which the Certificate Principal
Balance of each Class of Class A Group I Certificates has been reduced to zero,
the Class IM-1 Principal Distribution Amount will equal the lesser of (A) the
outstanding Certificate Principal Balance of the Class IM-1 Certificates and
(B) 100% of the Principal Distribution Amount for the Group I Certificates.
The "Class IM-2 Principal Distribution Amount" with respect to any
Distribution Date on or after the Group I Stepdown Date is 100% of the
Principal Distribution Amount with respect to the Group I Certificates if the
Certificate Principal Balance of each Class of Group I Class A Certificates and
the Class IM-1 Certificates has been reduced to zero and a Group I Trigger
Event has occurred, or, if the Group I Class A Certificates and Class IM-1
Certificates are still outstanding and as long as a Group I Trigger Event is
not in effect, is the excess of (i) the sum of (A) the Certificate Principal
Balance of the Group I Class A Certificates (after taking into account
distributions of the related Class A Principal Distribution Amount to such
Class A Certificates for such Distribution Date), (B) the Certificate Principal
Balance of the Class IM-1 Certificates (after taking into account distribution
of the Class IM-1 Principal Distribution Amount to the Class IM-1 Certificates
for such Distribution Date) and (C) the Certificate Principal Balance of the
Class IM-2 Certificates immediately prior to such Distribution Date over (ii)
the lesser of (A) approximately 94.80% of the aggregate Stated Principal
Balances of the Fixed Rate Mortgage Loans on the preceding Due Date and (B) the
Stated Principal Balances of the Fixed Rate Mortgage Loans on the preceding Due
Date less approximately $950,000. Notwithstanding the foregoing, on any
Distribution Date prior to the Group I Stepdown Date on which the aggregate
Certificate Principal Balance of each Class of Class A Group I Certificates and
the Class IM-1 Certificates has been reduced to zero, the Class IM-2 Principal
Distribution Amount will equal the lesser of (A) the outstanding Certificate
Principal Balance of the related Class IM-2 Certificates and (B) 100% of the
Principal Distribution Amount for the Group I Certificates.
The "Class IB Principal Distribution Amount" with respect to any
Distribution Date on or after the Group I Stepdown Date and as long as a Group
I Trigger Event is not in effect is the excess of (i) of the sum of (A) the
Certificate Principal Balance of the Group I Class A Certificates (after taking
into account distributions of the related Class A Principal Distribution Amount
for such Distribution Date), (B) the Certificate Principal Balance of the Class
IM-1 Certificates (after taking into account distribution of the Class IM-1
Principal Distribution Amount to the Class IM-1 Certificates for such
Distribution Date), (C) the Certificate Principal Balance of the Class IM-2
Certificates (after taking into account distributions of the Class IM-2
Principal Distribution Amount to the Class IM-2 Certificates for such
Distribution Date) and (D) the Certificate Principal Balance of the Class IB
Certificates immediately prior to such Distribution Date over (ii) the lesser
of (A) approximately 97.80% of the Stated Principal Balances of the Fixed Rate
Mortgage Loans on the preceding Due Date and (B) the Stated Principal Balances
of the Fixed Rate Mortgage Loans on the preceding Due Date less approximately
$950,000; provided, however, that after the Certificate Principal Balances of
the Group I Class A, Class IM-1 and Class IM-2 Certificates are reduced to
zero, the Class IB Principal Distribution Amount for such Distribution Date
will equal 100% of the Principal Distribution Amount for the Group I
Certificates.
The "Extra Principal Distribution Amount", for the Fixed Rate Mortgage
Loan Group and with respect to any Distribution Date, is (i) prior to the Group
I Stepdown Date, the excess of (A) the sum of (i) the aggregate Certificate
Principal Balance of the Group I Certificates and (ii) approximately $2,090,000
over (B) the Stated Principal Balances of the Fixed Rate Mortgage Loans and
(ii) on and after the Group I Stepdown Date, the excess of (A) the sum of (i)
the aggregate Certificate Principal Balance of the Group I Certificates and
(ii) the greater of (x) 2.20% of the Stated Principal Balances of the Fixed
Rate Mortgage Loans and (y) approximately $950,000 over (B) the Stated
Principal Balances of the Fixed Rate Mortgage Loans; provided, however, that if
on any Distribution Date, a Group I Trigger Event is in effect, the Extra
Principal Distribution Amount will not be reduced to the percentage of the
then-current Stated Principal Balance until the next Distribution Date
S-51
<PAGE>
on which a Group I Trigger Event is not in effect. The "Extra Principal
Distribution Amount" for the Adjustable Rate Mortgage Loan Group and with
respect to any Distribution Date is the amount determined in accordance with
the Pooling and Servicing Agreement.
The "Group I Stepdown Date" is the later to occur of (i) the Distribution
Date in January 2002 or (ii) the first Distribution Date on which (A) the
Certificate Principal Balance of the Group I Class A Certificates is less than
or equal to (B) 81.30% of the Stated Principal Balances of the Fixed Rate
Mortgage Loans.
A "Group I Trigger Event", with respect to any Distribution Date after the
Stepdown Date, exists if the product of (i) 2.5 and (ii) the quotient of (A)
the aggregate Stated Principal Balance of all Fixed Rate Mortgage Loans 60 or
more days delinquent (including Mortgage Loans in foreclosure and REO
Properties) and (B) the aggregate Stated Principal Balance of the Fixed Rate
Mortgage Loans as of the preceding Servicer Advance Date equals or exceeds the
Required Percentage. The "Required Percentage," with respect to any
Distribution Date after the Group I Stepdown Date is equal to the quotient of
(x) the excess of (i) the Stated Principal Balance of the Fixed Rate Mortgage
Loans over (ii) the aggregate Certificate Principal Balance of the Class A
Group I Certificates outstanding as of the preceding Servicer Advance Date and
(y) the aggregate Stated Principal Balance of the Fixed Rate Mortgage Loans.
The "Insured Distribution Amount" for the Group II Certificates, with
respect to any Distribution Date, is equal to the sum of (i) the Group II
Interest Distribution Amount with respect to such Distribution Date, (ii) the
amount of the Overcollateralization Deficit for the Group II Certificates, if
any, with respect to such Distribution Date and (iii) with respect to the
Distribution Date that is the Last Scheduled Distribution Date with respect to
the Class IIA-1 or Class IIA-2 Certificates, the outstanding Certificate
Principal Balance of the related Class (without duplication of the amount
specified in clause (ii)).
The "Insured Payment" for the Group II Certificates, with respect to any
Distribution Date, is equal to the amount by which the Insured Distribution
Amount with respect to such Distribution Date exceeds the Available Amount for
the Adjustable Rate Mortgage Loan Group with respect to such Distribution Date.
The "Overcollateralization Deficit" for the Group II Certificates, with
respect to any Distribution Date, is the amount by which the aggregate
Certificate Principal Balance of the Class A Group II Certificates exceeds the
aggregate Stated Principal Balance of the Adjustable Rate Mortgage Loans.
The "Group II Interest Distribution Amount" with respect to any
Distribution Date, is equal to the Current Interest and any Interest Carry
Forward Amount with respect to the Class IIA-1 and Class IIA-2 Certificates,
less any Civil Relief Act Shortfalls.
The "Available Amount" for the Adjustable Rate Mortgage Loan Group, with
respect to any Distribution Date, is equal to the sum of (i) the Interest Funds
with respect to such Loan Group (without giving effect to the amounts described
in clause (v) of the definition of such term), (ii) the Principal Funds with
respect to such Loan Group (without giving effect to the amounts described in
clause (vi) of the definition of such term) and (iii) any amounts with respect
to the Fixed Rate Mortgage Loan Group available to make payments to the Group
II Certificates as described below under "--Overcollateralization and
Crosscollateralization Provisions."
The "Premium Amount" with respect to any Distribution Date is equal to
one-twelfth of the Premium Fee Rate multiplied by the aggregate outstanding
principal balance of the Group II Certificates. The "Premium Fee Rate" is the
per annum rate on which the premium payable to the Group II Certificate Insurer
is based.
A "Civil Relief Act Shortfall" is any shortfall in interest resulting from
application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended.
Overcollateralization and Crosscollateralization Provisions
As set forth below, Interest Funds and Principal Funds with respect to a
Certificate Group not otherwise required to be distributed with respect to
principal of and interest on the Certificates of such Certificate Group (or, in
the case of the Group II Certificates, to make payment of amounts owed to the
Group II Certificate Insurer) ("Net Excess Cashflow") will be required to be
applied as an Extra Principal Distribution Amount with respect to the other
Mortgage Loan Group whenever the Stated Principal Balances of the Mortgage
Loans in such Loan Group do not exceed, by the required amount, the aggregate
Certificate Principal Balances of the related Certificates. If on any
Distribution Date, after giving effect to any Extra Principal Distribution
Amount, the aggregate Certificate Principal Balances of the Offered
Certificates with respect to the Fixed Rate Mortgage
S-52
<PAGE>
Loan Group exceed the Stated Principal Balances of the Fixed Rate Mortgage
Loans, the Certificate Principal Balances of the Subordinated Group I
Certificates will be reduced, in inverse order of seniority (beginning with the
Class IB Certificates) by an amount equal to such excess.
If the Certificate Principal Balance of a Class of Subordinated Group I
Certificates is reduced, that Class thereafter will be entitled to
distributions of interest and principal only with respect to the Certificate
Principal Balance as so reduced. On subsequent Distribution Dates, however, as
described below, Interest Funds and Principal Funds with respect to each
Certificate Group not otherwise required to be distributed with respect to
principal of and interest on the Certificates of such Certificate Group will be
applied to reduce Unpaid Realized Loss Amounts previously allocated to such
Certificates in order of seniority.
On each Distribution Date, Interest Funds and Principal Funds with respect
to the Fixed Rate Mortgage Loan Group not otherwise required to be distributed
with respect to principal of and interest on the Group I Certificates as
described above will be required to be distributed as follows until fully
distributed:
(i) the Extra Principal Distribution Amount for such Loan Group;
(ii) to the Class IM-1 Certificates, the Interest Carry Forward Amount
with respect to such Class;
(iii) to the Class IM-1 Certificates, any Unpaid Realized Loss Amount for
such Class;
(iv) to the Class IM-2 Certificates, the Interest Carry Forward Amount
with respect to such Class;
(v) to the Class IM-2 Certificates, any Unpaid Realized Loss Amount for
such Class;
(vi) to the Class IB Certificates, the Interest Carry Forward Amount with
respect to such Class;
(vii) to the Class IB Certificates, the Unpaid Realized Loss Amount for
such Class;
(viii) for distribution to the Group II Certificate Insurer and to the
Group II Certificates to the extent that any of the amounts listed below in
clauses (i) and (ii) with respect to the Adjustable Rate Mortgage Loan
Group have not otherwise been funded in full for such Distribution Date in
accordance with the priorities set forth below; and
(ix) to the Residual Certificates, the remaining amount.
On each Distribution Date, Interest Funds and Principal Funds with respect
to the Adjustable Rate Mortgage Loan Group not otherwise required to be
distributed with respect to principal of and interest on the Group II
Certificates as described above will be required to be distributed as follows
until fully distributed:
(i) to the Group II Certificate Insurer, up to the amount necessary to
reimburse the Group II Certificate Insurer for draws previously made under
the Group II Certificate Insurance Policy and any other amounts owed to the
Group II Certificate Insurer pursuant to the Insurance Agreement and not
previously reimbursed;
<PAGE>
(ii) the Extra Principal Distribution Amount for such Loan Group;
(iii) for distribution to the Group I Certificates to the extent that
any of the amounts listed above in clauses (i) through (vii) with respect
to the Fixed Rate Mortgage Loan Group have not otherwise been funded in
full for such Distribution Date in accordance with the priorities set forth
above;
(iv) to the Class IIA-1 Certificates, the Adjustable Rate Certificate
Carryover; and
(ix) to the Residual Certificates, the remaining amount.
"Applied Realized Loss Amount", with respect to any Class of the
Subordinated Group I Certificates and as to any Distribution Date, means the
sum of the Realized Losses with respect to Mortgage Loans which have been
applied in reduction of the Certificate Principal Balance of such Class.
"Realized Loss" is the excess of the Stated Principal Balance of a
defaulted Mortgage Loan over the net liquidation proceeds with respect thereto
that are allocated to principal.
"Unpaid Realized Loss Amount", with respect to any Class of the
Subordinated Group I Certificates and as to any Distribution Date, is the
excess of (i) Applied Realized Loss Amounts with respect to such Class over
(ii) the sum of all distributions in reduction of the Applied Realized Loss
Amounts on all previous Distribution Dates. Any amounts distributed to a Class
of Subordinated Group I Certificates in respect of any Unpaid Realized Loss
Amount will not be applied to reduce the Certificate Principal Balance of such
Class.
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<PAGE>
Calculation of One-Month LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period for the Class IIA-1 Certificates (each such
date, an "Interest Determination Date"), the Master Servicer will determine the
London interbank offered rate for one-month United States dollar deposits
("One-Month LIBOR") for such Accrual Period on the basis of the (i) offered
rates for one-month United States dollar deposits, as such rates appear on
Telerate page 3750, as of 11:00 a.m. (London time) on such Interest
Determination Date or (ii) if such rate does not appear on Telerate Page 3750
as of 11:00 a.m., (London time), the Master Servicer will determine such rate
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Reuters Screen LIBO Page,
as of 11:00 a.m. (London time) on such Interest Determination Date. As used in
this section, "LIBOR Business Day" means a day on which banks are open for
dealing in foreign currency and exchange in London and New York City; "Reuters
Screen LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO page on
that service for the purpose of displaying London interbank offered rates of
major banks); and "Reference Banks" means leading banks selected by the Master
Servicer 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 Reuters Screen LIBO Page on the
Interest Determination Date in question, (iii) which have been designated as
such by the Master Servicer and (iv) not controlling, controlled by, or under
common control with, the Depositor, the Master Servicer, the Seller or any
successor Subservicer.
If one-month LIBOR is determined pursuant to clause (ii) above, on each
Interest Determination Date, One-Month LIBOR for the related Accrual Period for
the Class IIA-1 Certificates will be established by the Master Servicer as
follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period for the Class IIA-1 Certificates shall be the arithmetic mean of
such offered quotations (rounded upwards if necessary to the nearest whole
multiple of 0.03125%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period shall be the higher of (x) One-Month LIBOR as determined on
the previous Interest Determination Date and (y) the Reserve Interest Rate.
The "Reserve Interest Rate" shall be the rate per annum that the Master
Servicer determines to be either (i) the arithmetic mean (rounded upwards
if necessary to the nearest whole multiple of 0.03125%) of the one-month
United States dollar lending rates which New York City banks selected by
the Master Servicer are quoting on the relevant Interest Determination Date
to the principal London offices of leading banks in the London interbank
market or, in the event that the Master Servicer can determine no such
arithmetic mean, (ii) the lowest one-month United States dollar lending
rate which New York City banks selected by the Master Servicer are quoting
on such Interest Determination Date to leading European banks.
The establishment of One-Month LIBOR on each Interest Determination Date
by the Master Servicer and the Master Servicer's calculation of the rate of
interest applicable to the Class IIA-1 Certificates for the related Accrual
Period for the Class IIA-1 Certificates shall (in the absence of manifest
error) be final and binding.
Reports to Certificateholders
On each Distribution Date, the Master Servicer will forward to each
Certificateholder, the Subservicer, the Trustee, the Depositor and the Group II
Certificate Insurer a statement generally setting forth, among other
information:
(i) the amount of the related distribution to holders of the
Certificates allocable to principal, separately identifying (A) the
aggregate amount of any principal prepayments included therein, (B) the
aggregate amount of all scheduled payments of principal included therein
and (C) any Extra Principal Distribution Amount;
(ii) the amount of such distribution to holders of the Certificates
allocable to interest;
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(iii) the Interest Carry-Forward Amount;
(iv) the Certificate Principal Balance of the Certificates after giving
effect to the distribution of principal on such Distribution Date;
(v) the aggregate outstanding principal balance of the Offered
Certificates for the following Distribution Date;
(vi) the amount of the Servicing Fee paid to or retained by the
Subservicer for the related Due Period;
(vii) the amount of the Master Servicer Fee paid to or retained by the
Master Servicer for the related Distribution Date;
(viii) the Pass-Through Rate for each Class of Certificates for such
Distribution Date;
(ix) the amount of Advances included in the distribution on such
Distribution Date;
(x) the amount of any Insured Payment included in the distribution on
such Distribution Date;
(xi) the amount of any reimbursement or other payment made to the Group
II Certificate Insurer on such Distribution Date;
(xii) the number and aggregate principal amounts of Mortgage Loans in
each Loan Group (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 31 to 60 days, (2) 61 to 90 days and (3) 91 or more days, and (B) in
foreclosure and delinquent (1) 31 to 60 days, (2) 61 to 90 days and (3) 91
or more days, in each case as of the close of business on the last day of
the calendar month preceding such Distribution Date;
(xiii) with respect to any Mortgage Loan that became an REO Property in
each Loan Group during the preceding calendar month, the loan number and
Stated Principal Balance of such Mortgage Loan as of the close of business
on the fifteenth day of the month of such Distribution Date (or, if not a
Business Day, the immediately preceding Business Day) (the "Determination
Date") and the date of acquisition thereof;
(xiv) whether a Group I Trigger Event has occurred;
(xv) the total number and principal balance of any REO Properties in
each Loan Group as of the close of business on the related Determination
Date; and
(xvi) any Adjustable Rate Certificate Carryover with respect to such
Distribution Date, any Adjustable Rate Certificate Carryover paid and all
remaining Adjustable Rate Certificate Carryover remaining on each Class of
the Adjustable Rate Certificates on such Distribution Date.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will prepare and deliver to each
Certificateholder of record during the previous calendar year a statement
containing information necessary to enable Certificateholders to prepare their
tax returns. Such statements will not have been examined and reported upon by
an independent public accountant.
Amendment
The Pooling and Servicing Agreement may be amended by the Depositor, the
Subservicer, the Master Servicer, the Group II Certificate Insurer and the
Trustee, without the consent of Certificateholders, for any of the purposes set
forth under "Description of the Certificates-Miscellaneous-Amendment" in the
Prospectus. In addition, the Pooling and Servicing Agreement may be amended by
the Depositor, the Subservicer, the Master Servicer, the Group II Certificate
Insurer and the Trustee and the holders of a Majority in Interest of each Class
of Certificates affected thereby 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 may (i) reduce in
any manner the amount of, or delay the timing of, payments required to be
distributed on any Certificate without the consent of the Holder of such
Certificate; (ii) adversely affect in any material respect the interests of the
holders of any Class of Certificates in a manner other than as described in
clause (i) above, without the consent of the holders of Certificates of such
Class evidencing, as to such Class, Percentage Interests aggregating 66%; or
(iii) reduce the aforesaid percentage of aggregate outstanding principal
amounts of Certificates of each Class, the holders of which are required to
consent to any such amendment, without the consent of the holders of all
Certificates of such Class.
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Optional Termination
The Master Servicer will have the right (but not the obligation) to
repurchase all remaining Mortgage Loans and REO Properties in either Loan Group
and thereby effect early retirement of all the Certificates of the related
Certificate Group, subject to the Stated Principal Balance of the Mortgage
Loans and REO Properties in such Loan Group at the time of repurchase being
less than or equal to 10% of the principal balance of the Mortgage Loans in
such Loan Group as of the Cut-off Date (an "Optional Termination Date"). In the
event such option is exercised by the Depositor, the repurchase will be made at
a price equal to the sum of (i) 100% of the Stated Principal Balance of each
Mortgage Loan (other than in respect of REO Property) plus accrued interest
thereon at the applicable Mortgage Rate, net of the Servicing Fee and any
unreimbursed Advances, (ii) the appraised value of any REO Property (up to the
Stated Principal Balance of the related Mortgage Loan), and (iii) any
unreimbursed out-of-pocket costs and expenses and the principal portion of
Advances, in each case previously incurred by the Subservicer in the
performance of its servicing obligations. Proceeds from such repurchase will be
distributed to the Certificateholders in the related Certificate Group in the
priority described above. The proceeds from any such distribution may not be
sufficient to distribute the full amount to which each Class of Certificates is
entitled if the purchase price is based in part of the appraised value of any
REO Property and such appraised value is less than the Stated Principal Balance
of the related Mortgage Loan. Any repurchase of the Mortgage Loans and REO
Properties will result in an early retirement of the Certificates in the
related Certificate Group. In addition, if an event of default occurs under the
Insurance Agreement (defined herein) the Group II Certificate Insurer will have
the option to pay off some or all of the Group II Certificates.
Optional Purchase of Defaulted Loans
As to any Mortgage Loan which is delinquent in payment by 91 days or more,
the Master Servicer may, at its option, purchase such Mortgage Loan at a price
equal to 100% of the Stated Principal Balance thereof plus accrued interest
thereon at the applicable Mortgage Rate, from the date through which interest
was last paid by the related mortgagor or advanced to the first day of the
month in which such amount is to be distributed; provided, however, that with
respect to the Adjustable Rate Mortgage Loan Group, such purchases, in the
aggregate, may not total more than 3% of the aggregate Stated Principal Balance
of the Adjustable Rate Mortgage Loans as of the Cut-off Date without the
consent of the Group II Certificate Insurer.
Events of Default
Events of Default will consist of: (i) any failure by the Subservicer to
deposit in the Collection Account or the Certificate Account the required
amounts or remit to the Trustee any payment (including an Advance required to
be made under the terms of the Pooling and Servicing Agreement) which continues
unremedied for two Business Days after written notice of such failure shall
have been given to the Subservicer and the Depositor by the Trustee or the
Depositor, or to the Subservicer, the Depositor and the Trustee by the holders
of Certificates evidencing not less than 25% of the Voting Rights evidenced by
the Certificates; (ii) any failure by the Subservicer to observe or perform in
any material respect any other of its covenants or agreements, or any breach of
a representation or warranty made by the Subservicer in the Pooling and
Servicing Agreement, which continues unremedied for 60 days after the giving of
written notice of such failure to the Subservicer by the Trustee, the Master
Servicer, the Group II Certificate Insurer or the Depositor, or to the
Subservicer, the Depositor, the Master Servicer and the Trustee by the holders
of Certificates evidencing not less than 25% of the Voting Rights evidenced by
the Certificates; (iii) insolvency, readjustment of debt, marshaling of assets
and liabilities or similar proceedings, and certain actions by or on behalf of
the Subservicer indicating its insolvency or inability to pay its obligations
or (iv) failure of the Mortgage Pool to meet certain delinquency and loss
tests. As of any date of determination, (i) holders of the Offered Certificates
will be allocated 95% of all Voting Rights, allocated among the Offered
Certificates in proportion to their respective outstanding Certificate
Principal Balances and (ii) holders of the Residual Certificates will be
allocated all of the remaining Voting Rights. Voting Rights will be allocated
among the Certificates of each such Class in accordance with their respective
Percentage Interests.
Rights upon Event of Default
So long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, the Trustee shall, at the direction of the Group II
Certificate Insurer, terminate all of the rights and obligations of the
Subservicer under the Pooling and Servicing Agreement and in and to the
Mortgage Loans, whereupon the Trustee
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(or another successor designated by the Group II Certificate Insurer) will
succeed to all of the responsibilities and duties of the Subservicer under the
Pooling and Servicing Agreement, including the obligation to make Advances. No
assurance can be given that termination of the rights and obligations of the
Subservicer under the Pooling and Servicing Agreement would not adversely
affect the servicing of the Mortgage Loans, including the delinquency
experience of the Mortgage Loans.
No Certificateholder, solely by virtue of such Holder's status as a
Certificateholder, will have any right under the Pooling and Servicing
Agreement to institute any proceeding with respect thereto, unless such Holder
previously has given to the Trustee written notice of the continuation of an
Event of Default and unless the holders of Certificates having not less than
25% of the Voting Rights evidenced by the Certificates have made written
request to the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute any such proceeding.
The Trustee
Citibank, N.A. will be the Trustee under the Pooling and Servicing
Agreement. The Depositor, the Master Servicer and the Subservicer may maintain
other banking relationships in the ordinary course of business with the
Trustee. The Corporate Trust Office of the Trustee is located at 111 Wall
Street, New York, New York 10043, or at such other addresses as the Trustee may
designate from time to time.
THE GROUP II CERTIFICATE INSURANCE POLICY
The following summary of the terms of the Group II Certificate Insurance
Policy does not purport to be complete and is qualified in its entirety by
reference to the Group II Certificate Insurance Policy. A copy of the Group II
Certificate Insurance Policy may be obtained, upon request, from the Depositor.
Simultaneously with the issuance of the Group II Certificates, the Group
II Certificate Insurer will deliver the Group II Certificate Insurance Policy
to the Trustee for the benefit of the Class A Group II Certificateholders.
Under the Group II Certificate Insurance Policy, the Group II Certificate
Insurer will irrevocably and unconditionally guarantee payment on each
Distribution Date to the Trustee for the benefit of the Holders of the Class A
Group II Certificates of the Insured Distribution Amount with respect to the
Class A Group II Certificates calculated in accordance with the original terms
of the Class A Group II Certificates when issued and without regard to any
amendment or modification of the Class A Group II Certificates or the Pooling
and Servicing Agreement, except amendments or modifications to which the Group
II Certificate Insurer has given its prior written consent. The Insured
Distribution Amount for each Distribution Date will be the sum of (i) the Group
II Interest Distribution Amount with respect to such Distribution Date, (ii)
the Overcollateralization Deficit for the Group II Certificates, if any, with
respect to such Distribution Date, and (iii) with respect to the Distribution
Date that is the Last Scheduled Distribution Date with respect to the Class
IIA-1 or Class IIA-2 Certificates, the outstanding Certificate Principal
Balance of the related Class (without duplication to the amount specified in
clause (ii)). In addition, with respect to any Distribution Date occurring on a
date when an event of default under the Insurance Agreement (described below)
has occurred and is continuing or a date on or after the first date on which a
claim is made under the Group II Certificate Insurance Policy, the Group II
Certificate Insurer, at its sole option, may pay any or all of the outstanding
Certificate Principal Balance of the Class A Group II Certificates. Prepayment
Interest Shortfalls, Available Funds Cap Carry-Forward Amounts and Civil Relief
Act Shortfalls will not be covered by payments under the Group II Certificate
Insurance Policy.
Payment of claims under the Group II Certificate Insurance Policy will be
made by the Group II Certificate Insurer following Receipt by the Group II
Certificate Insurer of the appropriate notice for payment on the later to occur
of (a) 12:00 noon, New York City time, on the second Business Day following
Receipt of such notice for payment and (b) 12:00 noon, New York City time, on
the relevant Distribution Date.
If any payment of an amount guaranteed by the Group II Certificate Insurer
pursuant to the Group II Certificate Insurance Policy is avoided as a
preference payment under applicable bankruptcy, insolvency, receivership or
similar law, the Group II Certificate Insurer will pay such amount out of the
funds of the Group II Certificate Insurer on the later of (a) the date when due
to be paid pursuant to the Order referred to below or (b)
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the first to occur of (i) the fourth Business Day following Receipt by the
Group II Certificate Insurer from the Master Servicer or the Trustee of (A) a
certified copy of the order of the court or other governmental body which
exercised jurisdiction to the effect that a Class A Group II Certificateholder
is required to return principal or interest distributed with respect to a Class
A Group II Certificate during the term of the Group II Certificate Insurance
Policy because such distributions were avoidable preferences under applicable
bankruptcy law (the "Order"), (B) a certificate of the Class A Group II
Certificateholder(s) that the Order has been entered and is not subject to any
stay, and (C) an assignment duly executed and delivered by the Class A Group II
Certificateholder(s), in such form as is reasonably required by the Group II
Certificate Insurer and provided to the Class A Group II Certificateholder(s)
by the Group II Certificate Insurer, irrevocably assigning to the Group II
Certificate Insurer all rights and claims of the Class A Group II
Certificateholder(s) relating to or arising under the Class A Group II
Certificates against the debtor which made such preference payment or otherwise
with respect to such preference payment, or (ii) the date of Receipt by the
Group II Certificate Insurer from the 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 Group II Certificate Insurer shall have Received written
notice from the 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 Trustee or any Class A Group II Certificateholder
directly (unless a Class A Group II Certificateholder 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 Trustee for distribution to such Class A Group II Certificateholder upon
proof of such payment reasonably satisfactory to the Group II Certificate
Insurer).
The terms "Receipt" and "Received," with respect to the Group II
Certificate Insurance Policy, means actual delivery to the Group II Certificate
Insurer and to its fiscal agent appointed by the Group II Certificate Insurer
at its option, if any, prior to 12:00 p.m., New York City time, on a Business
Day; delivery either on a day that is not a Business Day or after 12:00 p.m.,
New York City time, shall be deemed to be Receipt on the next succeeding
Business Day. If any notice or certificate given under the Group II Certificate
Insurance Policy by the 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 Group II Certificate Insurer or the fiscal agent shall promptly so
advise the Trustee and the Trustee may submit an amended notice.
Under the Group II Certificate Insurance 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 or the State of New York, are
authorized or obligated by law or executive order to be closed. The Group II
Certificate Insurer's obligations under the Group II Certificate Insurance
Policy to make Insured Payments shall be discharged to the extent funds are
transferred to the Trustee as provided in the Group II Certificate Insurance
Policy, whether or not such funds are properly applied by the Trustee.
The Group II Certificate Insurer shall be subrogated to the rights of each
Class A Group II Certificateholder to receive payments of principal and
interest, as applicable, with respect to distributions on the Class A Group II
Certificates to the extent of any payment by the Group II Certificate Insurer
under the Group II Certificate Insurance Policy. To the extent the Group II
Certificate Insurer makes Insured Payments, either directly or indirectly (as
by paying through the Trustee), to the Class A Group II Certificateholders, the
Group II Certificate Insurer will be subrogated to the rights of the Class A
Group II Certificateholders, as applicable, with respect to such Insured
Payment and shall be deemed to the extent of the payments so made to be a
registered Class A Group II Certificateholder for purposes of payment.
Claims under the Group II Certificate Insurance Policy will rank equally
with any other unsecured debt and unsubordinated obligations of the Group II
Certificate Insurer except for certain obligations in respect of tax and other
payments to which preference is or may become afforded by statute. Claims
against the Group II Certificate Insurer under the Group II Certificate
Insurance Policy constitute pari passu claims against the general assets of the
Group II Certificate Insurer. The terms of the Group II Certificate Insurance
Policy cannot be modified or altered by any other agreement or instrument, or
by the merger, consolidation or dissolution of the Depositor. The Group II
Certificate Insurance Policy may not be canceled or revoked prior to payment in
full of the Class A Group II Certificates. The Group II Certificate Insurance
Policy is governed by the laws of the State of New York. The Group II
Certificate Insurance Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
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To the fullest extent permitted by applicable law, the Group II
Certificate Insurer agrees under the Group II Certificate Insurance Policy not
to assert, and waives, for the benefit of each Class A Group II
Certificateholder, all its rights (whether by counterclaim, setoff or
otherwise) and defense (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 Group II Certificate Insurer
to avoid payment of its obligations under the Group II Certificate Insurance
Policy in accordance with the express provisions of the Group II Certificate
Insurance Policy.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
Group II Certificate Insurer default exists, the Group II Certificate Insurer
shall be deemed to be the Class A Group II Certificateholders for all purposes
(other than with respect to payment on the Certificates), will be entitled to
exercise all rights of the Class A Group II Certificateholders thereunder,
without the consent of the Class A Group II Certificateholders, and the Class A
Group II Certificateholders may exercise such rights only with the prior
written consent of the Group II Certificate Insurer. In addition, the Group II
Certificate Insurer will, as a third party beneficiary to the Pooling and
Servicing Agreement, have, among others, the following rights: (i) the right to
give notices of breach or to terminate the rights and obligations of the
Subservicer under the Pooling and Servicing Agreement in the event of an Event
of Default by the Servicer and to institute proceedings against the
Subservicer; (ii) the right to consent to or direct any waivers of defaults by
the Subservicer; (iii) the right to remove the Trustee pursuant to the Pooling
and Servicing Agreement; (iv) the right to direct the actions of the Trustee
during the continuation of a Subservicer default; (v) the right to require the
Seller to repurchase Mortgage Loans for breach of representation and warranty
or defect in documentation, (vi) the right to direct foreclosures upon the
failure of the Subservicer to do so in accordance with the Pooling and
Servicing Agreement; (vii) the right to direct all matters relating to a
bankruptcy or other insolvency proceeding involving the Seller; and (viii) the
right to direct the Trustee to investigate certain matters. The Group II
Certificate Insurer's consent will be required prior to, among other things,
(i) the removal of the Trustee, (ii) the appointment of any successor Trustee
or Subservicer or (iii) any amendment to the Pooling and Servicing Agreement.
The Depositor, the Master Servicer and the Group II Certificate Insurer
will enter into an Insurance and Indemnity Agreement (the "Insurance
Agreement") pursuant to which the Master Servicer will agree to reimburse, with
interest, the Group II Certificate Insurer for amounts paid pursuant to claims
under the Group II Certificate Insurance Policy. The Master Servicer will
further agree to pay the Group II Certificate Insurer all reasonable charges
and expenses which the Group II Certificate Insurer may pay or incur relative
to any amounts paid under the Group II Certificate Insurance Policy or
otherwise in connection with the transaction and to indemnify the Group II
Certificate Insurer against certain liabilities. Except to the extent provided
therein, amounts owing under the Insurance Agreement will be payable solely
from the Trust Fund. An "event of default" under the Insurance Agreement will
constitute an Event of Default under the Pooling and Servicing Agreement and
allow the Group II Certificate Insurer, among other things, to direct the
Trustee to replace the Master Servicer. An "event of default" under the
Insurance Agreement includes (i) the Master Servicer's failure to pay when due
any amount owed under the Insurance Agreement or certain other documents, (ii)
the inaccuracy or incompleteness in any material respect of any representation
or warranty of the Master Servicer or the Depositor in the Insurance Agreement,
the Pooling and Servicing Agreement or certain other documents, (iii) the
Seller's, the Depositor's or the Master Servicer's failure to perform or to
comply with any covenant or agreement in the Insurance Agreement, the Pooling
and Servicing Agreement and certain other documents, (iv) a finding or ruling
by a governmental authority or agency that the Insurance Agreement, the Pooling
and Servicing Agreement or certain other documents are not binding on the
Master Servicer or the Depositor, (v) the Master Servicer's or the Depositor's
failure to pay its debts in general or the occurrence of certain events of
insolvency or bankruptcy with respect to the Master Servicer, (vi) the
occurrence of certain "performance test violations" designed to measure the
performance of the Mortgage Loans and (vii) a claim for payment is made under
the Group II Certificate Insurance Policy.
THE GROUP II CERTIFICATE INSURER
The following information has been obtained from Financial Security
Assurance Inc. (the "Group II Certificate Insurer" or "Financial Security") and
has not been verified by the Depositor, the Master Servicer or either
Underwriter. No representation or warranty is made by the Depositor, the Master
Servicer or either Underwriter with respect thereto.
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General
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in financial guaranty insurance business in all 50 states, the District
of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those securities
- -- in consideration for the payment of a premium to the insurer. Financial
Security and its subsidiaries principally insure asset-backed, collateralized
and municipal securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or other
assets having an ascertainable cash flow or market value. Collateralized
securities include public utility first mortgage bonds and sale/leaseback
obligation bonds. Municipal securities consist largely of general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. Financial Security insures both newly issued securities sold in
the primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings,
Inc., MediaOne Capital Corporation, The Tokio Marine and Fire Insurance Co.,
Ltd. and EXEL Limited. No shareholder of Holdings is obligated to pay any debt
of Financial Security or any claim under any insurance policy issued by
Financial Security or to make any additional contribution to the capital of
Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security 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, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with other reinsurers under various quota share treaties and
on a transaction-by-transaction basis. Such reinsurance is utilized by
Financial Security as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit Financial
Security's obligations under any financial guaranty insurance policy.
Ratings
Financial Security's insurance financial strength is rated "Aaa" by
Moody's. Financial Security's insurer financial strength is rated "AAA" by
Standard and Poor's and Standard & Poor's (Australia) Pty. Ltd. Financial
Security's claims-paying ability is rated "AAA" by Fitch IBCA, Inc. and Japan
Rating and Investment Information, Inc. Such ratings reflect only the views of
the respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Ratings."
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Capitalization
The following table sets forth the capitalization of Financial Security
and its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of September 30, 1998, as well as such capitalization as adjusted
to give effect to certain transactions entered into during November 1998:
<TABLE>
<CAPTION>
September 30, 1998
(Unaudited)
Actual As Adjusted(1)
------------- ---------------
(In thousands)
<S> <C> <C>
Deferred Premium Revenue (net of prepaid reinsurance premiums) .......... $ 480,089 $ 480,089
Surplus Notes ........................................................... 50,000 130,000
Minority Interest ....................................................... -- 20,000
Shareholder's Equity:
Common Stock ........................................................... 15,000 15,000
Additional Paid-In Capital ............................................. 614,787 684,787
Accumulated other Comprehensive Income (net of deferred income taxes) 41,923 41,923
Accumulated Earnings ................................................... 326,145 326,145
Total Shareholder's Equity .............................................. 997,855 1,067,855
---------- ----------
Total Deferred Premium Revenue, Surplus Notes, Minority Interest and
Shareholder's Equity ................................................... $1,527,944 $1,697,944
========== ==========
</TABLE>
- ------------
(1) Adjusted to give effect to the November 1998 (a) purchase by Holdings of
$80 million of surplus notes from Financial Security in connection with
the formation of a new indirect Bermuda subsidiary of Financial Security,
initially capitalized with $100 million, including a $20 million minority
interest owned by EXEL Limited, and (b) contribution by Holdings to the
capital of Financial Security of approximately $70 million, representing a
portion of the proceeds from the sale by Holdings of $100 million of
6.950% Senior Quarterly Income Debt Securities due 2098.
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security and Subsidiaries, and
the notes thereto, incorporated by reference herein. Financial Security'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 Commission by Holdings
and may be reviewed at the EDGAR website maintained by the Commission and at
Holding's website, http://www.FSA.com. Copies of the statutory quarterly and
annual statements filed with the State of New York Insurance Department by
Financial Security are available upon request to the State of New York
Insurance Department.
Incorporation of Certain Documents by Reference
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference, "the financial statements of
Financial Security included in, or as exhibits to, the following documents,
which have been filed with the Securities and Exchange Commission by Financial
Security Assurance Holdings Ltd. ("Holdings"), are hereby incorporated by
reference in this Prospectus Supplement.
(a) Annual Report on Form 10-K for the year ended December 31, 1997, and
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998.
All financial statements of Financial Security included in documents filed
by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Offered 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 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 Seller
at 343 Thornall Street, Edison, New Jersey 08837.
S-61
<PAGE>
The Depositor hereby undertakes that for purposes of determining any
liability under the Securities Act of 1933, as amended, each filing of the
financial statements of Financial Security 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 of the Depositor relating to the Offered Certificates shall be deemed
to be a new registration statement relating to the Offered Certificates, and
the offering of such Certificates at that time shall be deemed to be the
initial bona fide offering thereof.
Insurance Regulation
Financial Security 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, Financial Security 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, Financial Security 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 policyholders, establishes contingency, loss and
unearned premium reserve requirements for each such insurer, and limits the
size of individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, 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.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
General
The weighted average life of, and the yield to maturity on each Class of
the Offered Certificates will be directly related to the rate of payment of
principal (including prepayments) of the Mortgage Loans in the related Loan
Group. The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social,
legal and other factors and has fluctuated considerably in recent years. In
addition, the rate of principal prepayments may differ among pools of mortgage
loans at any time because of specific factors relating to the mortgage loans in
the particular pool, including, among other things, the age of the mortgage
loans, the geographic locations of the properties securing the loans, the
extent of the mortgagor's equity in such properties, and changes in the
mortgagors' housing needs, job transfers and employment status, as well as
whether the related mortgage loan is subject to a prepayment penalty. In
addition, the Seller may solicit mortgagors to refinance their Mortgage Loans
for a variety of reasons. Any such refinancings will affect the rate of
principal prepayments on the Mortgage Pool.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors who purchase the Offered Certificates at prices
other than par, even if the average rate of principal prepayments is consistent
with the expectations of investors. In general, the earlier the payment of
principal of the Mortgage Loans the greater the effect on an investor's yield
to maturity. As a result, the effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the
Offered Certificates may not be offset by a subsequent like reduction (or
increase) in the rate of principal prepayments. Investors must make their own
decisions as to the appropriate prepayment assumptions to be used in deciding
whether to purchase any of the Offered Certificates. The Depositor does not
make any representations or warranties as to the rate of prepayment or the
factors to be considered in connection with such determinations.
The weighted average life and yield to maturity of each Class of Offered
Certificates will also be influenced by the amount of Net Excess Cashflow
generated by the Mortgage Loans and applied in reduction of the Certificate
Principal Balances of such Certificates. The level of Net Excess Cashflow
available on any Distribution Date to be applied in reduction of the
Certificate Principal Balances of the Class A Certificates will be influenced
by, among other factors, (i) the overcollateralization level of the assets in
the related Loan Group at such time (i.e., the extent to which interest on the
related Mortgage Loans is accruing on a higher Stated Principal Balance than
the Certificate Principal Balance of the related Class A Certificates), (ii)
the delinquency and
S-62
<PAGE>
default experience of the related Mortgage Loans, (iii) the level of One-Month
LIBOR and the Mortgage Index for the Adjustable Rate Mortgage Loans, and (iv)
the provisions of the Pooling and Servicing Agreement that permit Net Excess
Cashflow to be distributed to the Residual Certificates when required
overcollateralization levels have been met. To the extent that greater (or
lesser) amounts of Net Excess Cashflow are distributed in reduction of the
Certificate Principal Balances of a Class of Offered Certificates, the weighted
average life thereof can be expected to shorten (or lengthen). No assurance,
however, can be given as to the amount of Net Excess Cashflow distributed at
any time or in the aggregate. See "Description of the Offered Certificates-
Overcollateralization and Crosscollateralization Provisions."
The Class IA-6 Certificates are not expected to receive distributions of
principal until the Distribution Date in January 2002 (except as otherwise
described herein). Thereafter, the relative entitlement of the Class IA-6
Certificates to payments in respect of principal is subject to increase in
accordance with the calculation of the Class IA-6 Distribution Amount. See
"Description of the Certificates--Distributions."
The Class IIA-2 Certificates are not expected to receive distributions of
principal until the Distribution Date in April 2000 (except as otherwise
described herein). Thereafter, the relative entitlement of the Class IIA-2
Certificates to payments in respect of principal is subject to increase in
accordance with the calculation of the Class IIA-2 Distribution Amount. See
"Description of the Certificates--Distributions."
Prepayments and Yields for Offered Certificates
Generally, if purchased at other than par, the yield to maturity on the
Offered Certificates will be affected by the rate of the payment of principal
of the Mortgage Loans in the related Loan Group. If the actual rate of payments
on the Mortgage Loans in a Loan Group is slower than the rate anticipated by an
investor who purchases related Offered Certificates at a discount, the actual
yield to such investor will be lower than such investor's anticipated yield. If
the actual rate of payments on the Mortgage Loans in a Loan Group is faster
than the rate anticipated by an investor who purchases related Offered
Certificates at a premium, the actual yield to such investor will be lower than
such investor's anticipated yield.
All the Mortgage Loans in the Fixed Rate Mortgage Loan Group are fixed
rate mortgage loans. In general, if prevailing interest rates fall
significantly below the interest rates on fixed rate mortgage loans, such
mortgage loans are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest rates on such mortgage loans.
Conversely, if prevailing interest rates rise appreciably above the interest
rates on fixed rate mortgage loans, such mortgage loans are likely to
experience a lower prepayment rate than if prevailing rates remain at or below
the interest rates on such mortgage loans.
All the Mortgage Loans in the Adjustable Rate Mortgage Loan Group are
adjustable rate Mortgage Loans. As is the case with conventional fixed rate
mortgage loans, adjustable rate mortgage loans may be subject to a greater rate
of principal prepayments 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 lower
interest rates may encourage mortgagors to refinance their adjustable rate
mortgage loans to a lower fixed interest rate. In addition, depending on
prevailing interest rates, adjustable rate mortgage loans could experience
higher prepayment rates at or near the time of their initial interest rate
adjustment. Nevertheless, no assurance can be given as to the level of
prepayment that the Mortgage Loans will experience.
Although the Mortgage Rates on the Mortgage Loans in the Adjustable Rate
Mortgage Loan Group are subject to adjustment, the Mortgage Rates adjust less
frequently than the Pass-Through Rate on the Class IIA-1 Certificates and
adjust by reference to the Mortgage Index. Changes in One-Month LIBOR may not
correlate with changes in the Mortgage Index and also may not correlate with
prevailing interest rates. It is possible that an increased level of One-Month
LIBOR could occur simultaneously with a lower level of prevailing interest
rates which would be expected to result in faster prepayments, thereby reducing
the weighted average life of the Group II Certificates. The Mortgage Rate
applicable to the Mortgage Loans in the Adjustable Rate Mortgage Loan Group and
any Adjustment Date will be based on the Mortgage Index value most recently
announced generally as of a date 45 days prior to such Adjustment Date. Thus,
if the Mortgage Index value with respect to a
S-63
<PAGE>
Mortgage Loan in the Adjustable Rate Mortgage Loan Group rises, the lag in time
before the corresponding Mortgage Rate increases will, all other things being
equal, slow the upward adjustment of the Available Funds Cap on the Class IIA-1
Certificates. See "The Mortgage Pool."
Although the Pooling and Servicing Agreement provides a mechanism to pay
any Adjustable Rate Certificate Carryover, there is no assurance that funds
will be available to pay such amount. The ratings assigned to the Class IIA-1
Certificates do not address the likelihood of the payment of any such amount,
nor does the Group II Certificate Insurance Policy cover the payment of any
such amount.
The extent to which the yield to maturity of the Offered Certificates may
vary from the anticipated yield will depend upon the degree to which it is
purchased at a discount or premium and, correspondingly, the degree to which
the timing of payments thereon is sensitive to prepayments, liquidations and
purchases of the Mortgage Loans in the related Loan Group. In particular, in
the case of an Offered Certificate purchased at a discount, an investor should
consider the risk that a slower than anticipated rate of principal payments,
liquidations and purchases of the Mortgage Loans in the related Loan Group
could result in an actual yield to such investor that is lower than the
anticipated yield and, in the case of an Offered Certificate purchased at a
premium, the risk that a faster than anticipated rate of principal payments,
liquidations and purchases of such Mortgage Loans in the related Loan Group
could result in an actual yield to such investor that is lower than the
anticipated yield.
The "Last Scheduled Distribution Date" for each Class of the Offered
Certificates is the date on which the Certificate Principal Balance thereof
would be reduced to zero assuming, among other things, that no prepayments are
received on the Mortgage Loans in the related Loan Group and that scheduled
monthly payments of principal of and interest on each of such Mortgage Loans
are timely received and that excess interest is not used to make accelerated
payments of principal. The Last Scheduled Distribution Date for each Class of
Offered Certificates is set forth in the chart appearing on page S-3. The
actual final Distribution Date with respect to each Class of Offered
Certificates could occur significantly earlier than its Last Scheduled
Distribution Date because (i) prepayments are likely to occur which will be
applied to the payment of the Certificate Principal Balances thereof, (ii)
excess interest to the extent available will be applied as an accelerated
payment of principal on the Offered Certificates as described herein, (iii) the
Master Servicer may purchase all the Mortgage Loans in a Loan Group when
outstanding Stated Principal Balances thereof has declined to 10% or less of
the Cut-off Date Principal Balance of such Loan Group and (iv) in the case of
the Class A Group II Certificates, the Group II Certificate Insurer has the
option, upon the occurrence of an event of default under the Insurance
Agreement, to pay any or all of the Class A Group II Certificates.
Prepayments on mortgage loans are commonly measured relative to a
prepayment model or standard. The models used in this Prospectus Supplement
("Prepayment Models") are based on an assumed rate of prepayment each month of
the then unpaid principal balance of a pool of mortgage loans similar to the
Mortgage Loans in each Loan Group. For the Fixed Rate Mortgage Loan Group, the
Prepayment Model used in this Prospectus Supplement ("Home Equity Prepayment"
or "HEP") is a prepayment assumption which represents an assumed rate of
prepayment each month relative to the then outstanding principal balance of a
pool of mortgage loans for the life of such mortgage loans. 23% HEP, which
represents 100% of the Prepayment Model for the Fixed Rate Mortgage Loan Group,
assumes prepayment rates of 2.3% per annum of the then outstanding principal
balance of the related Mortgage Loans in the first month of the life of such
Mortgage Loans and an additional 2.3% per annum in each month thereafter up to
and including the tenth month. Beginning in the eleventh month and in each
month thereafter during the life of such Mortgage Loans, 23% HEP assumes a
constant prepayment rate of 23% per annum. For the Adjustable Rate Mortgage
Loan Group, the Prepayment Model used in this Prospectus Supplement ("Constant
Prepayment Rate" or "CPR") is a prepayment assumption which represents a
constant assumed rate of prepayment each month relative of the then outstanding
principal balance of a pool of mortgage loans for the life of such mortgage
loans. 27% CPR, which represents 100% of the Prepayment Model for the
Adjustable Rate Mortgage Loan Group, assumes a constant prepayment rate of 27%
per annum.
As used in the following tables "0% of the Prepayment Model" assumes no
prepayments on the Mortgage Loans; "80% of the Prepayment Model" assumes the
Mortgage Loans will prepay at rates equal to 80% of the related Prepayment
Model; "100% of the Prepayment Model" assumes the Mortgage Loans will prepay at
rates
S-64
<PAGE>
equal to 100% of the related Prepayment Model; "150% of the Prepayment Model"
assumes the Mortgage Loans will prepay at rates equal to 150% of the related
Prepayment Model; and "200% of the Prepayment Model" assumes the Mortgage Loans
will prepay at rates equal to 200% of the Prepayment Model assumed prepayment
rates.
There is no assurance, however, that prepayments on the Mortgage Loans
will conform to any level of the Prepayment Model, and no representation is
made that the Mortgage Loans will prepay at the prepayment rates shown or any
other prepayment rate. The rate of principal payments on pools of mortgage
loans is influenced by a variety of economic, geographic, social and other
factors, including the level of interest rates. Other factors affecting
prepayment of mortgage loans include changes in obligors' housing needs, job
transfers, unemployment and the solicitation of mortgagors to refinance their
mortgage loans. In the case of mortgage loans in general, if prevailing
interest rates fall significantly below the interest rates on such mortgage
loans, the mortgage loans are likely to be subject to higher prepayment rates
than if prevailing interest rates remain at or above the rates borne by such
mortgage loans. Conversely, if prevailing interest rates rise above the
interest on such mortgage loans, the rate of prepayment would be expected to
decrease.
The following tables have been prepared on the basis of the following
assumptions (collectively, the "Modeling Assumptions"): (i) the Mortgage Loans
of the related Loan Group prepay at the indicated percentage of the related
Prepayment Model; (ii) distributions on the Offered Certificates are received,
in cash, on the 25th day of each month, commencing January 25, 1999, in
accordance with the payment priorities defined herein; (iii) no defaults or
delinquencies in, or modifications, waivers or amendments respecting, the
payment by the Mortgagors of principal and interest on the Mortgage Loans
occur; (iv) scheduled payments are assumed to be received on the related Due
Date commencing on December 1, 1998, and prepayments represent payment in full
of individual Mortgage Loans and are assumed to be received on the last day of
each Due Period, commencing January 1, 1999, and include 30 days' interest
thereon; (v) the level of Six-Month LIBOR remains constant at 5.1536%, and the
level of One-Month LIBOR remains constant at 5.5455%; (vi) the Pass-Through
Rates for the Group II Certificates remain constant at the rates applicable
prior to the related Optional Termination Date; (vii) the Closing Date for the
Certificates is December 18, 1998; (viii) the Mortgage Rate for each Adjustable
Rate Mortgage Loan is adjusted on its next Mortgage Rate Adjustment Date (and
on any subsequent Mortgage Rate Adjustment Dates, if necessary) to equal the
sum of (a) the assumed level of the Mortgage Index and (b) the respective Gross
Margin (such sum being subject to the applicable periodic adjustment caps and
floors); (ix) overcollateralization levels are initially set as specified in
the Pooling and Servicing Agreement, and thereafter decrease in accordance with
the provisions of the Pooling and Servicing Agreement; (x) the Mortgage Loans
in the Fixed Rate Mortgage Loan Group are purchased on the first applicable
Optional Termination Date and the Mortgage Loans in the Adjustable Rate
Mortgage Loan Group are purchased on the first applicable Optional Termination
Date; (xi) each Loan Group consists of Mortgage Loans having the approximate
characteristics described below:
<PAGE>
Fixed Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Original
Original Amortization Remaining
Current Net Term Term Term
Balance Mortgage Rate Mortgage Rate (in months) (in months) (in months)
- ------------------------- --------------- --------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
$ 53,765,699.93 9.595 9.095 180 360 177
21,806,131.41 9.193 8.693 176 176 173
24,789,731.31 8.968 8.468 240 240 238
89,638,437.35 9.711 9.211 360 360 357
</TABLE>
Adjustable Rate Mortgage Loan Group
<TABLE>
<CAPTION>
Net Original Remaining
Current Mortgage Mortgage Term Term
Balance Rate Rate (in months) (in months)
- ------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
$44,586.657.63 9.177 8.677 360 357
226,487,138.06 9.532 9.032 360 357
100,972,970.99 9.720 9.220 360 357
12,953,233.32 9.384 8.884 359 356
<CAPTION>
Number of Months
Reset Until
Current Gross Periodic Change Next Rate
Balance Margin Cap Frequency Adjustment Date Index
- ------------------- ---------- ---------- ----------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
$44,586.657.63 5.268 1.016 6 7 6 mo. LIBOR
226,487,138.06 6.022 1.499 6 21 6 mo. LIBOR
100,972,970.99 5.506 1.500 6 33 6 mo. LIBOR
12,953,233.32 5.406 1.525 6 57 6 mo. LIBOR
</TABLE>
S-65
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IA-1
------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 94 50 39 11 0
December 25, 2000 ................ 90 2 0 0 0
December 25, 2001 ................ 86 0 0 0 0
December 25, 2002 ................ 82 0 0 0 0
December 25, 2003 ................ 77 0 0 0 0
December 25, 2004 ................ 73 0 0 0 0
December 25, 2005 ................ 68 0 0 0 0
December 25, 2006 ................ 63 0 0 0 0
December 25, 2007 ................ 59 0 0 0 0
December 25, 2008 ................ 53 0 0 0 0
December 25, 2009 ................ 47 0 0 0 0
December 25, 2010 ................ 40 0 0 0 0
December 25, 2011 ................ 32 0 0 0 0
December 25, 2012 ................ 24 0 0 0 0
December 25, 2013 ................ 0 0 0 0 0
December 25, 2014 ................ 0 0 0 0 0
December 25, 2015 ................ 0 0 0 0 0
December 25, 2016 ................ 0 0 0 0 0
December 25, 2017 ................ 0 0 0 0 0
December 25, 2018 ................ 0 0 0 0 0
December 25, 2019 ................ 0 0 0 0 0
December 25, 2020 ................ 0 0 0 0 0
December 25, 2021 ................ 0 0 0 0 0
December 25, 2022 ................ 0 0 0 0 0
December 25, 2023 ................ 0 0 0 0 0
December 25, 2024 ................ 0 0 0 0 0
December 25, 2025 ................ 0 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 9.5 1.1 0.9 0.7 0.5
<PAGE>
<CAPTION>
Class IA-2
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 100 100 100 100 41
December 25, 2000 ................ 100 100 41 0 0
December 25, 2001 ................ 100 0 0 0 0
December 25, 2002 ................ 100 0 0 0 0
December 25, 2003 ................ 100 0 0 0 0
December 25, 2004 ................ 100 0 0 0 0
December 25, 2005 ................ 100 0 0 0 0
December 25, 2006 ................ 100 0 0 0 0
December 25, 2007 ................ 100 0 0 0 0
December 25, 2008 ................ 100 0 0 0 0
December 25, 2009 ................ 100 0 0 0 0
December 25, 2010 ................ 100 0 0 0 0
December 25, 2011 ................ 100 0 0 0 0
December 25, 2012 ................ 100 0 0 0 0
December 25, 2013 ................ 0 0 0 0 0
December 25, 2014 ................ 0 0 0 0 0
December 25, 2015 ................ 0 0 0 0 0
December 25, 2016 ................ 0 0 0 0 0
December 25, 2017 ................ 0 0 0 0 0
December 25, 2018 ................ 0 0 0 0 0
December 25, 2019 ................ 0 0 0 0 0
December 25, 2020 ................ 0 0 0 0 0
December 25, 2021 ................ 0 0 0 0 0
December 25, 2022 ................ 0 0 0 0 0
December 25, 2023 ................ 0 0 0 0 0
December 25, 2024 ................ 0 0 0 0 0
December 25, 2025 ................ 0 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 14.8 2.5 2.0 1.4 1.0
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distribution on such
Certificates.
S-66
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IA-3
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 100 100 100 100 100
December 25, 2000 ................ 100 100 100 41 0
December 25, 2001 ................ 100 87 44 0 0
December 25, 2002 ................ 100 42 5 0 0
December 25, 2003 ................ 100 9 0 0 0
December 25, 2004 ................ 100 0 0 0 0
December 25, 2005 ................ 100 0 0 0 0
December 25, 2006 ................ 100 0 0 0 0
December 25, 2007 ................ 100 0 0 0 0
December 25, 2008 ................ 100 0 0 0 0
December 25, 2009 ................ 100 0 0 0 0
December 25, 2010 ................ 100 0 0 0 0
December 25, 2011 ................ 100 0 0 0 0
December 25, 2012 ................ 100 0 0 0 0
December 25, 2013 ................ 84 0 0 0 0
December 25, 2014 ................ 75 0 0 0 0
December 25, 2015 ................ 65 0 0 0 0
December 25, 2016 ................ 53 0 0 0 0
December 25, 2017 ................ 41 0 0 0 0
December 25, 2018 ................ 28 0 0 0 0
December 25, 2019 ................ 20 0 0 0 0
December 25, 2020 ................ 11 0 0 0 0
December 25, 2021 ................ * 0 0 0 0
December 25, 2022 ................ 0 0 0 0 0
December 25, 2023 ................ 0 0 0 0 0
December 25, 2024 ................ 0 0 0 0 0
December 25, 2025 ................ 0 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 18.4 3.9 3.1 2.0 1.5
<PAGE>
<CAPTION>
Class IA-4
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 100 100 100 100 100
December 25, 2000 ................ 100 100 100 100 43
December 25, 2001 ................ 100 100 100 11 0
December 25, 2002 ................ 100 100 100 0 0
December 25, 2003 ................ 100 100 47 0 0
December 25, 2004 ................ 100 70 6 0 0
December 25, 2005 ................ 100 35 0 0 0
December 25, 2006 ................ 100 22 0 0 0
December 25, 2007 ................ 100 4 0 0 0
December 25, 2008 ................ 100 0 0 0 0
December 25, 2009 ................ 100 0 0 0 0
December 25, 2010 ................ 100 0 0 0 0
December 25, 2011 ................ 100 0 0 0 0
December 25, 2012 ................ 100 0 0 0 0
December 25, 2013 ................ 100 0 0 0 0
December 25, 2014 ................ 100 0 0 0 0
December 25, 2015 ................ 100 0 0 0 0
December 25, 2016 ................ 100 0 0 0 0
December 25, 2017 ................ 100 0 0 0 0
December 25, 2018 ................ 100 0 0 0 0
December 25, 2019 ................ 100 0 0 0 0
December 25, 2020 ................ 100 0 0 0 0
December 25, 2021 ................ 100 0 0 0 0
December 25, 2022 ................ 78 0 0 0 0
December 25, 2023 ................ 53 0 0 0 0
December 25, 2024 ................ 25 0 0 0 0
December 25, 2025 ................ 0 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 25.1 6.9 5.1 2.8 2.0
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distribution on such
Certificates.
* Less than 0.5% but greater than 0.0%.
S-67
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IA-5
--------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 100 100 100 100 100
December 25, 2000 ................ 100 100 100 100 100
December 25, 2001 ................ 100 100 100 100 0
December 25, 2002 ................ 100 100 100 74 0
December 25, 2003 ................ 100 100 100 33 0
December 25, 2004 ................ 100 100 100 0 0
December 25, 2005 ................ 100 100 80 0 0
December 25, 2006 ................ 100 100 75 0 0
December 25, 2007 ................ 100 100 0 0 0
December 25, 2008 ................ 100 86 0 0 0
December 25, 2009 ................ 100 0 0 0 0
December 25, 2010 ................ 100 0 0 0 0
December 25, 2011 ................ 100 0 0 0 0
December 25, 2012 ................ 100 0 0 0 0
December 25, 2013 ................ 100 0 0 0 0
December 25, 2014 ................ 100 0 0 0 0
December 25, 2015 ................ 100 0 0 0 0
December 25, 2016 ................ 100 0 0 0 0
December 25, 2017 ................ 100 0 0 0 0
December 25, 2018 ................ 100 0 0 0 0
December 25, 2019 ................ 100 0 0 0 0
December 25, 2020 ................ 100 0 0 0 0
December 25, 2021 ................ 100 0 0 0 0
December 25, 2022 ................ 100 0 0 0 0
December 25, 2023 ................ 100 0 0 0 0
December 25, 2024 ................ 100 0 0 0 0
December 25, 2025 ................ 95 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 27.5 10.4 8.1 4.6 2.6
<PAGE>
<CAPTION>
Class IA-6
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 100 100 100 100 100
December 25, 2000 ................ 100 100 100 100 100
December 25, 2001 ................ 100 100 100 100 87
December 25, 2002 ................ 99 90 89 89 0
December 25, 2003 ................ 98 81 79 73 0
December 25, 2004 ................ 97 68 63 0 0
December 25, 2005 ................ 94 54 47 0 0
December 25, 2006 ................ 87 27 20 0 0
December 25, 2007 ................ 79 13 0 0 0
December 25, 2008 ................ 72 7 0 0 0
December 25, 2009 ................ 64 0 0 0 0
December 25, 2010 ................ 56 0 0 0 0
December 25, 2011 ................ 48 0 0 0 0
December 25, 2012 ................ 40 0 0 0 0
December 25, 2013 ................ 0 0 0 0 0
December 25, 2014 ................ 0 0 0 0 0
December 25, 2015 ................ 0 0 0 0 0
December 25, 2016 ................ 0 0 0 0 0
December 25, 2017 ................ 0 0 0 0 0
December 25, 2018 ................ 0 0 0 0 0
December 25, 2019 ................ 0 0 0 0 0
December 25, 2020 ................ 0 0 0 0 0
December 25, 2021 ................ 0 0 0 0 0
December 25, 2022 ................ 0 0 0 0 0
December 25, 2023 ................ 0 0 0 0 0
December 25, 2024 ................ 0 0 0 0 0
December 25, 2025 ................ 0 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 12.0 6.9 6.5 5.1 3.8
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distribution on such
Certificates.
S-68
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IM-1
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 100 100 100 100 100
December 25, 2000 ................ 100 100 100 100 100
December 25, 2001 ................ 100 100 100 100 100
December 25, 2002 ................ 100 87 70 38 0
December 25, 2003 ................ 100 70 53 25 0
December 25, 2004 ................ 100 56 40 0 0
December 25, 2005 ................ 100 45 30 0 0
December 25, 2006 ................ 100 36 23 0 0
December 25, 2007 ................ 100 28 0 0 0
December 25, 2008 ................ 100 22 0 0 0
December 25, 2009 ................ 100 0 0 0 0
December 25, 2010 ................ 100 0 0 0 0
December 25, 2011 ................ 100 0 0 0 0
December 25, 2012 ................ 100 0 0 0 0
December 25, 2013 ................ 87 0 0 0 0
December 25, 2014 ................ 83 0 0 0 0
December 25, 2015 ................ 78 0 0 0 0
December 25, 2016 ................ 73 0 0 0 0
December 25, 2017 ................ 67 0 0 0 0
December 25, 2018 ................ 61 0 0 0 0
December 25, 2019 ................ 57 0 0 0 0
December 25, 2020 ................ 53 0 0 0 0
December 25, 2021 ................ 48 0 0 0 0
December 25, 2022 ................ 43 0 0 0 0
December 25, 2023 ................ 37 0 0 0 0
December 25, 2024 ................ 30 0 0 0 0
December 25, 2025 ................ 23 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 22.0 7.0 5.7 4.1 3.7
<PAGE>
<CAPTION>
Class IM-2
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial. ......................... 100 100 100 100 100
December 25, 1999 ................ 100 100 100 100 100
December 25, 2000 ................ 100 100 100 100 100
December 25, 2001 ................ 100 100 100 100 100
December 25, 2002 ................ 100 87 70 38 0
December 25, 2003 ................ 100 70 53 25 0
December 25, 2004 ................ 100 56 40 0 0
December 25, 2005 ................ 100 45 30 0 0
December 25, 2006 ................ 100 36 23 0 0
December 25, 2007 ................ 100 28 0 0 0
December 25, 2008 ................ 100 22 0 0 0
December 25, 2009 ................ 100 0 0 0 0
December 25, 2010 ................ 100 0 0 0 0
December 25, 2011 ................ 100 0 0 0 0
December 25, 2012 ................ 100 0 0 0 0
December 25, 2013 ................ 87 0 0 0 0
December 25, 2014 ................ 83 0 0 0 0
December 25, 2015 ................ 78 0 0 0 0
December 25, 2016 ................ 73 0 0 0 0
December 25, 2017 ................ 67 0 0 0 0
December 25, 2018 ................ 61 0 0 0 0
December 25, 2019 ................ 57 0 0 0 0
December 25, 2020 ................ 53 0 0 0 0
December 25, 2021 ................ 48 0 0 0 0
December 25, 2022 ................ 43 0 0 0 0
December 25, 2023 ................ 37 0 0 0 0
December 25, 2024 ................ 30 0 0 0 0
December 25, 2025 ................ 23 0 0 0 0
December 25, 2026 ................ 0 0 0 0 0
December 25, 2027 ................ 0 0 0 0 0
December 25, 2028 ................ 0 0 0 0 0
Weighted Average Life in years(1) 22.0 7.0 5.7 4.0 3.5
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distribution on such
Certificates.
S-69
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IB
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- --------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial ................... 100 100 100 100 100
December 25, 1999 ......... 100 100 100 100 100
December 25, 2000 ......... 100 100 100 100 100
December 25, 2001 ......... 100 100 100 100 100
December 25, 2002 ......... 100 87 70 33 0
December 25, 2003 ......... 100 70 53 9 0
December 25, 2004 ......... 100 56 36 0 0
December 25, 2005 ......... 100 44 19 0 0
December 25, 2006 ......... 100 29 6 0 0
December 25, 2007 ......... 100 16 0 0 0
December 25, 2008 ......... 100 6 0 0 0
December 25, 2009 ......... 100 0 0 0 0
December 25, 2010 ......... 100 0 0 0 0
December 25, 2011 ......... 100 0 0 0 0
December 25, 2012 ......... 100 0 0 0 0
December 25, 2013 ......... 87 0 0 0 0
December 25, 2014 ......... 83 0 0 0 0
December 25, 2015 ......... 78 0 0 0 0
December 25, 2016 ......... 73 0 0 0 0
December 25, 2017 ......... 67 0 0 0 0
December 25, 2018 ......... 61 0 0 0 0
December 25, 2019 ......... 57 0 0 0 0
December 25, 2020 ......... 53 0 0 0 0
December 25, 2021 ......... 48 0 0 0 0
December 25, 2022 ......... 41 0 0 0 0
December 25, 2023 ......... 31 0 0 0 0
December 25, 2024 ......... 19 0 0 0 0
December 25, 2025 ......... 7 0 0 0 0
December 25, 2026 ......... 0 0 0 0 0
December 25, 2027 ......... 0 0 0 0 0
December 25, 2028 ......... 0 0 0 0 0
Weighted Average Life in
years(1) ................. 21.6 6.6 5.4 3.8 3.3
<PAGE>
<CAPTION>
Class IIA-1
-------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- --------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial ................... 100 100 100 100 100
December 25, 1999 ......... 95 66 59 42 24
December 25, 2000 ......... 94 60 51 31 12
December 25, 2001 ......... 94 54 45 25 0
December 25, 2002 ......... 94 46 34 15 0
December 25, 2003 ......... 94 36 25 0 0
December 25, 2004 ......... 94 28 18 0 0
December 25, 2005 ......... 94 21 13 0 0
December 25, 2006 ......... 94 17 0 0 0
December 25, 2007 ......... 94 13 0 0 0
December 25, 2008 ......... 94 0 0 0 0
December 25, 2009 ......... 94 0 0 0 0
December 25, 2010 ......... 94 0 0 0 0
December 25, 2011 ......... 94 0 0 0 0
December 25, 2012 ......... 94 0 0 0 0
December 25, 2013 ......... 94 0 0 0 0
December 25, 2014 ......... 94 0 0 0 0
December 25, 2015 ......... 94 0 0 0 0
December 25, 2016 ......... 94 0 0 0 0
December 25, 2017 ......... 91 0 0 0 0
December 25, 2018 ......... 86 0 0 0 0
December 25, 2019 ......... 80 0 0 0 0
December 25, 2020 ......... 74 0 0 0 0
December 25, 2021 ......... 67 0 0 0 0
December 25, 2022 ......... 60 0 0 0 0
December 25, 2023 ......... 52 0 0 0 0
December 25, 2024 ......... 43 0 0 0 0
December 25, 2025 ......... 33 0 0 0 0
December 25, 2026 ......... 22 0 0 0 0
December 25, 2027 ......... 0 0 0 0 0
December 25, 2028 ......... 0 0 0 0 0
Weighted Average Life in
years(1) ................. 23.7 3.9 2.9 1.6 0.9
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distribution on such
Certificates.
S-70
<PAGE>
Percentage of Initial Principal Balance Outstanding at the Respective
Percentages of the Prepayment Model Set Forth Below
<TABLE>
<CAPTION>
Class IIA-2
-----------------------------------------------------
Distribution Date 0% 80% 100% 150% 200%
- ---------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial ................... 100 100 100 100 100
December 25, 1999 ......... 100 100 100 100 100
December 25, 2000 ......... 98 50 43 32 32
December 25, 2001 ......... 96 13 8 2 0
December 25, 2002 ......... 93 0 0 0 0
December 25, 2003 ......... 90 0 0 0 0
December 25, 2004 ......... 87 0 0 0 0
December 25, 2005 ......... 83 0 0 0 0
December 25, 2006 ......... 79 0 0 0 0
December 25, 2007 ......... 75 0 0 0 0
December 25, 2008 ......... 70 0 0 0 0
December 25, 2009 ......... 64 0 0 0 0
December 25, 2010 ......... 58 0 0 0 0
December 25, 2011 ......... 51 0 0 0 0
December 25, 2012 ......... 43 0 0 0 0
December 25, 2013 ......... 35 0 0 0 0
December 25, 2014 ......... 25 0 0 0 0
December 25, 2015 ......... 14 0 0 0 0
December 25, 2016 ......... 3 0 0 0 0
December 25, 2017 ......... 0 0 0 0 0
December 25, 2018 ......... 0 0 0 0 0
December 25, 2019 ......... 0 0 0 0 0
December 25, 2020 ......... 0 0 0 0 0
December 25, 2021 ......... 0 0 0 0 0
December 25, 2022 ......... 0 0 0 0 0
December 25, 2023 ......... 0 0 0 0 0
December 25, 2024 ......... 0 0 0 0 0
December 25, 2025 ......... 0 0 0 0 0
December 25, 2026 ......... 0 0 0 0 0
December 25, 2027 ......... 0 0 0 0 0
December 25, 2028 ......... 0 0 0 0 0
Weighted Average Life in
years(1) ................. 12.2 2.2 2.0 1.9 1.9
</TABLE>
- ------------
(1) The weighted average lives of the Offered Certificates as shown above are
determined by (i) multiplying the amount of each assumed principal
distribution by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results
and (iii) dividing the sum by the total principal distribution on such
Certificates.
S-71
<PAGE>
Additional Information
The Depositor has filed certain additional yield tables and other
computational materials with respect to the Class A Certificates with the
Securities and Exchange Commission in a report on Form 8-K. Such tables and
materials were prepared by the Underwriters at the request of certain
prospective investors, based on assumptions provided by, and satisfying the
special requirements of, such prospective investors. Such tables and
assumptions may be based on assumptions that differ from the Modeling
Assumptions. Accordingly, such tables and other materials may not be relevant
to or appropriate for investors other than those specifically requesting them.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Trust Fund will include two
segregated asset pools, with respect to which elections will be made to treat
each as a separate REMIC. One REMIC (the "Subsidiary REMIC") will issue
uncertificated subclasses of nonvoting interest ("Subsidiary REMIC Regular
Interests"), which will be designated as the regular interests in the
Subsidiary REMIC. The assets of the Subsidiary REMIC will consist of the
Mortgage Loans and all other property in the Trust Fund except for the property
in the Trust Fund allocated to the second REMIC (the "Master REMIC"). The
Master REMIC will issue the Regular Certificates, which will be designated as
the regular interests in the Master REMIC. The Residual Certificates will
represent the beneficial ownership of the residual interest in the Subsidiary
REMIC and the residual interest in the Master REMIC. The assets of the Master
REMIC will consist of the Subsidiary REMIC Regular Interests. Aggregate
distributions on the Subsidiary REMIC Regular Interests will equal the
aggregate distributions on the Regular Certificates issued by the Master REMIC.
Holders of Subordinate Certificates may be required to accrue income
currently even though their distributions may be reduced due to defaults and
delinquencies on the related Mortgage Loans. See "Federal Income Tax
Consequences" in the Prospectus.
Original Issue Discount
Certain Classes of the Offered Certificates may be treated as being issued
with original issue discount. For purposes of determining the amount and rate
of accrual of original issue discount and market discount, the Depositor
intends to assume that there will be prepayments on the Mortgage Loans in each
Loan Group at a rate equal to 100% of the applicable Prepayment Model, as
described above. No representation is made as to whether the Mortgage Loans
will prepay at that rate or any other rate. See "Yield, Prepayment and Maturity
Considerations" herein and "Federal Income Tax Consequences" in the Prospectus.
Certain Classes of the Offered Certificates may be treated as being issued
at a premium. In such case, the Offered Certificateholders may elect under
Section 171 of the Code to amortize such premium under the constant yield
method and to treat such amortizable premium as an offset to interest income on
the Certificates. Such election, however, applies to all the
Certificateholder's debt instruments held during or after the first taxable
year in which the election is first made, and should only be made after
consulting with a tax adviser.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder, such Certificateholder will be permitted to offset such
excess amounts only against the respective future income, if any, from such
Certificate. Although the tax treatment is uncertain, a Certificateholder may
be permitted to deduct a loss to the extent that such Holder's respective
remaining basis in such Certificate exceeds the maximum amount of future
payments to which such Holder is entitled, assuming no further Principal
Prepayments on the Mortgage Loans are received. Although the matter is not free
from doubt, any such loss might be treated as a capital loss.
Special Tax Attributes of the Offered Certificates
As is described more fully under "Federal Income Tax Consequences" in the
Prospectus, the Certificates will represent qualifying assets under Sections
856(c)(5)(B) and 7701(a)(19)(C)(v) of the Code, and net interest income
attributable to the Offered Certificates will be "interest on obligations
secured by mortgages on real
S-72
<PAGE>
property" within the meaning of Section 856(c)(3)(B) of the Code, to the extent
the assets of the Trust Fund are assets described in such sections. The Offered
Certificates will represent qualifying assets under Section 860G(a)(3) if
acquired by a REMIC within the prescribed time periods of the Code.
Prohibited Transactions Tax and Other Taxes
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Loan, the receipt of income from a source other than
a Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund
will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of
its interests could result in the imposition of a tax on the trust fund equal
to 100% of the value of the contributed property (the "Contributions Tax"). The
Trust Fund will not accept contributions that would subject it to such tax.
In addition, a trust fund that elects to be treated as a REMIC may also be
subject to federal income tax at the highest corporate rate on "net income from
foreclosure property," determined by reference to the rules applicable to real
estate investment trusts. "Net income from foreclosure property" generally
means gain from the sale of a foreclosure property other than qualifying rents
and other qualifying income for a real estate investment trust. It is not
anticipated that the Trust Fund will recognize net income from foreclosure
property subject to federal income tax.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on the REMIC arises out of a breach of the Subservicer's or the
Trustee's obligations, as the case may be, under the Pooling and Servicing
Agreement and in respect of compliance with then applicable law, such tax will
be borne by the Subservicer or Trustee in either case out of its own funds. In
the event that either the Subservicer or the Trustee, as the case may be, fails
to pay or is not required to pay any such tax as provided above, such tax will
be paid by the Trust Fund first with amounts that might otherwise be
distributable to the holders of Certificates in the manner provided in the
Pooling and Servicing Agreement. It is not anticipated that any material state
or local income or franchise tax will be imposed on the Trust Fund.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Federal Income Tax
Consequences--REMIC Certificates" in the Prospectus.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the federal,
state, local or foreign income tax consequences of the purchase, ownership and
disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA and Section 4975 of the Code prohibits a
"disqualified person" with respect to a plan or other arrangement subject to
the excise tax provisions set forth under Section 4975 of the Code (each of the
foregoing, a "Plan") from engaging in certain transactions involving such Plan
and its assets unless a statutory, regulatory or administrative exemption
applies to the transaction. Section 4975 of the Code imposes certain excise
taxes on prohibited transactions involving plans described under that Section.
ERISA authorizes the imposition of civil penalties for prohibited transactions
S-73
<PAGE>
involving plans not covered under Section 4975 of the Code. Any Plan fiduciary
which proposes to cause a Plan to acquire the Offered Certificates should
consult with its counsel with respect to the potential consequences under ERISA
and the Code of the Plan's acquisition and ownership of such Certificates. See
"ERISA Considerations" in the Prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Class A Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are 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. A fiduciary which decides to
invest the assets of a Plan in the Class A Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor has granted administrative exemptions to
Chase Securities Inc. (Prohibited Transaction 90-31, 55 Fed. Reg. 23144 (1990))
and to Prudential Securities Incorporated (Prohibited Transaction Exemption
90-32; 55 Fed. Reg. 23147 (1990)) (together, the "Exemptions") from certain of
the prohibited transaction rules of ERISA and the related excise tax provisions
of Section 4975 of the Code with respect to the initial purchase, the holding
and the subsequent resale by Plans of certificates in pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemptions. The Exemptions apply to mortgage
loans such as the Mortgage Loans in the Trust Fund.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the 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 certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from Standard & Poor's, a division of the McGraw-Hill
Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's"),
Duff & Phelps Credit Rating Co. ("DCR") or Fitch IBCA, Inc. ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters in
connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum
of all payments made to and retained by the seller pursuant to the
assignment of the loans to the trust fund represents not more than the
fair market value of such loans; the sum of all payments made to and
retained by the servicer and any other servicer represents not more than
reasonable compensation for such person's services under the agreement
pursuant to which the loans are pooled and reimbursements of such
person's reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is 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.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of the type
that have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, Fitch or DCR
for at least one year prior to the Plan's acquisition of certificates;
and
S-74
<PAGE>
(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 Plan's acquisition of certificates.
Moreover, the Exemptions provide relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust and the fiduciary (or its
affiliate) is an obligor on the receivables held in the trust provided that,
among other requirement, (i) in the case of an acquisition in connection with
the initial issuance of certificates, at least fifty percent (50%) of each
class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group; (ii) such fiduciary (or its affiliate) is
an obligor with respect to five percent (5%) or less of the fair market value
of the obligations contained in the trust; (iii) the Plan's investment in
certificates of any class does not exceed twenty-five percent (25%) of all of
the certificates of that class outstanding at the time of the acquisition; and
(iv) immediately after the acquisition, no more than twenty-five percent (25%)
of the assets of any Plan with respect to which such person is a fiduciary are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemptions would not
apply to Plans sponsored by either Underwriter, the Trustee, the Master
Servicer, the Subservicer, any obligor with respect to Mortgage Loans included
in the Trust Fund constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of such parties (the "Restricted Group").
It is expected that the Exemptions will apply to the acquisition and
holding of the Class A Certificates by Plans and that all conditions of the
Exemptions other than those within the control of the investors will be met. In
addition, as of the date hereof, there is no single Mortgagor that is the
obligor on five percent (5%) of the Mortgage Loans included in the Trust Fund
by aggregate unamortized principal balance of the assets of the Trust Fund.
The Exemptions do not apply to the initial purchase, the holding or the
subsequent resale of the Subordinated Group I Certificates because the
Subordinated Certificates are subordinate to certain other Classes of
Certificates. Consequently, transfers of the Subordinated Certificates will not
be registered by the Trustee unless the Trustee receives: (i) a representation
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 a plan or
arrangement subject to Section 4975 of the Code, nor a person acting on behalf
of any such plan or arrangement nor using the assets of any such plan or
arrangement to effect such transfer; (ii) if the purchaser is an insurance
company, a representation that the purchaser is an insurance company which is
purchasing such Certificates with funds contained in an "insurance company
general account" (as such term is defined in Section V(e) of Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and
holding of such Certificates are covered under PTCE 95-60; or (iii) an opinion
of counsel satisfactory to the Trustee that the purchase or holding of such
Certificate by a Plan, any person acting on behalf of a Plan or using such
Plan's assets, will not result in the assets of the Trust Fund being deemed to
be "plan assets" and subject to the prohibited transaction requirements of
ERISA and the Code and will not subject the Trustee to any obligation in
addition to those undertaken in the Pooling and Servicing Agreement. Such
representation as described above shall be deemed to have been made to the
Trustee by the transferee's acceptance of a Subordinated Certificate. In the
event that such representation is violated, or any attempt to transfer to a
Plan or person acting on behalf of a Plan or using such Plan's assets is
attempted without such opinion of counsel, such attempted transfer or
acquisition shall be void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemptions, and the potential consequences
in their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in the Offered Certificates is appropriate for the Plan, taking into
account the overall investment policy of the Plan and the composition of the
Plan's investment portfolio.
S-75
<PAGE>
LEGAL INVESTMENT MATTERS
The Offered Certificates will not constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement Act of 1984, as amended
("SMMEA"). The appropriate characterization of the Offered Certificates under
various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase the Offered Certificates, may be
subject to significant interpretive uncertainties. All investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether, and to what extent, the Offered
Certificates will constitute legal investments for them.
The Depositor makes no representation as to the proper characterization of
the Offered Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
Offered Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory characteristics
of the Offered Certificates) may adversely affect the liquidity of the Offered
Certificates. See "Legal Investment" in the Prospectus.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be applied by the Depositor to the purchase price of
the Mortgage Loans.
METHOD OF DISTRIBUTION
Subject to the terms and conditions of the underwriting agreement and the
terms agreement each dated December 16, 1998 (together, the "CSI Underwriting
Agreement") between the Depositor and Chase Securities Inc. ("CSI"), as
underwriter, and the underwriting agreement and the terms agreement each dated
December 16, 1998 (together, the "PSI Underwriting Agreement") between the
Seller and Prudential Securities Incorporated ("PSI"), as underwriter, the
Offered Certificates are being purchased from the Seller by the Underwriters in
the respective initial Certificate Principal Balance of each Class of Offered
Certificates set forth below, in each case upon issuance thereof. Each of CSI
and PSI is referred to herein as an "Underwriter," and together, as the
"Underwriters."
<TABLE>
<CAPTION>
Prudential
Securities
Class of Certificate Chase Securities Inc. Incorporated
- -------------------------------------------- ----------------------- ---------------
<S> <C> <C>
Class IA-1 Certificates .......... $ 32,500,000 $ 32,500,000
Class IA-2 Certificates .......... 9,500,000 9,500,000
Class IA-3 Certificates .......... 18,000,000 18,000,000
Class IA-4 Certificates .......... 9,000,000 9,000,000
Class IA-5 Certificates .......... 9,462,500 9,462,500
Class IA-6 Certificates .......... 8,700,000 8,700,000
Class IM-1 Certificates .......... 4,037,500 4,037,500
Class IM-2 Certificates .......... 2,375,000 2,375,000
Class IB Certificates ............ 1,425,000 1,425,000
Class IIA-1 Certificates ......... 144,375,000 144,375,000
Class IIA-2 Certificates ......... 48,125,000 48,125,000
Total ............................ $287,500,000 $287,500,000
</TABLE>
S-76
<PAGE>
The Depositor has been advised that the Underwriters propose initially to
offer the Offered Certificates to the public at the offering prices set forth
below. The Depositor has been advised that the Underwriters propose initially
to offer the Offered Certificates to certain dealers at such offering prices
less a selling concession not to exceed the percentage of the Certificate
denomination set forth below, and that the Underwriters may allow and such
dealers may reallow a reallowance discount not to exceed the percentage of the
Certificate denomination set forth below:
<TABLE>
<CAPTION>
Price to Underwriting Selling Reallowance
Class of Certificate Public Discount Concession Discount
- ---------------------------------- ---------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Class IA-1 Certificates .......... 100.000000% 0.155% 0.090% 0.0450%
Class IA-2 Certificates .......... 100.000000% 0.210% 0.125% 0.0625%
Class IA-3 Certificates .......... 100.000000% 0.250% 0.150% 0.0750%
Class IA-4 Certificates .......... 99.968750% 0.300% 0.180% 0.0900%
Class IA-5 Certificates .......... 100.000000% 0.415% 0.250% 0.1250%
Class IA-6 Certificates .......... 100.000000% 0.300% 0.180% 0.0900%
Class IM-1 Certificates .......... 100.000000% 0.415% 0.250% 0.1250%
Class IM-2 Certificates .......... 100.000000% 0.500% 0.300% 0.1500%
Class IB Certificates ............ 97.609375% 0.565% 0.350% 0.1750%
Class IIA-1 Certificates ......... 100.000000% 0.260% 0.150% 0.0750%
Class IIA-2 Certificates ......... 100.000000% 0.205% 0.125% 0.0625%
</TABLE>
After the initial public offering, the public offering price, such
concessions and such discounts may be changed.
The Depositor has been advised by each Underwriter that it intends to make
a market in the Offered Certificates, but neither Underwriter has any
obligation to do so. There can be no assurance that a secondary market for the
Offered Certificates (or any particular Class thereof) will develop or, if it
does develop, that it will continue or that such market will provide sufficient
liquidity to Certificateholders.
Until the distribution of the Offered Certificates is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Offered Certificates. As an exception to these rules, the Underwriters 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.
In general, purchases 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 either of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Depositor nor any of the Underwriters
makes any representation that the Underwriters will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
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.
Chase Securities Inc. is an affiliate of the Depositor and the Master
Servicer.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Morgan,
Lewis & Bockius LLP, New York, New York and for the Underwriters by Stroock &
Stroock & Lavan LLP, New York, New York. The material federal income tax
consequences of the Certificates will be passed upon for the Depositor by
Morgan, Lewis & Bockius LLP.
S-77
<PAGE>
RATINGS
It is a condition of the issuance of the Offered Certificates that they be
assigned the ratings designated below by S&P, Fitch and Moody's. The ratings
assigned to the Class IIA-1 and Class IIA-2 Certificates will take into account
the claims-paying ability of the Group II Certificate Insurer.
S&P FITCH MOODY'S
CLASS RATING RATING RATING
- --------------- -------- -------- --------
IA-1 .......... AAA AAA N/A
IA-2 .......... AAA AAA N/A
IA-3 .......... AAA AAA N/A
IA-4 .......... AAA AAA N/A
IA-5 .......... AAA AAA N/A
IA-6 .......... AAA AAA N/A
IM-1 .......... AA AA N/A
IM-2 .......... A A N/A
IB ............ BBB BBB N/A
IIA-1 ......... AAA N/A Aaa
IIA-2 ......... AAA N/A Aaa
The security ratings assigned to the Offered Certificates should be
evaluated independently from similar ratings on other types of securities. 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 Rating Agencies. The
ratings on the Offered Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Mortgage Loans, the
payment of the Adjustable Rate Certificate Carryover or the anticipated yields
in light of prepayments.
S&P's ratings on mortgage pass-through certificates address the likelihood
of receipt by Certificateholders of payments required under the operative
agreements. S&P's ratings take into consideration the credit quality of the
mortgage pool including any credit support providers, structural and legal
aspects associated with the certificates, and the extent to which the payment
stream of the mortgage pool is adequate to make payment required under the
certificates. S&P's ratings on mortgage pass-through certificates do not,
however, constitute a statement regarding the frequency of prepayments on the
mortgage loans. S&P's ratings do not address the possibility that investors may
suffer a lower than anticipated yield.
The ratings assigned by Fitch to mortgage pass-through certificates
address the likelihood of the receipt of all distributions on the mortgage
loans by the related certificateholders under the agreements pursuant to which
such certificates are issued. Fitch's ratings take into consideration the
credit quality of the related mortgage pool, including any credit support
providers, structural and legal aspects associated with such certificates, and
the extent to which the payment stream on the mortgage pool is adequate to make
the payments required by such certificates. Fitch ratings on such certificates
do not, however, constitute a statement regarding frequency of prepayments of
the mortgage loans.
The ratings of Moody's on mortgage pass-through certificates addressed the
likelihood of the receipt by Certificateholders of all distributions to which
such Certificateholders are entitled. Moody's rating opinions address the
structural and legal issues and tax-related aspects associated with the
Certificates, including the nature of the underlying mortgage loans. Moody's
ratings on pass-through certificates do not represent any assessment of the
likelihood that principal prepayments may differ from those originally
anticipated nor do they address the possibility that, as a result of principal
prepayments, Certificateholders may receive a lower than anticipated yield.
The Depositor has not requested a rating of the Offered Certificates by
any rating agency other than S&P, Fitch and Moody's. However, there can be no
assurance as to whether any other rating agency will rate the Offered
Certificates or, if it does, what ratings would be assigned by such other
rating agency. The ratings assigned by any such other rating agency to the
Offered Certificates could be lower than the respective ratings assigned by the
Rating Agencies.
S-78
<PAGE>
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1997, incorporated by
reference in this Prospectus Supplement have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
S-79
<PAGE>
INDEX OF DEFINED TERMS
1/29 Loans .....................S-20 Current Interest ..................S-48
2/28 Loans .....................S-20 Cut-off Date ......................S-19
3/27 Loans .....................S-20 DCR ...............................S-74
5/25 Loans .....................S-20 Definitive Certificate ............S-42
Accounts .......................S-19 Depositor .........................S-19
Accrual Period .................S-47 Determination Date ................S-55
Adjustable Rate
Certificate Carryover..........S-49 Distribution Account ..............S-46
Adjustable Rate Mortgage Loan ..S-19 Distribution Date .................S-47
Adjustment Date.. ..............S-20 DTC ...............................S-42
Advance ........................S-41 Due Dates .........................S-41
Advanta ........................S-19 Due Period ........................S-47
Advanta Parent .................S-38 ERISA .............................S-73
Applied Realized Loss Amoun ....S-53 Euroclear Operator ................S-44
Available Amount ...............S-52 Euroclear Participants ............S-44
Available Funds Cap ............S-48 European Depositaries .............S-42
B&C ............................S-19 Exemptions ........................S-74
B&C Underwriting Guidelines ....S-35 Extra Principal Distribution
Amount ............................S-51
Balloon Amount .................S-21 Financial Intermediary ............S-43
Balloon Loan ...................S-21 Financial Security ................S-59
beneficial owner ...............S-42 Fitch .............................S-74
Book-Entry Certificates ........S-42 Fixed Rate Mortgage Loan ..........S-19
Business Day ...................S-58 Foreclosure Rate ..................S-39
CEDEL Participants .............S-44 Gross Margin ......................S-19
Certificate Account ............S-46 Group I Certificates ..............S-42
Certificate Group ..............S-42 Group I Stepdown Date .............S-52
Certificate Owners .............S-42 Group I Trigger Event .............S-52
Certificate Principal Balances .S-42 Group II Certificate Insurer ......S-59
Certificates ...................S-42 Group II Certificates .............S-42
Chase Manhattan Mortgage .......S-35 Group II Interest Distribution
Amount ............................S-52
Civil Relief Act Shortfall......S-52 HEP ...............................S-64
Class A Certificates ...........S-42 Holdings ..........................S-60
Class A Group I Certificates ...S-42 Home Equity Prepayment ............S-64
Class A Group II Certificates ..S-42 Indirect Participants .............S-43
Class A Principal
Distribution Amount............S-50 Insurance Agreement ...............S-59
Class IB Principal
Distribution Amount............S-51 Insured Distribution Amount .......S-52
Class IA-6 Distribution Amount .S-50 Insured Payment ...................S-52
Class IB Certificates ..........S-42 Interest Carry Forward Amount .....S-48
Class IIA-2 Principal
Distribution Amount............S-50 Interest Determination Date .......S-54
Class IM-1 Certificates ........S-42 Interest Funds ....................S-46
Class IM-2 Certificates ........S-42 Last Scheduled Distribution Date ..S-64
Class IM-1 Principal
Distribution Amount............S-50 LIBOR Business Day ................S-54
Class IM-2 Principal
Distribution Amount............S-51 Loan Group ........................S-18
Closing Date....................S-2
Collateral Value ...............S-21 Master REMIC ......................S-72
Collection Account .............S-45 Master Servicer ...................S-19
Compensating Interest...........S-41 Master Servicer Fee................S-41
Constant Prepayment Rate .......S-64 Master Servicer Fee Rate ..........S-41
Contributions Tax ..............S-73 Maximum Funds Cap .................S-48
Cooperative ....................S-44 Maximum Mortgage Rate .............S-20
CPR ............................S-64 Mezzanine Group I Certificates ....S-42
CSI ............................S-76 Minimum Mortgage Rate .............S-20
CSI Underwriting Agreement......S-76 Modeling Assumptions ..............S-65
S-80
<PAGE>
Moody's .........................S-74 PTCE 95-60.........................S-74
Mortgage Index ..................S-20 Realized Loss .....................S-53
Mortgage Loan Schedule. .........S-35 Receipt ...........................S-58
Mortgage Loans ..................S-19 Received ..........................S-58
Mortgage Note ...................S-19 Record Date .......................S-47
Mortgage Pool ...................S-19 Reference Banks ...................S-54
Mortgage Rates ..................S-22 Relevant Depositary ...............S-42
Mortgaged Properties ............S-19 REO Property ......................S-41
Mortgagor .......................S-19 Required Percentage ...............S-52
Net Excess Cashflow .............S-52 Reserve Interest Rate .............S-54
Net Mortgage Rate ...............S-49 Residual Certificates .............S-42
NIV .............................S-40 Restricted Group ..................S-75
Offered Certificates ............S-42 Reuters Screen LIBO Page ..........S-54
One-Month LIBOR .................S-48 Rules .............................S-43
Optional Termination Date........S-56 S&P ...............................S-74
Overcollateralization Deficit ...S-52 Scheduled Payments ................S-19
Owned and Managed
Servicing Portfolio.............S-39 Seller ............................S-19
Participants ....................S-42 Servicer Advance Date .............S-41
Pass-Through Margin .............S-49 Servicer Remittance Date ..........S-46
Pass-Through Rate ...............S-48 Servicing Fee .....................S-40
Periodic Rate Cap ...............S-20 Servicing Fee Rate ................S-40
Plan ............................S-73 Six Month LIBOR Loans .............S-20
Pooling and Servicing Agreement..S-19 SMMEA .............................S-76
Premium Amount ..................S-52 Stated Principal Balance ..........S-40
Premium Fee Rate ................S-52 Subordinated Group I Certificates .S-42
Prepayment Interest Shortfall ...S-41 Subservicer .......................S-19
Prepayment Models ...............S-64 Subsidiary REMIC ..................S-72
Principal Distribution Amount ...S-50 Subsidiary REMIC Regular Interests S-72
Principal Funds .................S-46 Third Party Servicing Portfolio ...S-39
Prohibited Transactions Tax .....S-73 Trust Fund ........................S-42
Prospectus ......................S-42 Trustee ...........................S-19
PSI..............................S-5 Unpaid Realized Loss Amount .......S-53
PSI Underwriting Agreement.......S-76
S-81
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Chase
Funding Mortgage Loan Asset-Backed Certificates, Series 1998-2 (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of The Depository Trust
Company ("DTC"), CEDEL or Euroclear. The Global Securities will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional Eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior mortgage pass-through certificate
issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior mortgage pass-through certificate
issues. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional Eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
pass-through certificate issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional Eurobonds in same-day funds.
Trading between DTC Seller and CEDEL or Euroclear Purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the respective Depositary,
A-1
<PAGE>
as the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis of
either the actual number of days in such accrual period and a year assumed to
consist of 360 days or a 360-day year of twelve 30-day months, as applicable to
the related Class of Global Securities. For transactions settling on the 31st
of the month, payment will include interest accrued to and excluding the first
day of the following month. Payment will then be made by the respective
Depositary of the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each CEDEL Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to CEDEL or Euroclear through a CEDEL Participant or Euroclear Participant at
least one business day prior to settlement. In these cases CEDEL or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of either the
actual number of days in such accrual period and a year assumed to consist of
360 days or a 360-day year of twelve 30-day months, as applicable to the
related Class of Global Securities. For transactions settling on the 31st of
the month, payment will include interest accrued to and excluding the first day
of the following month. The payment will then be reflected in the account of
the CEDEL Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the CEDEL Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the CEDEL Participant or
Euroclear Participant have a line of credit with its respective clearing system
and elect to be in debt in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft incurred over that
one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the CEDEL
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
A-2
<PAGE>
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global Securities
sufficient time to be reflected in their CEDEL or Euroclear account in order to
settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) such beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with Effectively Connected Income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on
Income Effectively Connected with the Conduct of a Trade or Business in the
United States).
Exemption or Reduced Rate for non-U.S. Persons Resident in Treaty
Countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing in
a country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides only
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the Certificate
Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (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 thereof or the District of Columbia (unless, in the
case of a Partnership, Treasury regulations provide otherwise), (iii) an estate
the income of which is includible in gross income for United States tax
purposes, regardless of its source or (iv) a trust if a court within the United
States is able to exercise primary supervision of the administration of the
trust and one or more
A-3
<PAGE>
United States persons have the authority to control all substantial decisions
of the trust. Notwithstanding the preceding sentence, to the extent provided in
Treasury regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date, that elect to continue to
be treated as United States persons will also be a U.S. Person. This summary
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities.
A-4
<PAGE>
PROSPECTUS
Chase Manhattan Acceptance Corporation
Chase Funding, Inc.
Seller, as specified in the related Prospectus Supplement
Mortgage Pass-Through Certificates
(Issuable in Series)
The Mortgage Pass-Through Certificates offered hereby and by the
Prospectus Supplement (as defined below) (the "Certificates") will be offered
from time to time in series. The Seller with respect to any series of
Certificates will be either Chase Manhattan Acceptance Corporation or Chase
Funding, Inc. as specified in the related Prospectus Supplement (as to either,
the "Seller"). Each series of Certificates will represent in the aggregate the
entire beneficial ownership interest, minus any interest retained by the
Seller, in a segregated pool of various types of conventional one- to
four-family residential first mortgage loans (the "Mortgage Loans") which may,
if so specified in the related Prospectus Supplement, include cooperative
apartment loans ("Cooperative Loans"), together with other assets described
herein (collectively, a "Trust Fund"). Information regarding the Mortgage Loans
in a Trust Fund, including the approximate aggregate principal amount and
general characteristics of such Mortgage Loans and the applicable Certificate
Rate (as defined herein), will be furnished in a supplement to this Prospectus
at the time of offering (a "Prospectus Supplement").
Each series of Certificates will include one or more classes. Each class
of Certificates of any series will represent the right, which may be senior or
subordinate to the rights of one or more of the other classes of Certificates,
to receive a specified portion of distributions of principal or interest (or
both) on the Mortgage Loans in the related Trust Fund in the manner described
herein and in the related Prospectus Supplement. A series may include one or
more classes of Certificates entitled to principal distributions, with
disproportionate, nominal or no interest distributions, or to interest
distributions, with disproportionate, nominal or no principal distributions.
See "Description of the Certificates". A series may include two or more classes
of Certificates which differ as to the timing, sequential order, priority of
payment, pass-through rate or amount of distributions of principal or interest
or both. Distributions of principal and interest will be made on the 25th day
of each month or, if such day is not a business day, on the next succeeding
business day, commencing with the month following delivery unless otherwise
specified in the related Prospectus Supplement.
The only obligations of the Seller with respect to a series of
Certificates will be pursuant to its representations and warranties with
respect to such Certificates as described herein. Unless otherwise specified in
the related Prospectus Supplement, the Servicer for each series of Certificates
will be Chase Manhattan Mortgage Corporation. The principal obligations of the
Servicer with respect to a series of Certificates will be Chase Manhattan
Mortgage Corporation. The principal obligations of the services with respect to
a series of Certificates will be limited to its contractual servicing
obligations, and its obligation in the event of payment delinquencies on the
Mortgage Loans, to make certain cash advances with respect to the Mortgage
Loans to the extent described herein and in the related Prospectus Supplement.
The Trust Fund for a series of Certificates may include any combination of
a mortgage pool insurance policy, letter of credit, bankruptcy bond, special
hazard insurance policy, reserve fund or other form of credit support. In
addition to or in lieu of the foregoing, credit enhancement may be provided by
means of subordination as described herein and in the related Prospectus
Supplement. See "Description of the Certificates" and "Credit Support".
Each Trust Fund will be held in trust for the benefit of the holders of
the related series of Certificates pursuant to a Pooling and Servicing
Agreement as more fully described herein. If so provided in the Prospectus
Supplement for a series of Certificates, one or more separate elections will be
made to treat the related Trust Fund (or designated portions thereof) as one or
more "real estate mortgage investment conduits" for federal income tax
purposes. See "Federal Income tax Consequences".
<PAGE>
A series of Certificates may include one or more senior classes and one or
more subordinate classes. Each such class will represent the right to receive a
specified portion of payments of principal and interest on the Mortgage Loans
in the related Trust Fund in the manner described herein and in the related
Prospectus Supplement. See "Description of Certificates".
THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE SELLER, THE CHASE MANHATTAN BANK OR CHASE MANHATTAN MORTGAGE
CORPORATION OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH HEREIN
AND IN THE RELATED PROSPECTUS SUPPLEMENT, NEITHER THE CERTIFICATES NOR THE
UNDERLYING MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY THE SELLER, THE CHASE MANHATTAN BANK OR
CORPORATION OR ANY OF THEIR AFFILIATES.
The yield on each class of Certificates of a series will be affected by
the rate of payment of principal (including prepayments) on the assets in the
related Trust Fund and the timing of receipt of such payments as described
herein and in the related Prospectus Supplement. Each series of Certificates
may be subject to early termination only under the circumstances described
herein and in the related Prospectus Supplement.
Prospective investors in the Certificates should consider the factors
discussed under "Risk Factors" beginning on page 8.
If specified in a Prospectus Supplement, an election will be made to treat
the related Trust Fund as a "real estate mortgage investment conduit" ("REMIC")
for federal income tax purposes, or two REMIC elections may be made with
respect to the related Trust Fund. See "Federal Income Tax Consequences".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described
under "Plan of Distribution") herein and in the related Prospectus Supplement.
There will have been no public market for any series of Certificates prior to
the offering thereof. Accordingly, once an offering of any Series of
Certificates has been made, there can be no assurance that a secondary market
for Certificates of such Series will develop or, if it does develop, that such
market will continue. No application will be made to list the Certificates on
any securities exchange.
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
---------------------
The date of this Prospectus is December 16, 1998.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Certificates being
offered hereby will, among other things, set forth with respect to such series
of Certificates (i) information as to the assets comprising the Trust Fund,
including the characteristics of the Mortgage Loans and, if applicable, the
insurance, guarantees or other instruments or agreements included in the Trust
Fund and the amount and source of any reserve accounts; (ii) the aggregate
original principal balance of each class of Certificates entitled to
distributions allocable to principal and, if a fixed rate of interest, the
interest rate for each class of such Certificates entitled to distributions
allocable to interest; (iii) information as to any class of Certificates that
has a rate of interest that is subject to change from time to time and the
basis on which such interest rate will be determined; (iv) information as to
any class of Certificates on which interest will accrue and be added to the
principal or, if applicable, the notional principal balance thereof; (v)
information as to the method used to calculate the amount of interest to be
paid on any class entitled to distributions of interest only; (vi) information
as to the nature and extent of subordination with respect to any class of
Certificates that is subordinate in right of payment to any other class; (vii)
the circumstances, if any, under which the Trust Fund is subject to early
termination; (viii) if applicable, the final distribution date and the first
mandatory principal distribution date of each class of such Certificates; (ix)
the method used to calculate the aggregate amounts of principal and interest
required to be distributed on each distribution date in respect of each class
of such Certificates and, with respect to any series consisting of more than
one class, the basis on which such amounts will be allocated among the classes
of such series; (x) the distribution date for each class of the Certificates,
the date on which payments received in respect of the assets included in the
Trust Fund during the related period will be deposited in the related
Collection Account (as defined herein) and, if applicable, the assumed
reinvestment rate applicable to payments received in respect of such assets and
the date on which such payments are assumed to be received for such series of
Certificates; (xi) the name of the trustee of the Trust Fund; (xii) information
with respect to the administrator, if any, of the Trust Fund; (xiii) whether an
election will be made to treat all or a portion of the Trust Fund as a REMIC or
a double REMIC and, if applicable, the designation of the regular interests and
residual interests therein; and (xiv) information with respect to the plan of
distribution of such Certificates.
AVAILABLE INFORMATION
The Seller will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), with respect
to the series of Certificates offered hereby and by the related Prospectus
Supplement, and in accordance therewith will file reports and other information
with the Securities and Exchange Commission (the "Commission"). Such reports
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained upon written request addressed to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Such material can also be obtained from the web site that the
Commission maintains at http://www.sec.gov.
The Seller has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended, with respect to the Certificates. This
Prospectus, which forms a part of the Registration Statement, omits certain
information contained in such Registration Statement pursuant to the rules and
regulations of the Commission. The Registration Statement can be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission as described in the preceding paragraph.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Seller pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act with respect to a series of Certificates subsequent
to the date of this Prospectus and the related Prospectus Supplement and prior
to the termination of the offering of such series of Certificates shall be
deemed to be incorporated by reference in this Prospectus as supplemented by
the related Prospectus Supplement. If so specified in any such document, such
document shall also be deemed to be incorporated by reference in the
Registration Statement of which this Prospectus forms a part.
Any statement contained herein or in a Prospectus Supplement for a series
of Certificates or in a document incorporated or deemed to be incorporated by
reference herein or therein shall be deemed to be modified or superseded for
purposes of this Prospectus and such Prospectus Supplement to the extent that a
statement contained herein or in such Prospectus Supplement or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein or in such Prospectus Supplement modifies or supersedes such
statement, except to the extent that such subsequently filed document expressly
states otherwise. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or the related Prospectus Supplement or, if applicable, the
Registration Statement.
The Seller will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus and the related Prospectus
Supplement is delivered, on the written or oral request of any such person, a
copy of any and all of the documents incorporated herein by reference, except
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Written requests for such copies
should be directed to the Office of the President, Chase Mortgage Finance
Corporation, 343 Thornall Street, Edison, New Jersey 08837. Telephone requests
for such copies should be directed to the Office of the President at (732)
205-0600.
----------------
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the series of Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters of the series of Certificates covered by
such Prospectus Supplement and with respect to their unsold allotments or
subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon as having been
authorized. This Prospectus and any Prospectus Supplement with respect hereto
do not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the Certificates offered hereby and thereby nor an offer
to sell or a solicitation of an offer to buy the Certificates to any person in
any state or other jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus or any Prospectus Supplement
with respect hereto nor any sale made hereunder and thereunder shall, under any
circumstances, create any implication that the information herein or therein is
correct as of any time subsequent to the date of such information.
----------------
REPORTS TO CERTIFICATEHOLDERS
The Servicer will provide to the holders of Certificates of each series,
annually and on each Distribution Date, reports concerning the Trust Fund
related to such Certificates. See "The Pooling and Servicing Agreement--Reports
to Certificateholders". The Servicer will file with the Commission such reports
with respect to the Trust Fund for a series of Certificates as are required
under the Exchange Act and the rules and regulations of the Commission
thereunder until the completion of the reporting period required by Rule 15d-1
under the Exchange Act.
----------------
iii
<PAGE>
TABLE OF CONTENTS
RISK FACTORS ..................................... 8
DESCRIPTION OF THE CERTIFICATES .................. 10
General ....................................... 10
Classes of Certificates ....................... 10
Distributions of Principal and Interest ....... 11
THE MORTGAGE POOLS ............................... 13
CREDIT SUPPORT ................................... 15
General ....................................... 15
Limited Guarantee of the Guarantor ............ 15
Subordination ................................. 15
Cross-Support ................................. 17
Pool Insurance ................................ 17
Special Hazard Insurance ...................... 18
Bankruptcy Bond ............................... 19
Repurchase Bond ............................... 19
Guaranteed Investment Contracts ............... 19
Reserve Accounts .............................. 20
Other Insurance, Guarantees and Similar
Instruments or Agreements .................. 20
YIELD, MATURITY AND WEIGHTED
AVERAGE LIFE CONSIDERATIONS ................... 20
CHASE MORTGAGE FINANCE
CORPORATION ................................... 22
UNDERWRITING POLICIES ............................ 22
SERVICING OF THE MORTGAGE LOANS ........... 23
Collection and Other Servicing Procedures ..... 23
Private Mortgage Insurance .................... 24
Hazard Insurance .............................. 24
Advances ...................................... 25
Servicing and Other Compensation and
Payment of Expenses ........................ 25
Resignation, Succession and Indemnification
of the Servicer ............................ 26
THE POOLING AND SERVICING
AGREEMENT ..................................... 27
Assignment of Mortgage Loans; Warranties ...... 27
Payments on Mortgage Loans; Collection
Account .................................... 28
Repurchase or Substitution .................... 28
Certain Modifications and Refinancings ........ 29
Evidence as to Compliance ..................... 30
The Trustee ................................... 30
Reports to Certificateholders ................. 31
Events of Default ............................. 31
Rights Upon Event of Default .................. 32
Amendment ..................................... 32
Termination; Purchase of Mortgage Loans ....... 33
<PAGE>
MATERIAL LEGAL ASPECTS OF THE
MORTGAGE LOANS ................................ 34
General ....................................... 34
Foreclosure ................................... 34
Right of Redemption ........................... 35
Anti-Deficiency Legislation and Other
Limitations on Lenders ..................... 36
Consumer Protection Laws ...................... 36
Enforceability of Due-on-Sale Clauses ......... 37
Applicability of Usury Laws ................... 37
Soldiers' and Sailors' Civil Relief Act ....... 38
Late Charges, Default Interest and
Limitations on Prepayment .................. 38
Environmental Considerations .................. 38
Forfeiture in Drug and RICO Proceedings ....... 39
LEGAL INVESTMENT MATTERS ......................... 41
ERISA CONSIDERATIONS ............................. 42
FEDERAL INCOME TAX CONSEQUENCES .................. 44
General ....................................... 44
REMIC Elections ............................... 44
REMIC Certificates ............................ 44
Tax Opinion ................................... 44
Status of Certificates ........................ 44
Income from Regular Certificates .............. 45
Income from Residual Certificates ............. 48
Sale or Exchange of Certificates .............. 50
Taxation of Certain Foreign Investors ......... 50
Transfers of Residual Certificates ............ 51
Servicing Compensation and Other REMIC
Pool Expenses .............................. 53
Reporting and Administrative Matters .......... 53
Non-REMIC Certificates ........................ 53
Trust Fund as Grantor Trust ................... 53
Status of the Certificates .................... 54
Possible Application of Stripped Bond Rules 54
Taxation of Certificates if Stripped Bond
Rules Do Not Apply ......................... 55
Taxation of Certificates if Stripped Bond
Rules Apply ................................ 55
Sales of Certificates ......................... 56
Foreign Investors ............................. 56
Backup Withholding ............................ 56
PLAN OF DISTRIBUTION ............................. 57
USE OF PROCEEDS .................................. 58
LEGAL MATTERS .................................... 58
iv
<PAGE>
SUMMARY OF PROSPECTUS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the Prospectus Supplement to be prepared in connection with each Series of
Certificates. Unless otherwise specified, capitalized terms used and not
defined in this Summary of Prospectus have the meanings given to them in this
Prospectus and in the related Prospectus Supplement.
Title of Securities...... Mortgage Pass-Through Certificates, issuable in
series.
Seller; Servicer......... Chase Mortgage Finance Corporation (the "Seller").
See "Chase Mortgage Finance Corporation." Chase
Manhattan Mortgage Corporation ("Chase Manhattan
Mortgage") or the "Servicer"), or such other entity
or entities specified in the Prospectus Supplement
will service, and may act as master servicer with
respect to, the Mortgage Loans included in the Trust
Fund.
Description of
Certificates............. Each Certificate will represent a beneficial
ownership interest in one of a number of trusts to
be created by the Seller from time to time pursuant
to a pooling and servicing agreement (each, an
"Agreement") among the Seller, the Servicer and the
commercial bank or trust company acting as trustee
specified in the Prospectus Supplement. The property
of each trust (a "Trust Fund") will consist of a
pool (a "Mortgage Pool") of residential one- to
four-family mortgage loans (the "Mortgage Loans")
and related property and interests (including, for
example, (i) amounts received as Monthly Payments or
principal prepayments which are on deposit in the
Collection Account from time to time, (ii) property
which secured a Mortgage Loan which has been
acquired by foreclosure or (iii) proceeds of the
liquidation of a Mortgaged Property) conveyed to
each Trust Fund by the Seller. As specified in the
related Prospectus Supplement, each Mortgage Pool
will consist entirely of fixed-rate or
adjustable-rate Mortgage Loans originated by the
Servicer, either directly or through correspondent
originators, or originated by other originators and,
in any such case, acquired by the Servicer or an
affiliate thereof. If specified in the related
Prospectus Supplement, a Trust Fund may also include
one or more of the following: reinvestment income,
reserve accounts, insurance policies, guarantees or
similar instruments or agreements intended to
decrease the likelihood that Certificateholders will
experience delays in distributions of scheduled
payments on, or losses in respect of, the assets in
The Certificates of any series will be entitled to
payment only from the assets of the related Trust
Fund. The Certificates of any series may be issued
in a single class or in two or more classes, as
specified in the Prospectus Supplement. One or more
classes of Certificates of each series (i) may be
entitled to receive distributions allocable only to
principal, only to interest or to any combination
thereof; (ii) may be entitled to receive
distributions only of prepayments of principal
throughout the lives of the Certificates or during
specified periods; (iii) may be subordinated in the
right to receive distributions of scheduled
payments of principal, prepayments of principal,
interest or any combination thereof to one or more
other
1
<PAGE>
classes of Certificates of such series throughout
the lives of the Certificates or during specified
periods; (iv) may be entitled to receive such
distributions only after the occurrence of events
specified in the Prospectus Supplement; (v) may be
entitled to receive distributions in accordance
with a schedule or formula or on the basis of
collections from designated portions of the assets
in the Trust Fund; (vi) as to Certificates entitled
to distributions allocable to interest, may be
entitled to receive interest at a fixed rate or a
rate that is subject to change from time to time;
and (vii) as to Certificates entitled to
distributions allocable to interest, may be
entitled to distributions allocable to interest
only after the occurrence of events specified in
the Prospectus Supplement and may accrue interest
until such events occur, in each case as specified
in the Prospectus Supplement. The timing and
amounts of such distributions may vary among
classes, over time, or otherwise as specified in
the related Prospectus Supplement.
The Certificates will be offered in
fully-registered form only in the denominations
specified in the Prospectus Supplement. The
Certificates will not be guaranteed or insured by
any governmental agency or instrumentality or any
other issuer and, except as described in the
Prospectus Supplement, the Mortgage Loans included
in the related Trust Fund will not be guaranteed or
insured by any governmental agency or
instrumentality or any other person.
Distributions on the
Certificates............ Distributions on the Certificates entitled thereto
will be made on the 25th day (or, if such day is not
a business day, the business day immediately
following such 25th day) of each month or such other
date specified in the Prospectus Supplement solely
out of the payments received in respect of the
assets of the related Trust Fund. The amount
allocable to payments of principal and interest on
any distribution date will be determined as
specified in the Prospectus Supplement. All
distributions will be made pro rata to
Certificateholders of the class entitled thereto or
by the other method specified in the Prospectus
Supplement. See "Description of the Certificates."
The aggregate original principal balance of the
Certificates will equal the aggregate distributions
allocable to principal that such Certificates will
be entitled to receive. If specified in the
Prospectus Supplement, the Certificates of a series
will have an aggregate original principal balance
equal to the aggregate unpaid principal balance of
the related Mortgage Loans as of the first day of
the month of creation of the Trust Fund and will
bear interest in the aggregate at a rate equal to
the interest rate borne by the underlying Mortgage
Loans, net of servicing fees payable to the
Servicer and any primary or sub-services of the
Mortgage Loans and any other amounts (including
fees payable to the Servicer as master Servicer, if
applicable) specified in the Prospectus Supplement
(as to each Mortgage Loan, the "Remittance Rate").
See "Description of the Certificates--Distributions
of Principal and Interest."
The rate at which interest will be passed through
to holders of Certificates entitled thereto may be
a fixed rate or a rate that is subject
2
<PAGE>
to change from time to time, in each case as
specified in the Prospectus Supplement. Any such
rate may be calculated on a loan-by-loan, weighted
average or other basis, in each case as described
in the Prospectus Supplement. See "Description of
the Certificates--Distributions of Principal and
Interest."
The Mortgage Pools....... As specified in the Prospectus Supplement, each
Mortgage Pool will consist of Mortgage Loans which
were represented to the Seller as meeting certain
standards. Each Mortgage Pool will contain one or
more of the following types of Mortgage Loans:(1)
20- to 30-year ("30-year") fixed-rate, fully
amortizing Mortgage Loans providing for level
monthly payments of principal and interest; (2) 10-
to 15-year ("15-year") fixed-rate, fully amortizing
Mortgage Loans providing for level monthly payments
of principal and interest; (3) adjustable-rate
Mortgage Loans ("ARMs" or "ARM Loans"), which may
include loans providing for negative amortization;
(4) another type of Mortgage Loan, as described in
the applicable Prospectus Supplement. If specified
in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans subject to buy-down
plans ("Buy-Down Mortgage Loans"). See "The Mortgage
Pools."
Primary Mortgage
Insurance................ To the extent specified in the applicable Prospectus
Supplement, each Mortgage Loan having a
Loan-to-Value Ratio above a specified level will be
covered by a Primary Mortgage Insurance Policy
insuring against default by the Borrower with
respect to all or a specified portion of the
principal amount thereof until the principal balance
of such Mortgage Loan is reduced below a specified
percentage of the lesser of the sales price or
appraised value of the Mortgaged Property. See "The
Mortgage Pools."
Purchase of
Mortgage Loans........... As described in the applicable Prospectus
Supplement, the Agreement for each series may
permit, but not require, the Seller, the Servicer or
another party to purchase from the Trust Fund for
such series all remaining Mortgage Loans and all
property acquired in respect of the Mortgage Loans,
at a price described in the Prospectus Supplement,
subject to the condition that the aggregate
outstanding principal balance of the Mortgage Loans
for such series at the time of purchase shall be
less than a percentage of the aggregate principal
balance at the Cut-Off Date specified in the
Prospectus Supplement. The exercise of such right
will result in the early retirement of the
Certificates of that series. See "The Pooling and
Servicing Agreement--Termination; Purchase of
Mortgage Loans."
Collection Account....... With respect to each Trust Fund, the Servicer will
be obligated to establish an account into which it
will deposit on the dates specified in the related
Prospectus Supplement payments received in respect
of the assets in such Trust Fund. See "The Pooling
and Servicing Agreement--Payments on Mortgage Loans;
Collection Account."
Advances................. If specified in the Prospectus Supplement, the
Servicer, as Servicer or master servicer of the
Mortgage Loans, will be obligated to advance, using
its own funds, delinquent installments of principal
and interest (the latter adjusted to the applicable
Remittance Rate) on the Mortgage Loans in a Trust
Fund. Any such obligation to make advances may be
limited to amounts due holders of certain
3
<PAGE>
classes of Certificates of the related series, to
amounts deemed to be recoverable from late payments
or liquidation proceeds, for specified periods or
any combination thereof, in each case as specified
in the related Prospectus Supplement. Any such
advance will be recoverable by the Servicer as
specified in the related Prospectus Supplement. See
"Servicing of the Mortgage Loans--Advances."
Credit Support........... If specified in the Prospectus Supplement, a
series of Certificates, or certain classes within
such series, may have the benefit of one or more of
the following types of credit support. The
protection against losses afforded by any such
credit support will be limited. See "Credit
Support."
A. Limited Guarantee..... If specified in the Prospectus Supplement, certain
obligations of the Servicer under the related
Agreement, including obligations of the Servicer to
cover certain deficiencies in principal or interest
payments on the Mortgage Loans resulting from the
bankruptcy of the related borrower, may be covered
by a financial guarantee policy, limited guarantee
or other similar instrument (the "Limited
Guarantee"), limited in scope and amount, issued by
an entity named in the Prospectus Supplement (the
"Guarantor"). If so specified, the Guarantor may be
obligated to take either or both of the following
actions in the event the Servicer fails to do so:
make deposits to the Collection Account (a "Deposit
Guarantee"); or make advances (an "Advance
Guarantee"). Any such Limited Guarantee will be
limited in amount and a portion of the coverage of
any such Limited Guarantee may be separately
allocated to certain events. The scope, amount and,
if applicable, the allocation of any Limited
Guarantee will be described in the related
Prospectus Supplement. See "Credit Support--Limited
Guarantee of the Guarantor."
B. Subordination......... A series of Certificates may include one or more
classes that are subordinate in the right to receive
distributions on such Certificates to one or more
senior classes of Certificates of the same series,
to the extent described in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, subordination may apply only
in the event of certain types of losses not covered
by other forms of credit support, such as hazard
losses not covered by standard hazard insurance
policies or losses resulting from the bankruptcy of
the borrower.
If specified in the Prospectus Supplement, a
reserve fund may be established and maintained by
the deposit therein of distributions allocable to
the holders of subordinate Certificates until a
specified level is reached. The related Prospectus
Supplement will set forth information concerning
the amount of subordination of a class or classes
of subordinate Certificates in a series, the
circumstances in which such subordination will be
applicable, the manner, if any, in which the amount
of subordination will decrease over time, the
manner of funding the related reserve fund, if any,
and the conditions under which amounts in any such
reserve fund will be used to make distributions to
holders of senior Certificates or released from the
related Trust Fund. See "Credit
Support--Subordination."
4
<PAGE>
C. Certificate Guaranty
Insurance Policies..... If specified in the related Prospectus Supplement,
one or more certificate guaranty insurance policies
(each, a "Certificate Guaranty Insurance Policy")
will be obtained and maintained for one or more
Classes or Series of Certificates. The issuer of any
such Certificate Guaranty Insurance Policy (the
"Certificate Insurer") will be named int he related
Prospectus Supplement. In general, Certificate
Guaranty Insurance Policies unconditionally and
irrevocably guarantee that the full amount of the
distributions of principal and interest to which the
holders of the related Certificates are entitled
under the related Agreement, as well as any other
amounts specified in the related Prospectus
Supplement, will be received by an agent of the
Trustee for distribution by the Trustee to such
holders.
D. Overcollateralization.. If specified in the related Prospectus
Supplement, the aggregate principal balance of the
Mortgage Assets included in a Trust Fund may exceed
the original principal balance of the related
Certificates. In addition, if so specified in the
related Prospectus Supplement, certain Classes of
Certificates may be entitled to receive
distributions, creating a limited acceleration of
the payment of the principal of such Certificates
relative to the amortization of the related Mortgage
Loans by applying excess interest collected on the
Mortgage Loans to distributions of principal on such
Classes of Certificates. Such acceleration feature
may continue for the life of the applicable Classes
of Certificates 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, the acceleration feature will
cease unless necessary to maintain the required
overcollateralization level.
E. Cross-Support......... If specified in the Prospectus Supplement, the
beneficial ownership of separate groups of assets
included in a Trust Fund may be evidenced by
separate classes of the related series of
Certificates. In such case, and if so specified,
credit support may be provided by a cross-support
feature which requires that distributions be made
with respect to Certificates evidencing beneficial
ownership of one or more asset groups prior to
distributions to subordinate Certificates evidencing
a beneficial ownership interest in other asset
groups within the same Trust Fund. If specified in
the Prospectus Supplement, the coverage provided by
one or more forms of credit support may apply
concurrently to two or more separate Trust Funds. If
applicable, the 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. See
"Credit Support--Cross Support."
F. Pool and Special Hazard
Insurance ............. In order to decrease the likelihood that
Certificateholders will experience losses in
respect of the Mortgage Loans, if specified in the
Prospectus Supplement, the Seller will obtain one
or more insurance policies to cover (i) losses by
reason of defaults by borrowers (a "Mortgage Pool
Insurance Policy") and (ii) losses by reason of
hazards not covered under the standard form of
hazard insurance
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(a "Special Hazard Insurance Policy"), in each case
up to the amounts, for the periods and subject to
the conditions specified in the Prospectus
Supplement. See "Credit Support--Pool Insurance"
and "--Special Hazard Insurance."
G. Reserve Accounts,
Other Insurance,
Guarantees and Similar
Instruments and
Agreements ........... In order to decrease the likelihood that
Certificateholders will experience delays in the
receipt of scheduled payments on, and losses in
respect of, the assets in a Trust Fund, if specified
in the related Prospectus Supplement, such Trust
Fund may also include reserve accounts, other
insurance, guarantees and similar instruments and
agreements entered into with the entities, in the
amounts, for the purposes and subject to the
conditions specified in the Prospectus Supplement.
See "Credit Support--Reserve Accounts" and "--Other
Insurance, Guarantees and Similar Instruments or
Agreements."
Pre-Funding Account...... A Trust Fund may enter into an agreement (each, a
"Pre-Funding Agreement") with the Depositor whereby
the Depositor will agree to transfer additional
Mortgage Assets to such Trust Fund following the
date on which such Trust Fund is established and the
related Securities are issued. Any Pre-Funding
Agreement will require that any Mortgage Loans so
transferred conform to the requirements specified in
such Pre-Funding Agreement. If a Pre-Funding
Agreement is to be utilized, the related Trustee
will be required to deposit in a segregated account
(each, a "Pre-Funding Account") all or a portion of
the proceeds received by the Trustee in connection
with the sale of one or more classes of Securities
of the related series; subsequently, the additional
Mortgage Assets will be transferred to the related
Trust Fund in exchange for money released to the
Depositor from the related Pre-Funding Account. Each
Pre-Funding Agreement will set a specified period
during which any such transfers must occur, which
period will not exceed 90 days from the date the
Trust Fund is established. If all moneys originally
deposited to such Pre-Funding Account are not used
by the end of such specified period, then any
remaining moneys will be applied as a mandatory
prepayment of a class or classes of Securities as
specified in the related Prospectus Supplement. The
specified period for the acquisition by a Trust Fund
of additional Mortgage Loans will generally not
exceed three months form the date such Trust Fund is
established.
Federal Income Tax
Consequences............ The federal income tax consequences to
Certificateholders will depend on, among other
factors, whether an election is made to treat the
Trust Fund or specified portions thereof as a "real
estate mortgage investment conduit" ("REMIC") under
the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). See "Federal Income Tax
Consequences".
ERISA Considerations..... A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or
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a plan subject to Section 4975 of the Code should
carefully review with its own legal advisors
whether the purchase or holding of Certificates
could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the Code.
See "ERISA Considerations".
Legal Investment
Matters.................. The Prospectus Supplement for each series of
Certificates will specify which, if any, of the
classes of Certificates offered thereby will
constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Classes of Certificates that qualify as
"mortgage related securities" will be legal
investments for certain types of institutional
investors to the extent provided in SMMEA, subject,
in any case, to any other regulations which may
govern investments by such institutional investors.
Institutions whose investment authority is subject
to legal restrictions should consult with their own
legal advisors or the applicable authorities to
determine whether and to what extent an investment
in a particular class of Certificates (whether or
not such class constitutes a "mortgage related
security") constitutes a legal investment for them.
See "Legal Investment Matters".
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RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
l. Losses on the Mortgage Pool. An investment in Certificates evidencing
interests in Mortgage Loans may be affected, among other things, by a decline
in real estate values or changes in mortgage market rates. If the residential
real estate market in the locale of properties securing the Mortgage Loans
should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans, and any secondary financing on the
Mortgaged Properties in a particular Mortgage Pool, become equal to or greater
than the value of Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. To the extent that such losses are not covered
by any subordination feature, applicable insurance policies or other credit
enhancement, holders of the Certificates of a Series evidencing interests in
such Mortgage Pool will bear all risk of loss resulting from default by
mortgagors and will have to look primarily to the value of the Mortgaged
Properties for recovery of the outstanding principal and unpaid interest of the
defaulted Mortgage Loans. See "The Mortgage Pools."
2. Limited Obligations. The Certificates will not represent an interest in
or obligation of the Seller. The Certificates will not be insured or guaranteed
by any government agency or instrumentality, nor, unless expressly provided in
the related Prospectus Supplement, by The Chase Manhattan Bank, Chase Manhattan
Mortgage Corporation, Chase Mortgage Finance Corporation or any of their
affiliates.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates of any Series or, if it does develop, that it
will provide the holders of Certificates of such Series with liquidity of
investment or that it will remain for the term of such series of Certificates.
Although the Certificateholders of each series receive monthly statements
containing certain statistical information with respect to the related Mortgage
Pool, neither the Company nor the Servicer publishes any information relating
to the Certificates of any series or any Mortgage Pool. The limited
availability of any such published information may influence the liquidity of
the Certificates. The Certificates will not be listed on any securities
exchange.
4. Prepayment Considerations. The prepayment experience on the Mortgage
Loans will affect the average life of the Certificates or each class of
Certificates. Prepayments on the Mortgage Loans may be influenced by a variety
of economic, geographic, social and other factors, including the difference
between the interest rates on the Mortgage Loans and prevailing mortgage rates
(giving consideration to the cost of refinancing). In general, if mortgage
interest rates fall below the interest rates on the Mortgage Loans, the rate of
prepayment would be expected to increase, and the yields at which an investor
in the Certificates may be able to reinvest amounts received as payments on
such investor's Certificates may be lower than the yield on such Certificates.
Conversely, if mortgage interest rates rise above the interest rates on the
Mortgage Loans, the rate of prepayment would be expected to decrease, and the
amount of payments available to a Certificateholder for reinvestment may be
relatively low. Other factors affecting prepayment of mortgage loans include
changes in housing needs, job transfers, unemployment and servicing decisions.
See "Yield, Maturity and Weighted Average Life Considerations."
5. Yield, Maturity and Weighted Average Life Considerations. The yield of
the Certificates of each series will depend in part on the rate of principal
payment on the Mortgage Loans (including prepayments, liquidations due to
defaults and mortgage loan repurchases). Such yield may be adversely affected,
depending upon whether a particular Certificate is purchased at a premium or
discount price, by a higher or lower than anticipated rate of prepayments on
the related Mortgage Loans. In particular, the yield on Classes of Certificates
entitling the holders thereof primarily or exclusively to payments of interest
or primarily or exclusively to payments of principal will be extremely
sensitive to the rate of prepayments on the related Mortgage Loans. In
addition, the yield on certain Classes of Certificates may be relatively more
sensitive to the rate of prepayment of specified Mortgage Loans than other
Classes of Certificates. Furthermore, the yield to investors may be adversely
affected by interest shortfalls which may result from the timing of the receipt
of prepayments or liquidations to the extent that such interest shortfalls are
not covered by aggregate Servicing Fees or other mechanisms specified in the
applicable Prospectus Supplement. The yield to investors in Classes of
Certificates will be adversely affected to the extent that losses on the
Mortgage Loans in the related Trust Fund are allocated to such Classes
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<PAGE>
and may be adversely affected to the extent of unadvanced delinquencies on the
Mortgage Loans in the related Trust Fund. Classes of Certificates identified in
the applicable Prospectus Supplement as subordinated Certificates are more
likely to be affected by delinquencies and losses than other Classes of
Certificates. See "Yield, Maturity and Weighted Average Life Considerations."
6. Subordination. With respect to Certificates of a series having one or
more classes of subordinated Certificates, while the subordination feature is
intended to enhance the likelihood of timely payment of principal and interest
to senior Certificateholders, such subordination will be limited as specified
in the Prospectus Supplement, any reserve fund could be depleted under certain
circumstances, and payments applied to the senior Certificates which are
otherwise due to the subordinated Certificates may be less than losses.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate pooling
and servicing agreement (each, an "Agreement") entered into among the Seller,
the Servicer and a commercial bank or trust company named in the Prospectus
Supplement, as trustee (the "Trustee") for the benefit of holders of
Certificates of that Series. The provisions of each Agreement will vary
depending upon the nature of the Certificates to be issued thereunder and the
nature of the related Trust Fund. The Agreement will be substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
is a part, or in such similar form as will reflect the terms of a series of
Certificates described in the Prospectus Supplement. The following summaries
describe the material provisions which may appear in each Agreement. The
Prospectus Supplement for a series of Certificates will describe any provision
of the Agreement relating to such series that materially differs from the
description thereof contained in this Prospectus. 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 series of
Certificates and the applicable Prospectus Supplement. The Seller will provide
any Certificateholder, without charge, on written request a copy of the
Agreement for any series. Requests should be addressed to Chase Mortgage
Finance Corporation, 343 Thornall Street, Edison, New Jersey 08837, Attention:
President. The Agreement relating to a series of Certificates will be filed
with the Securities and Exchange Commission in a report on Form 8-K within 15
days after the date of issuance of such series of Certificates (the "Delivery
Date").
The Certificates of a series will be entitled to payment only from the
assets included in the Trust Fund related to such series and will not be
entitled to payments in respect of the assets included in any other trust fund
established by the Seller. The Certificates will not represent obligations of
the Seller, the Servicer or any of their affiliates and will not be insured or
guaranteed by any governmental agency or any other person. The Seller's only
obligations with respect to the Certificates will consist of its obligations
pursuant to certain representations and warranties made by it. The Servicer's
only obligations with respect to the Certificates will consist of its
contractual servicing and/or master servicing obligations, including any
obligation to make advances under certain limited circumstances specified
herein of delinquent installments of principal and interest (adjusted to the
applicable Remittance Rate), and its obligations pursuant to certain
representations and warranties made by it.
The Mortgage Loans will not be insured or guaranteed by any governmental
entity or, except as specified in the Prospectus Supplement, by any other
person. To the extent that delinquent payments on or losses in respect of
defaulted Mortgage Loans are not advanced by the Servicer or any other entity
or paid from any applicable credit support arrangement, such delinquencies may
result in delays in the distribution of payments to the holders of one or more
classes of Certificates, and such losses will be borne by the holders of one or
more classes of Certificates.
General
The Certificates of each series will be issued in fully-registered form
only. The minimum original Certificate Principal Balance or Notional Principal
Balance that may be represented by a Certificate (the "denomination") will be
specified in the Prospectus Supplement. The original Certificate Principal
Balance of each Certificate will equal the aggregate distributions allocable to
principal to which such Certificate is entitled. Distributions allocable to
interest on each Certificate that is not entitled to distributions allocable to
principal will be calculated based on the Notional Principal Balance of such
Certificate. The Notional Principal Balance of a Certificate will not evidence
an interest in or entitlement to distributions allocable to principal but will
be used solely for convenience in expressing the calculation of interest and
for certain other purposes.
The Certificates of a series will be transferable and exchangeable on a
Certificate Register to be maintained at the corporate trust office of the
Trustee for the related series or such other office or agency maintained for
such purposes by the Trustee in New York City (or at the office of the
certificate registrar specified in the related Prospectus Supplement). No
service charge will be made for any registration of transfer or exchange of
Certificates, but payment of a sum sufficient to cover any tax or other
governmental charge may be required.
Classes of Certificates
Each series of Certificates will be issued in a single class or in two or
more classes. The Certificates of each class will evidence the beneficial
ownership of (i) any distributions in respect of the assets of the Trust Fund
that
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are allocable to principal, in the aggregate amount of the original Certificate
Principal Balance, if any, of such class of Certificates as specified in the
Prospectus Supplement and (ii) any distributions in respect of the assets of
the Trust Fund that are allocable to interest on the Certificate Principal
Balance or Notional Principal Balance of such Certificates from time to time at
the Certificate Rate, if any, applicable to such class of Certificates as
specified in the Prospectus Supplement. If specified in the Prospectus
Supplement, one or more classes of a series of Certificates may evidence
beneficial ownership interests in separate groups of assets included in the
related Trust Fund.
If specified in the Prospectus Supplement, the Certificates will have an
aggregate original Certificate Principal Balance equal to the aggregate unpaid
principal balance of the Mortgage Loans as of the close of business on the
first day of the month of creation of the Trust Fund (the "Cut-Off Date") after
deducting payments of principal due on or before, and prepayments of principal
received on or before, the Cut-Off Date and in the aggregate will bear interest
equal to the weighted average of the Remittance Rates. The Remittance Rate will
equal the rate of interest payable on each Mortgage Loan minus the Servicer's
servicing fee as described herein, the servicing fee of any third party
servicer of the Mortgage Loans and such other amounts (including fees payable
to the Servicer as master servicer, if applicable) as are specified in the
Prospectus Supplement. The Certificates may have an original Certificate
Principal Balance as determined in the manner specified in the Prospectus
Supplement.
Each class of Certificates that is entitled to distributions allocable to
interest will bear interest at a fixed rate or a rate that is subject to change
from time to time (a) in accordance with a schedule, (b) in reference to an
index, or (c) otherwise (each, a "Certificate Rate"), in each case as specified
in the Prospectus Supplement. One or more classes of Certificates may provide
for interest that accrues, but is not currently payable ("Accrual
Certificates"). With respect to any class of Accrual Certificates, if specified
in the Prospectus Supplement, any interest that has accrued but is not paid on
a given Distribution Date (as defined below under "Distributions of Principal
and Interest") will be added to the aggregate Certificate Principal Balance of
such class of Certificates on that Distribution Date.
A series of Certificates may include one or more classes entitled only to
distributions (i) allocable to interest, (ii) allocable to principal (and
allocable as between scheduled payments of principal and Principal Prepayments,
as defined below) or (iii) allocable to both principal (and allocable as
between scheduled payments of principal and Principal Prepayments) and
interest. A series of Certificates may consist of one or more classes as to
which distributions will be allocated (i) on the basis of collections from
designated portions of the assets of the Trust Fund, (ii) in accordance with a
schedule or formula, (iii) in relation to the occurrence of events, or (iv)
otherwise, in each case as specified in the Prospectus Supplement. The timing
and amounts of such distributions may vary among classes, over time or
otherwise, in each case as specified in the Prospectus Supplement.
The taking of action with respect to certain matters under the Agreement,
including certain amendments thereto, will require the consent of the holders
of the Certificates. The voting rights allocated to each class of Certificates
will be specified in the Prospectus Supplement. Votes may be allocated in
different proportions among classes of Certificates depending on whether the
Certificates of a class have a Notional Principal Balance or a Certificate
Principal Balance.
Distributions of Principal and Interest
General.
Distributions of principal and interest at the applicable Certificate Rate
(if any) on the Certificates will be made to the extent of funds available from
the related Trust Fund on the 25th day (or if such 25th day is not a business
day, on the business day next following such 25th day) of each calendar month
(each, a "Distribution Date"), commencing in the month following the issuance
of the related series, or on such other date as is specified in the Prospectus
Supplement. Distributions will be made to the persons in whose names the
Certificates are registered at the close of business on the dates specified in
the Prospectus Supplement (each, a "Record Date"). Distributions will be made
by check or money order mailed to the person entitled thereto at the address
appearing in the Certificate Register or, if specified in the Prospectus
Supplement, in the case of Certificates that are
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of a certain minimum denomination as specified in the Prospectus Supplement,
upon written request by the Certificateholder, by wire transfer or by such
other means as are agreed upon with the person entitled thereto; provided,
however, that the final distribution in retirement of the Certificates will be
made only upon presentation and surrender of the Certificates at the office or
agency of the Trustee specified in the notice to Certificateholders of such
final distribution.
Distributions allocable to principal and interest on the Certificates will
be made by the entity specified in the Prospectus Supplement as the paying
agent (the "Paying Agent") out of, and only to the extent of, funds in a
separate account established and maintained under the Agreement for the benefit
of holders of the Certificates of the related series (the "Collection
Account"), including any funds transferred from any Reserve Account. As between
Certificates of different classes and as between distributions of principal
(and, if applicable, between distributions of Principal Prepayments and
scheduled payments of principal) and interest, distributions made on any
Distribution Date will be applied as specified in the Prospectus Supplement.
Distributions to any class of Certificates will be made pro rata to all
Certificateholders of that class or by the other method described in the
Prospectus Supplement. If so specified in the Prospectus Supplement, the
amounts deposited into the Collection Account as described below under "The
Pooling and Servicing Agreement--Payments on Mortgage Loans; Collection
Account" will be invested in the eligible investments specified in the
Agreement and all income or other gain from such investments will be deposited
in the Collection Account and will be for the benefit of the Servicer or other
entity specified in the Prospectus Supplement and subject to withdrawal from
time to time.
Distributions of Interest. Interest will accrue on the aggregate
Certificate Principal Balance (or, in the case of Certificates entitled only to
distributions allocable to interest, the aggregate Notional Principal Balance)
of each class of Certificates entitled to interest from the date, at the
Certificate Rate and for the periods (each, an "Interest Accrual Period")
specified in the Prospectus Supplement. To the extent funds are available
therefor, interest accrued during each Interest Accrual Period on each class of
Certificates entitled to interest (other than a class of Accrual Certificates)
will be distributable on the Distribution Dates specified in the Prospectus
Supplement until the aggregate Certificate Principal Balance of the
Certificates of such class has been distributed in full or, in the case of
Certificates entitled only to distributions allocable to interest, until the
aggregate Notional Principal Balance of such Certificates is reduced to zero or
for the period of time designated in the Prospectus Supplement. Distributions
of interest on each class of Accrual Certificates will commence only after the
occurrence of the events specified in the Prospectus Supplement. Prior to such
time, the beneficial ownership interest of such class of Accrual Certificates
in the Trust Fund, as reflected in the aggregate Certificate Principal Balance
of such class of Accrual Certificates, will increase on each Distribution Date
by the amount of interest that accrued on such class of Accrual Certificates
during the preceding Interest Accrual Period but that was not required to be
distributed to such class on such Distribution Date. Any such class of Accrual
Certificates will thereafter accrue interest on its outstanding Certificate
Principal Balance as so adjusted.
Distributions of Principal. The aggregate Certificate Principal Balance of
any class of Certificates entitled to distributions of principal generally will
be the aggregate original Certificate Principal Balance of such class of
Certificates specified in the Prospectus Supplement, reduced by all
distributions reported to the holders of such Certificates as allocable to
principal, and, in the case of Accrual Certificates, as specified in the
Prospectus Supplement, increased on each Distribution Date by all interest
accrued but not then distributable on such Accrual Certificates. The Prospectus
Supplement will specify the method by which the amount of principal to be
distributed on the Certificates on each Distribution Date will be calculated
and the manner in which such amount will be allocated among the classes of
Certificates entitled to distributions of principal.
If so specified in the Prospectus Supplement, one or more classes of
senior Certificates will be entitled to receive all or a disproportionate
percentage of the payments or other recoveries of principal on a Mortgage Loan
which are received in advance of their scheduled due dates and not accompanied
by amounts of interest representing scheduled interest due after the month of
such payments ("Principal Prepayments") in the percentages and under the
circumstances or for the periods specified in the Prospectus Supplement. Any
such allocation of Principal Prepayments to such class or classes of
Certificateholders will have the effect of accelerating the amortization of
such Certificates while increasing the interests evidenced by the remaining
Certificates in the Trust Fund.
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THE MORTGAGE POOLS
Each mortgage pool (a "Mortgage Pool") will consist of one- to four-family
residential mortgage loans evidenced by promissory notes (each, a "Note")
secured by first mortgages or first deeds of trust or other similar security
instrument (each, a "Mortgage") creating a first lien on properties (the
"Mortgaged Properties"). When each series of Certificates is issued, the Seller
will cause the Mortgage Loans comprising each Mortgage Pool to be assigned to
the Trustee for the benefit of the holders of the Certificates of that series,
and will receive the Certificates in exchange therefor. Certain Certificates
evidencing interests in a Trust Fund may not form part of the offering made
pursuant to this Prospectus and the related Prospectus Supplement.
The Mortgaged Properties in each Mortgage Pool may consist of single-unit
dwellings, two-, three- and four-unit detached, townhouse or rowhouse
dwellings, condominium and planned-unit development ("PUD") units and such
other types of homes or units as are described in the applicable Prospectus
Supplement, and may include vacation and second homes and investment properties
(i.e. one-to-four family properties owned for investment and rented to generate
income). The applicable Prospectus Supplement will contain information
concerning the originators of the Mortgage Loans and the underwriting standards
employed by such originators.
All Mortgage Loans will (i) be secured by Mortgaged Properties located in
one of the states of the United States or the District of Columbia, and (ii) be
of one or more of the following types of Mortgage Loans:
(1) Fully-amortizing Mortgage Loans, each with a 20-to 30-year ("30-Year")
term at origination, interest (the "Mortgage Rate") at a fixed rate and level
monthly payments over the term of the Mortgage Loan.
(2) Fully-amortizing Mortgage Loans, each with a 10-to 15-year ("15-Year")
term at origination, a fixed Mortgage Rate and level monthly payments over the
term of the Mortgage Loan.
(3) Mortgage Loans, each with an adjustable Mortgage Rate.
Mortgage Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Mortgage Insurance Policy"). The
existence, extent and duration of any such coverage will be described in the
applicable Prospectus Supplement. The "Loan-to-Value Ratio" is the ratio,
expressed as a percentage, of the principal amount of the Mortgage Loan to the
lesser of (i) the sales price for such property at the time the Mortgage Loan
is closed and (ii) the appraised value at origination or, in the case of
refinancings, the value set forth in the appraisal, if any, obtained by the
loan originator in connection with such refinancing. Each Mortgage Loan will
also be covered by a Standard Hazard Insurance Policy, as described under
"Servicing of the Mortgage Loans--Hazard Insurance" below.
In addition, other credit enhancements acceptable to the rating agency (or
agencies) rating the Certificates may be provided for coverage of certain risks
of default or losses. See "Credit Support" herein.
If specified in the applicable Prospectus Supplement, a Mortgage Pool may
contain Mortgage Loans subject to buy-down plans ("Buy-Down Mortgage Loans")
pursuant to which the monthly payments made by the Borrower will be less than
the scheduled monthly payments on the Buy-Down Mortgage Loan, the resulting
difference to be drawn from an amount contributed by the seller of the
Mortgaged Property or another source at the time of origination of the Buy-Down
Mortgage Loan and placed in a trust or custodial account (the "Buy-Down Fund")
(such amount hereinafter referred to as the "Buy-Down Reserve"). The applicable
Prospectus Supplement or Current Report (as defined below) will contain
information, with respect to any Buy-Down Mortgage Loans, concerning
limitations on the interest rate payable by the Borrower initially, on annual
increases in the interest rate, on the length of the buy-down period, and on
the Buy-Down Fund. The repayment of a temporary Buy-Down Mortgage Loan is
dependent on the ability of the Borrower to make larger monthly payments after
the Buy-Down Reserves have been depleted and, for certain Buy-Down Mortgage
Loans, while such funds are being depleted. The inability of the Borrower to
make larger monthly payments may lead to a default on the Buy-Down Mortgage
Loan or, if the Borrower is able to obtain refinancing on favorable terms, a
prepayment of such loan. See "Yield, Maturity and Weighted Average Life
Considerations."
The Prospectus Supplement for a series of Certificates may specify that
the related Mortgage Pool contains Mortgage Loans that have been used for
refinancing for the purpose of removing equity from the related Mortgaged
Properties ("Cash-Out Refinance Loans").
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The Prospectus Supplement for each series of Certificates will specify the
approximate aggregate principal balance of the Mortgage Loans (within the
percentage or dollar range specified therein). The Prospectus Supplement for
each series of Certificates will contain information regarding the Mortgage
Loans which are expected to be included in the related Mortgage Pool, including
among other things, information, as of the applicable Cut-Off Date and to the
extent then specifically known to the Seller, as to (i) the aggregate principal
balance of the Mortgage Loans, (ii) the aggregate principal balance or
percentage by aggregate principal balance of Mortgage Loans secured by each
type of property, (iii) the original terms to maturity of the Mortgage Loans,
(iv) the smallest and largest in principal balance at origination of the
Mortgage Loans, (v) the earliest origination date and latest maturity date of
the Mortgage Loans, (vi) the aggregate principal balance or percentage by
aggregate principal balance of Mortgage Loans having Loan-to-Value Ratios at
origination exceeding 80%, (vii) the Mortgage Rate or range of Mortgage Rates
borne by the Mortgage Loans and (viii) the average outstanding principal
balance of the Mortgage Loans. If specific information with respect to the
Mortgage Loans is not known at the time the related series of Certificates is
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report on Form 8-K to be filed with the Securities and Exchange
Commission within fifteen days after the initial issuance of such Certificates
(the "Current Report"). A copy of the Agreement with respect to a series of
Certificates will be attached to the related Current Report and will be
available for inspection at the corporate trust office of the Trustee specified
in the related Prospectus Supplement.
The Seller's assignment of the Mortgage Loans to the Trustee will be
without recourse. The Seller or another party identified in the applicable
Prospectus Supplement will make certain representations concerning the Mortgage
Loans, including that no Mortgage Loan in a Mortgage Pool evidenced by
Certificates will be more than one month delinquent as of the date of the
initial issuance of the Certificates. For a description of other
representations that will be made by the party specified in the applicable
Prospectus Supplement concerning the Mortgage Loans, see "The Pooling and
Servicing Agreement--Assignment of Mortgage Loans; Warranties." The Seller's
obligations with respect to the Mortgage Loans will be limited to any
representations and warranties made by it in, as well as its contractual
obligations under, the Agreement for each series of Certificates. These
obligations consist primarily of the obligation under certain circumstances to
repurchase or replace Mortgage Loans as to which there has been a material
breach of the Seller's representations and warranties which materially and
adversely affects the interests of the Certificateholders in a Mortgage Loan or
to cure such breach, and of the obligation, under certain circumstances, to
ensure the timely payment of premiums on certain insurance policies and bonds.
See "The Pooling and Servicing Agreement--Assignment of Mortgage Loans;
Warranties."
In addition, to the extent specified in the applicable Prospectus
Supplement, in the event of delinquencies in payments of principal and interest
on the Mortgage Loans in any Mortgage Pool, the Servicer (or, if so indicated
in the applicable Prospectus Supplement, another entity) will advance cash in
amounts described herein under "The Pooling and Servicing Agreement-Advances"
and "--Payments on Mortgage Loans; Collection Account." The Servicer is not
required to make any advance which it determines in its good faith judgment not
to be ultimately recoverable under any applicable policy of insurance
("Insurance Proceeds") or out of the proceeds of liquidation of a Mortgage Loan
("Liquidation Proceeds"). Each month, the Trustee (or such other paying agent
as may be specified in the applicable Prospectus Supplement) will be obligated
to remit to Certificateholders of each series all amounts relating to the
Mortgage Loans due to the Certificateholders to the extent such amounts have
been collected or advanced by the Servicer or such other entity and remitted to
the Trustee pursuant to the terms of the Agreement for such series. See
"Description of the Certificates--Distributions of Principal and Interest."
There can be no assurance that real estate values will remain at present
levels in the areas in which the Mortgaged Properties will be located. If the
residential real estate market should experience an overall decline in property
values such that the outstanding balances of the Mortgage Loans, and any
secondary financing on the Mortgaged Properties, in a particular Mortgage Pool
become equal to or greater than the value of the properties subject to the
Mortgage Loans included in such Mortgage Pool, the actual rates of
delinquencies, foreclosures and losses could be significantly higher than those
now generally experienced in the mortgage lending industry. To the extent that
such delinquencies, foreclosures and losses are not covered by applicable
credit enhancements described in the Prospectus Supplement, the losses
resulting therefrom will be borne by holders of the Certificates of the series
evidencing interests in such Mortgage Pool. With respect to any series as to
which
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subordinated Certificates shall have been issued, such losses will first be
borne by the holders of subordinated Certificates as a result and to the extent
of the subordination in right of payment of the subordinated Certificates to
the senior Certificates and as a result of first allocating such losses to
reduce the Certificate Principal Balance of such subordinated Certificates.
Because the principal amounts of Mortgage Loans decline monthly as
principal payments, including prepayments, are received, the fractional
undivided interest in principal evidenced by each Certificate in a series
multiplied by the aggregate principal balance of the Mortgage Loans in the
related Mortgage Pool will decline correspondingly. The principal balance
represented by a Certificate, therefore, ordinarily will decline over time.
CREDIT SUPPORT
General
Credit support may be provided with respect to one or more classes of a
series of Certificates or with respect to the assets in the related Trust Fund.
Credit support may be in the form of a limited financial guarantee policy,
limited guarantee or other similar instrument (a "Limited Guarantee") issued by
an entity named in the Prospectus Supplement (the "Guarantor"), the
subordination of one or more classes of the Certificates of such series, the
establishment of one or more reserve accounts, the use of a pool insurance
policy, bankruptcy bond, special hazard insurance policy, repurchase bond,
guaranteed investment contract or another method of credit support described in
the related Prospectus Supplement, or any combination of the foregoing. Any
credit support will not provide protection against all risks of loss and will
not guarantee repayment of the entire principal balance of the Certificates and
interest thereon. If losses occur which exceed the amount covered by credit
support or which are not covered by the credit support, Certificateholders will
bear their allocable share of the resulting deficiencies.
Limited Guarantee of the Guarantor
If specified in the Prospectus Supplement, certain obligations of the
Servicer under the related Agreement may be covered by a Limited Guarantee,
limited in scope and amount, issued by the Guarantor. If so specified, the
Guarantor may be obligated to take either or both of the following actions in
the event the Servicer fails to do so: make deposits to the Collection Account
(a "Deposit Guarantee"); or make advances (an "Advance Guarantee"). Any such
Limited Guarantee will be limited in amount and a portion of the coverage of
any such Limited Guarantee may be separately allocated to certain events. The
scope, amount and, if applicable, the allocation of any Limited Guarantee will
be described in the related Prospectus Supplement.
Subordination
If so specified in the Prospectus Supplement, distributions in respect of
scheduled principal, Principal Prepayments, interest or any combination thereof
that otherwise would have been payable to one or more classes of Certificates
of a series (the "subordinated Certificates") will instead be payable to
holders of one or more other classes of such series (the "senior Certificates")
under the circumstances and to the extent specified in the Prospectus
Supplement. If specified in the Prospectus Supplement, delays in receipt of
scheduled payments on the Mortgage Loans and losses on defaulted Mortgage Loans
will be borne first by the various classes of subordinated Certificates and
thereafter by the various classes of senior Certificates, in each case under
the circumstances and subject to the limitations specified in the Prospectus
Supplement. The aggregate distributions in respect of delinquent payments on
the Mortgage Loans over the lives of the Certificates or at any time, the
aggregate losses in respect of defaulted Mortgage Loans which must be borne by
the subordinated Certificates by virtue of subordination and the amount of the
distributions otherwise distributable to the subordinated Certificateholders
that will be distributable to senior Certificateholders on any Distribution
Date may be limited as specified in the Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Mortgage Loans or
aggregate losses in respect of such Mortgage Loans were to exceed the total
amounts payable and available for distribution to holders of subordinated
Certificates or, if applicable, were to exceed the specified maximum amount,
holders of senior Certificates could experience losses on the Certificates.
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In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of subordinated Certificates on any Distribution Date may instead be
deposited into one or more reserve accounts (a "Reserve Account") established
by the Trustee. If so specified in the Prospectus Supplement, such deposits may
be made on each Distribution Date, on each Distribution Date for specified
periods or until the balance in the Reserve Account has reached a specified
amount and, following payments from the Reserve Account to holders of senior
Certificates or otherwise, thereafter to the extent necessary to restore the
balance in the Reserve Account to required levels, in each case as specified in
the Prospectus Supplement. If so specified in the Prospectus Supplement,
amounts on deposit in the Reserve Account may be released to the Servicer or
the holders of any class of Certificates at the times and under the
circumstances specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, one or more classes of
Certificates may bear the risk of certain losses on defaulted Mortgage Loans
not covered by other forms of credit support prior to other classes of
Certificates. Such subordination might be effected by reducing the Certificate
Principal Balance of the subordinated Certificates on account of such losses,
thereby decreasing the proportionate share of distributions allocable to such
Certificates, or by another means specified in the Prospectus Supplement.
If specified in the Prospectus Supplement, various classes of senior
Certificates and subordinated Certificates may themselves be subordinate in
their right to receive certain distributions to other classes of senior and
subordinated Certificates, respectively, through a cross-support mechanism or
otherwise.
As between classes of senior Certificates and as between classes of
subordinated Certificates, distributions may be allocated among such classes
(i) in the order of their scheduled final distribution dates, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the Prospectus
Supplement. As between classes of subordinated Certificates, payments to
holders of senior Certificates on account of delinquencies or losses and
payments to any Reserve Account will be allocated as specified in the
Prospectus Supplement.
Certificate Guaranty Insurance Policies
If specified in the related Prospectus Supplement, one or more certificate
guaranty insurance policies (each, a "Certificate Guaranty Insurance Policy")
will be obtained and maintained for one or more Classes or Series of
Certificates. The issuer of any such Certificate Guaranty Insurance Policy (the
"Certificate Insurer") will be named int he related Prospectus Supplement. In
general, Certificate Guaranty Insurance Policies unconditionally and
irrevocably guarantee that the full amount of the distributions of principal
and interest to which the holders of the related Certificates are entitled
under the related Agreement, as well as any other amounts specified in the
related Prospectus Supplement, will be received by an agent of the Trustee for
distribution by the Trustee to such holders.
The specific terms of any Certificate Guaranty Insurance Policy will be
set forth in the related Prospectus Supplement. Certificate Guaranty Insurance
Policies may have limitations including, but not limited to, limitations on the
obligation of the Certificate Insurer to guarantee any Servicer's obligation to
repurchase or substitute for any specified date. The Certificate Insurer may be
subrogated to the rights of the holders of the related Certificates to receive
distributions to which they are entitled, as well as certain other amounts
specified in the related Prospectus Supplement, to the extent of any payments
made by such Certificate Insurer under the related Certificate Guaranty
Insurance Policy.
Overcollateralization
If specified in the related Prospectus Supplement, the aggregate principal
balance of the Mortgage Assets included in a Trust Fund may exceed the original
principal balance of the related Certificates. In addition, if so specified in
the related Prospectus Supplement, certain Classes of Certificates may be
entitled to receive distributions, creating a limited acceleration of the
payment of the principal of such Certificates relative to the amortization of
the related Mortgage Loans by applying excess interest collected on the
Mortgage Loans to distributions of principal on such Classes of Certificates.
Such acceleration feature may continue for the life of the
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applicable Classes of Certificates 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,
the acceleration feature will cease unless necessary to maintain the required
overcollateralization level.
Cross-Support
If specified in the Prospectus Supplement, the beneficial ownership of
separate groups of assets included in a Trust Fund may be evidenced by separate
classes of the related series of Certificates. In such case, credit support may
be provided by a cross-support feature which may require that distributions be
made with respect to Certificates evidencing beneficial ownership of one or
more asset groups prior to distributions to subordinated Certificates
evidencing a beneficial ownership interest in other asset groups within the
same Trust Fund. The Prospectus Supplement for a series which includes a
cross-support feature will describe the manner and conditions for applying such
cross-support feature.
If specified in the Prospectus Supplement, the coverage provided by one or
more forms of credit support may apply concurrently to two or more separate
Trust Funds. If applicable, the 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.
Pool Insurance
In order to decrease the likelihood that Certificateholders will
experience losses in respect of the Mortgage Loans, if specified in the
Prospectus Supplement, the Seller will obtain one or more pool insurance
policies. Any such policies may be in lieu of or in addition to any obligations
of the Seller or the Servicer in respect of the Mortgage Loans. Such pool
insurance policy will, subject to the limitations described below and in the
Prospectus Supplement, cover loss by reason of default in payments on the
Mortgage Loans up to the amounts specified in the Prospectus Supplement or the
Detailed Description and for the periods specified in the Prospectus
Supplement. The Servicer will agree to use its best reasonable efforts to
maintain in effect any such pool insurance policy and to present claims
thereunder to the pool insurer on behalf of itself, the Trustee and the
Certificateholders. The pool insurance policy, however, is not a blanket policy
against loss, since claims thereunder may only be made respecting particular
defaulted Mortgage Loans and only upon satisfaction of certain conditions
precedent described below. The pool insurance policy, if any, will not cover
losses due to a failure to pay or denial of a claim under a primary mortgage
insurance policy, irrespective of the reason therefor. The related Prospectus
Supplement will describe any provisions of a pool insurance policy that are
materially different from those described below.
Any pool insurance policy may provide that no claims may be validly
presented thereunder unless (i) any required primary mortgage insurance policy
is in effect for the defaulted Mortgage Loan and a claim thereunder has been
submitted and settled; (ii) hazard insurance on the related Mortgaged Property
has been kept in force and real estate taxes and other protection and
preservation expenses have been paid; (iii) if there has been physical loss or
damage to the Mortgaged Property, it has been restored to its condition
(reasonable wear and tear excepted) at the Cut-Off Date; (iv) the insured has
acquired good and merchantable title to the Mortgaged Property free and clear
of liens, except certain permitted encumbrances; and (v) the Servicer has
advanced foreclosure costs. Upon satisfaction of these conditions, the pool
insurer will have the option either (a) to purchase the Mortgaged Property at a
price equal to the Principal Balance thereof plus accrued and unpaid interest
at the Mortgage Rate to the date of purchase and certain expenses incurred by
the Servicer on behalf of the Trustee and the Certificateholders, or (b) to pay
the amount by which the sum of the Principal Balance of the defaulted Mortgage
Loan plus accrued and unpaid interest at the Mortgage Rate to the date of
payment of the claim and the aforementioned expenses exceeds the proceeds
received from an approved sale of the Mortgaged Property, in either case net of
certain amounts paid or assumed to have been paid under any related primary
mortgage insurance policy. If any property securing a defaulted Mortgage Loan
is damaged and proceeds, if any, from the related hazard insurance policy or
any applicable special hazard insurance policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under the pool
insurance policy, the 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 Certificateholders on liquidation of the Mortgage
Loan after reimbursement of the Servicer for its expenses, and (ii) that such
expenses will be recoverable by it through proceeds of the sale of the property
or proceeds of the pool insurance policy or any primary mortgage insurance
policy.
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In general, no pool insurance policy will insure (and many primary
mortgage insurance policies may not insure) against loss sustained by reason of
a default arising from, among other things, (i) fraud or negligence in the
origination or servicing of a Mortgage Loan, including misrepresentation by the
Mortgagor or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. If
so specified in the related Prospectus Supplement, a failure of coverage
attributable to one of the foregoing events might result in a breach of a
representation of the Seller (or another party) and in such event might give
rise to an obligation on the part of the Seller (or such other party) to
purchase or replace the defaulted Mortgage Loan if the breach materially and
adversely affects the interests of Certificateholders and cannot be cured.
As specified in the Prospectus Supplement, the original amount of coverage
under any pool insurance policy will be reduced over the life of the related
series of Certificates by the aggregate dollar amount of claims paid less the
aggregate of the net amounts realized by the pool insurer upon disposition of
all foreclosed properties. The amount of claims paid will include certain
expenses incurred by the Servicer as well as accrued interest on delinquent
Mortgage Loans to the date of payment of the claim. See "Material Legal Aspects
of the Mortgage Loans --Foreclosure". Accordingly, if aggregate net claims paid
under any pool insurance policy reach the original policy limit, coverage under
that pool insurance policy will be exhausted and any further losses will be
borne by one or more classes of Certificateholders unless assumed by some other
entity, if and to the extent specified in the Prospectus Supplement.
Since any mortgage pool insurance policy may require that the property
subject to a defaulted Mortgage Loan be restored to its original condition
prior to claiming against the pool insurer, such policy may not provide
coverage against hazard losses. The hazard policies concerning the Mortgage
Loans typically exclude from coverage physical damage resulting from a number
of causes and, even when the damage is covered, may afford recoveries which are
significantly less than the full replacement cost of such losses. Even if
special hazard insurance is applicable as specified in the Prospectus
Supplement, no coverage in respect of special hazard losses will cover all
risks, and the amount of any such coverage will be limited. See "Special Hazard
Insurance" below. As a result, certain hazard risks will not be insured against
and will therefore be borne by Certificateholders, unless otherwise assumed by
some other entity, as specified in the Prospectus Supplement.
Special Hazard Insurance
In order to decrease the likelihood that Certificateholders will
experience losses in respect of the Mortgage Loans, if specified in the
Prospectus Supplement, the Seller will obtain one or more special hazard
insurance policies with respect to the Mortgage Loans. Such a special hazard
insurance policy will, subject to limitations described below and in the
Prospectus Supplement, protect holders of Certificates from (i) loss by reason
of damage to Mortgaged Properties caused by certain hazards (including
earthquakes and, to a limited extent, tidal waves and related water damage) not
covered by the standard form of hazard insurance policy for the respective
states in which the Mortgaged Properties are located or under flood insurance
policies, if any, covering the Mortgaged Properties, and (ii) loss from partial
damage caused by reason of the application of the co-insurance clause contained
in hazard insurance policies. See "Servicing of the Mortgage Loans--Hazard
Insurance" below. Any special hazard insurance policy may not cover losses
occasioned by war, civil insurrection, certain governmental actions, errors in
design, faulty workmanship or materials (except under certain circumstances),
nuclear reaction, flood (if the Mortgaged Property is located in a federally
designated flood area), chemical contamination and certain other risks.
Aggregate claims under each special hazard insurance policy may be limited to a
specified percentage of the aggregate principal balance as of the Cut-Off Date
of the Mortgage Loans. Any special hazard insurance policy may also provide
that no claim may be paid unless hazard and, if applicable, flood insurance on
the Mortgaged Property has been kept in force and other protection and
preservation expenses have been paid by the Servicer.
Subject to the foregoing limitations, any special hazard insurance policy
may provide that, where there has been damage to property securing a foreclosed
Mortgage Loan (title to which has been acquired by the insured) and to the
extent such damage is not covered by the hazard insurance policy or flood
insurance policy, if any, maintained by the mortgagor or the Servicer, the
special hazard insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the property to the
special hazard insurer, the unpaid
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principal balance of such Mortgage Loan at the time of acquisition of such
property by foreclosure or deed in lieu of foreclosure, plus accrued interest
to the date of claim settlement and certain expenses incurred by the Servicer
with respect to such property. If the unpaid principal balance plus accrued
interest and certain expenses is paid by the insurer, the amount of further
coverage under the related special hazard insurance policy will be reduced by
such amount less any net proceeds from the sale of the property. Any amount
paid as the cost of repair or replacement of the property will also reduce
coverage by such amount. Restoration of the property with the proceeds
described under clause (i) above will satisfy the condition under any pool
insurance policy that the property be restored before a claim under such pool
insurance policy may be validly presented with respect to the defaulted
Mortgage Loan secured by such property. The payment described under clause (ii)
above will render unnecessary presentation of a claim in respect of such
Mortgage Loan under the related pool insurance policy. Therefore, so long as a
pool insurance policy remains in effect, the payment by the insurer under a
special hazard insurance policy of the cost of repair or replacement or the
unpaid principal balance of the Mortgage Loan plus accrued interest and certain
expenses will not affect the total insurance proceeds paid to
Certificateholders, but will affect the relative amounts of coverage remaining
under the related special hazard insurance policy and pool insurance policy.
Bankruptcy Bond
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the Mortgaged Property securing the related Mortgage
Loan at an amount less than the then outstanding principal balance of such
Mortgage Loan secured by such Mortgaged Property and could reduce the secured
debt to such value. In such case, the holder of such Mortgage Loan would become
an unsecured creditor to the extent of the difference between the outstanding
principal balance of such Mortgage Loan and such reduced secured debt. In
addition, certain other modifications of the terms of a Mortgage Loan can
result from a bankruptcy proceeding, including the reduction in monthly
payments required to be made by the borrower. See "Material Legal Aspects of
the Mortgage Loans -- Enforceability of Certain Provisions". If so provided in
the related Prospectus Supplement, the Servicer will obtain a bankruptcy bond
or similar insurance contract (the "bankruptcy bond") for proceedings with
respect to borrowers under the Bankruptcy Code. Any such bankruptcy bond will
cover certain losses resulting from a reduction by a bankruptcy court of
scheduled payments of principal of and interest on a Mortgage Loan or a
reduction by such court of the secured principal amount of a Mortgage Loan and
will cover certain unpaid interest on the amount of such a principal reduction
from the date of the filing of a bankruptcy petition.
Any such bankruptcy bond will provide coverage in the aggregate amount
specified in the related Prospectus Supplement. Such amount will be reduced by
payments made under such bankruptcy bond in respect of the related Mortgage
Loans, to the extent specified in the related Prospectus Supplement, and will
not be restored.
In lieu of a bankruptcy bond, the Servicer may obtain a Limited Guarantee
to cover such bankruptcy-related losses.
Repurchase Bond
If so specified in the related Prospectus Supplement, the Servicer will be
obligated to purchase any Mortgage Loan up to an aggregate dollar amount
specified in the related Prospectus Supplement) for which insurance coverage is
denied due to dishonesty, misrepresentation or fraud in connection with the
origination or sale of such Mortgage Loan. Such obligation may be secured by a
surety bond or other instrument or mechanism guaranteeing payment of the amount
to be paid by the Servicer.
Guaranteed Investment Contracts
If so specified in the Prospectus Supplement, on or prior to the Delivery
Date, the Trustee will enter into a guaranteed investment contract (a "GIC")
pursuant to which all amounts deposited in the Collection Account, and if so
specified the Reserve Accounts, will be invested by the Trustee and under which
the issuer of the GIC will pay to the Trustee interest at an agreed rate per
annum with respect to the amounts so invested.
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Reserve Accounts
If specified in the Prospectus Supplement, cash, U.S. Treasury securities,
instruments evidencing ownership of principal or interest payments thereon,
letters of credit, demand notes, certificates of deposit, other instruments or
obligations or a combination thereof in the aggregate amount specified in the
Prospectus Supplement will be deposited by the Servicer on the Delivery Date in
one or more Reserve Accounts established by the Trustee. Such cash and the
principal and interest payments on such other instruments will be used to
enhance the likelihood of timely payment of principal of, and interest on, or,
if so specified in the Prospectus Supplement, to provide additional protection
against losses in respect of, the assets in the related Trust Fund, to pay the
expenses of the Trust Fund or for such other purposes specified in the
Prospectus Supplement. Whether or not the Servicer has any obligation to make
such a deposit, certain amounts to which the subordinated Certificateholders,
if any, will otherwise be entitled may instead be deposited into the Reserve
Account from time to time and in the amounts as specified in the Prospectus
Supplement. Any cash in the Reserve Account and the proceeds of any other
instrument upon maturity will be invested in Eligible Investments, which will
include obligations of the United States and certain agencies thereof,
certificates of deposit, certain commercial paper, time deposits and bankers
acceptances sold by eligible commercial banks, certain repurchase agreements of
United States government securities with eligible commercial banks and certain
other Eligible Investments described in the Agreement. If a letter of credit is
deposited with the Trustee, such letter of credit will be irrevocable. Any
instrument deposited therein will name the Trustee, in its capacity as trustee
for the holders of the related Certificates, as beneficiary and will be issued
by an entity acceptable to each rating agency that rates the Certificates.
Additional information with respect to such instruments deposited in the
Reserve Accounts will be set forth in the Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Account for distribution to the
holders of Certificates for the purposes, in the manner and at the times
specified in the Prospectus Supplement.
Other Insurance and Guarantees
If specified in the Prospectus Supplement, the related Trust Fund may also
include insurance, guarantees or letters of credit for the purpose of (i)
maintaining timely payments or providing additional protection against losses
on the assets included in such Trust Fund, (ii) paying administrative expenses
or (iii) establishing a minimum reinvestment rate on the payments made in
respect of such assets or principal payment rate on such assets. Such
arrangements may include agreements under which Certificateholders are entitled
to receive amounts deposited in various accounts held by the Trustee upon the
terms specified in the Prospectus Supplement. Such arrangements may be in lieu
of any obligation of the Servicer to advance delinquent installments in respect
of the Mortgage Loans.
YIELD, MATURITY AND WEIGHTED AVERAGE LIFE CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates will
be affected primarily by the rate and timing of principal payments received on
or in respect of the Mortgage Loans included in the related Trust Fund. Such
principal payments will include scheduled payments as well as Principal
Prepayments (including refinancings) and prepayments resulting from
foreclosure, condemnation and other dispositions of the Mortgaged Properties
(including amounts paid by insurers under applicable insurance policies), from
purchase by the Seller of any Mortgage Loan as to which there has been a
material breach of warranty or defect in documentation (or deposit of certain
amounts in respect of delivery of a substitute Mortgage Loan), purchase by the
Servicer of Mortgage Loans modified by it in lieu of refinancing thereof and
from the repurchase by the Seller of all of the Mortgage Loans in certain
circumstances. See "The Pooling and Servicing Agreement--Termination; Purchase
of Mortgage Loans." The yield to maturity and weighted average lives of the
Certificates may also be affected by the amount and timing of delinquencies and
losses on the Mortgage Loans.
A number of social, economic, tax, geographic, demographic, legal and
other factors may influence prepayments, delinquencies and losses. For a Trust
Fund comprised of Mortgage Loans, these factors may include the age of the
Mortgage Loans, the geographic distribution of the Mortgaged Properties, the
payment terms of the Mortgages, the characteristics of the mortgagors,
homeowner mobility, economic conditions generally and in the
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geographic area in which the Mortgaged Properties are located, enforceability
of due-on-sale clauses, servicing decisions, prevailing mortgage market
interest rates in relation to the interest rates on the Mortgage Loans, the
availability of mortgage funds, the use of second or "home equity" mortgage
loans by mortgagors, the availability of refinancing opportunities (including
refinancing opportunities offered by Chase Manhattan Mortgage Corporation to
existing borrowers or to its affiliates), the use of the properties as second
or vacation homes, the extent of the mortgagors' net equity in the Mortgaged
Properties and, where investment properties are securing the Mortgage Loans,
tax-related considerations and the availability of other investments. The rate
of principal payment may also be subject to seasonal variations.
The rate of principal prepayments on pools of conventional housing loans
has fluctuated significantly in recent years. Generally, if prevailing interest
rates were to fall significantly below the interest rates on the Mortgage
Loans, the Mortgage Loans would be expected to prepay at higher rates than if
prevailing rates were to remain at or above the interest rates on the Mortgage
Loans. Conversely, if interest rates were to rise above the interest rates on
the Mortgage Loans, the Mortgage Loans would be expected to prepay at lower
rates than if prevailing rates were to remain at or below interest rates on the
Mortgage Loans. The timing of changes in the rate of prepayments may
significantly affect a Certificateholder's actual yield to maturity, even if
the average rate of principal payments is consistent with a Certificateholder's
expectation. In general, the earlier a prepayment of principal the greater the
effect on a Certificateholder's yield to maturity. As a result, the effect on a
Certificateholder's yield of principal payments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period immediately
following the issuance of the related series of Certificates will not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
To the extent described in the applicable Prospectus Supplement, the
effective yields to Certificateholders will be lower than the yields produced
by the interest rates on the Certificates because, while interest will accrue
on each Mortgage Loan from the first day of each month, the distribution of
such interest to Certificateholders will be made in the month following the
month of accrual.
When a Mortgage Loan prepays in full, the borrower will generally be
required to pay interest on the amount of prepayment only to the prepayment
date. When a partial prepayment of principal is made on a Mortgage Loan, the
borrower generally will not be required to pay interest on the amount of the
partial prepayment during the month in which such prepayment is made. In
addition, a full or partial prepayment will not be required to be passed
through to Certificateholders until the month following receipt.
If and to the extent specified in the applicable Prospectus Supplement,
under the Agreement, if a full or partial voluntary prepayment of a Mortgage
Loan is made and does not include the full amount of interest on such Mortgage
Loan which would have been due but for such prepayment to and including the end
of the month in which the prepayment takes place, the servicer will be
obligated to pay the interest thereon at the Remittance Rate from the date of
prepayment through the end of such month (each such payment, a "Compensating
Interest Payment"), provided that the aggregate of such Compensating Interest
Payments by the Servicer with respect to any Distribution Date will not exceed
the aggregate Servicing Fee to which the Servicer is entitled in connection
with such Distribution Date. The Servicer will not be entitled to reimbursement
for such Compensating Interest Payments. Consequently, to the extent the
Servicer is so obligated, neither partial nor full prepayments will reduce the
amount of interest passed through to Certificateholders the following month
from the amount which would have been passed through in the absence of such
prepayments. If the Servicer is not obligated to make Compensating Interest
Payments, or if such payments are insufficient to cover the interest shortfall,
partial or full prepayments will reduce the amount of interest passed through
to Certificateholders, as described in the applicable Prospectus Supplement.
Factors other than those identified herein and in the Prospectus
Supplement could significantly affect principal prepayments at any time and
over the lives of the Certificates. The relative contribution of the various
factors affecting prepayment may also vary from time to time. There can be no
assurance as to the rate of payment of principal of the Mortgage Loans at any
time or over the lives of the Certificates.
The Prospectus Supplement relating to a series of Certificates will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Certificates.
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CHASE MANHATTAN ACCEPTANCE CORPORATION
Chase Manhattan Acceptance Corporation was incorporated in the State of
Delaware on March 1, 1988 and is a direct wholly-owned subsidiary of The Chase
Manhattan Bank. The principal office of Chase Manhattan Acceptance Corporation
is located at 343 Thornall Street, Edison, New Jersey 08837 and its telephone
number is (732) 205-0600.
It is not expected that Chase Manhattan Acceptance Corporation will have
any business operations other than acquiring and pooling mortgage loans and
other receivables and instruments, offering Certificates of the type described
herein or other mortgage-related or asset-backed securities, and related
activities.
CHASE FUNDING, INC.
Chase Funding, Inc. was incorporated in the State of New York on November
17, 1987 and is a direct wholly-owned subsidiary of The Chase Manhattan Bank.
The principal office of Chase Funding, Inc. is located at 343 Thornall Street,
Edison, New Jersey 08837 and its telephone number is (732) 205-0600.
It is not expected that Chase Funding, Inc. will have any business
operations other than acquiring and pooling mortgage loans and other
receivables and instruments, offering Certificates of the type described herein
or other mortgage-related or asset-backed securities, and related activities.
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SERVICING OF THE MORTGAGE LOANS
With respect to each series of Certificates, the related Mortgage Loans
will be serviced by Chase Manhattan Mortgage (or such other entity identified
in the Prospectus Supplement), acting alone or, as master servicer, through one
or more direct servicers. If Chase Manhattan Mortgage acts as master servicer
with respect to a series, the related Agreement will provide that Chase
Manhattan Mortgage shall not be released from its obligations to the Trustee
and Certificateholders with respect to the servicing and administration of the
Mortgage Loans, that any servicing agreement entered into between Chase
Manhattan Mortgage and a direct servicer will be deemed to be between Chase
Manhattan Mortgage and the direct servicer alone and that the Trustee and the
Certificateholders will have no claims, obligations, duties or liabilities with
respect to any such agreement.
Collection and Other Servicing Procedures
Subject to the terms of the Agreement, the Servicer generally will be
obligated to service and administer the Mortgage Loans in accordance with the
specific procedures set forth in the Fannie Mae Seller's Guide and Fannie Mae
Servicing Guide, as amended or supplemented from time to time, and, to the
extent such procedures are unavailable, in accordance with the mortgage
servicing practices of prudent mortgage lending institutions.
The Servicer will be responsible for using its best reasonable efforts to
collect all payments called for under the Mortgage Loans and shall, consistent
with each Agreement, follow such collection procedures as it deems necessary
and advisable with respect to the Mortgage Loans. Consistent with the above,
the Servicer, may, in its discretion, (i) waive any late payment charge and
(ii) if a default on the related Mortgage Loan has occurred or is reasonably
foreseeable, arrange with the mortgagor a schedule for the liquidation of a
delinquency. In the event of any such arrangement the Servicer will be
responsible for distributing funds with respect to such Mortgage Loan during
the scheduled period in accordance with the original amortization schedule
thereof and without regard to the temporary modification thereof.
The Servicer will be obligated to use it best reasonable efforts to
realize upon a defaulted Mortgage Loan in such manner as will maximize the
payments to Certificateholders. In this regard, the Servicer may (directly or
through a local assignee) sell the property at a foreclosure or trustee's sale,
negotiate with the mortgagor for a deed in lieu of foreclosure or, in the event
a deficiency judgment is available against the mortgagor or other person,
foreclose against such property and proceed for the deficiency against the
appropriate person. See "Material Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" for a
description of the limited availability of deficiency judgments. The amount of
the ultimate net recovery (including the proceeds of any pool insurance or
other guarantee), after reimbursement to the Servicer of its expenses incurred
in connection with the liquidation of any such defaulted Mortgage Loan will be
distributed to the related Certificateholders on the next Distribution Date
following the month of receipt. If specified in the Prospectus Supplement, if
such net recovery exceeds the Principal Balance of such Mortgage Loan plus one
month's interest thereon at the Remittance Rate, the excess will be paid to the
Servicer as additional servicing compensation. The Servicer will not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any Mortgaged Property unless it shall determine (i) that
such restoration or foreclosure will increase the Liquidation Proceeds in
respect of the related Mortgaged Loan to Certificateholders after reimbursement
to itself for such expenses and (ii) that such expenses will be recoverable to
it either through Liquidation Proceeds or Insurance Proceeds in respect of the
related Mortgage Loan.
If a Mortgaged Property has been or is about to be conveyed by the
mortgagor, the Servicer will be obligated to accelerate the maturity of the
Mortgage Loan, unless it reasonably believes it is unable to enforce that
Mortgage Loan's "due-on-sale" clause under applicable law or such enforcement
would adversely affect or jeopardize coverage under any related primary
mortgage insurance policy or pool insurance policy. If it reasonably believes
it may be restricted by law, for any reason, from enforcing such a
"due-on-sale" clause, the Servicer, with the consent of the insurer under any
insurance policy implicated thereby, 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. Any fee collected by the Servicer for entering into an
assumption agreement will be retained by the Servicer as additional servicing
compensation. For a description of circumstances in which the Servicer may be
unable to enforce "due-on-sale" clauses, see "Material Legal Aspects of the
Mortgage Loans--Enforceability of Certain Provisions". In connection with any
such assumption, the Mortgage Rate borne by the related Mortgage Note may not
be decreased.
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The Servicer will maintain with one or more depository institutions one or
more accounts into which it will deposit all payments of taxes, insurance
premiums, assessments or comparable items received for the account of the
mortgagors. Withdrawals from such account or accounts may be made only to
effect payment of taxes, insurance premiums, assessments or comparable items,
to reimburse the Servicer out of related collections for any cost incurred in
paying taxes, insurance premiums and assessments or otherwise preserving or
protecting the value of the Mortgages, to refund to mortgagors any amounts
determined to be overages and to pay interest to mortgagors on balances in such
account or accounts to the extent required by law.
Private Mortgage Insurance
Each Agreement will obligate the Servicer to exercise its best reasonable
efforts to maintain and keep in full force and effect a private mortgage
insurance policy on all Mortgage Loans that have a Loan-to-Value Ratio in
excess of 80%.
A private mortgage insurance policy may provide that, as an alternative to
paying a claim thereunder, the mortgage insurer will have the right to purchase
the Mortgage Loan following the receipt of a notice of default, at a purchase
price equal to the sum of the principal balance of the Mortgage Loan, accrued
interest thereon and the amount of certain advances made by the Servicer with
respect to the Mortgage Loan. The mortgage insurer may have such purchase right
after the borrower has failed to make three scheduled monthly payments (or one
payment if it is the first payment due on the Mortgage Loan) or after any
foreclosure or other proceeding affecting the Mortgage Loan or the Mortgaged
Property has been commenced. The proceeds of any such purchase will be
distributed to Certificateholders on the applicable Distribution Date. A
mortgage insurer may be more likely to exercise such purchase option when
prevailing interest rates are low relative to the interest rate borne by the
defaulted Mortgage Loan, in order to reduce the aggregate amount of accrued
interest that the insurer would be obligated to pay upon payment of a claim.
Hazard Insurance
The Servicer will cause to be maintained for each Mortgaged Property a
standard hazard insurance policy. The coverage of such policy is required to be
in an amount at least equal to the maximum insurable value of the improvements
which are a part of such property from time to time or the principal balance
owing on such Mortgage Loan from time to time, whichever is less. All amounts
collected by the Servicer under any hazard policy (except for amounts to be
applied to the restoration or repair of property subject to the related
Mortgage or property acquired by foreclosure or amounts released to the related
mortgagor in accordance with the Servicer's normal servicing procedures) will
be deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans will be
underwritten by different insurers and, therefore, will not contain identical
terms and conditions, the basic terms thereof are dictated by state law. Such
policies typically do not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and mud
flow), nuclear reactions, pollution, 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. If the property securing a Mortgage Loan is located in a
federally designated flood area, the Agreement will require that flood
insurance be maintained in an amount representing coverage not less than the
least of (i) the principal balance owing on such Mortgage Loan from time to
time, (ii) the maximum insurable value of the improvements which are a part of
such property from time to time or (iii) the maximum amount of insurance which
is available under the Flood Disaster Protection Act of 1973, as amended. The
Seller may also purchase special hazard insurance against certain of the
uninsured risks described above. See "Credit Support--Special Hazard
Insurance."
Most of the properties securing the Mortgage Loans will be covered by
homeowners' insurance policies, which, in addition to the standard form of fire
and extended coverage, provide coverage for certain other risks. These
homeowners' policies typically contain a "coinsurance" clause which in effect
requires the insured at all
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times to carry insurance of a specified percentage (generally 80% to 90%) of
the full replacement value of the improvements on the property in order to
recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, then the insurer's liability in the event of
partial loss will not exceed the lesser of (i) the actual cash value (generally
defined as replacement cost at the time and place of loss, less physical
depreciation) of the improvements damaged or destroyed, or (ii) such proportion
of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such improvements.
Since the amount of hazard insurance the Servicer is required to cause to
be maintained on the improvements securing the Mortgage Loans declines as the
principal balances owing thereon decrease, if the residential properties
securing the Mortgage Loans appreciate in value over time, the effect of
coinsurance in the event of partial loss may be that hazard insurance proceeds
will be insufficient to restore fully the damaged property.
The Servicer will cause to be maintained on any Mortgaged Property
acquired upon foreclosure, or by deed in lieu of foreclosure, hazard insurance
with extended coverage in an amount which is at least equal to the lesser of
(i) the maximum insurable value from time to time of the improvements which are
a part of such property or (ii) the unpaid principal balance of the related
Mortgage Loan at the time of such foreclosure or deed in lieu of foreclosure,
plus accrued interest and the Servicer's good-faith estimate of the related
liquidation expenses to be incurred in connection therewith.
The Servicer may maintain, in lieu of causing individual hazard insurance
policies to be maintained with respect to each Mortgage Loan, one or more
blanket insurance policies covering hazard losses on the Mortgage Loans. The
Servicer will pay the premium for such policy on the basis described therein
and will pay any deductible amount with respect to claims under such policy
relating to the Mortgage Loans.
Advances
To the extent specified in the Prospectus Supplement, in the event that
any borrower fails to make any payment of principal or interest required under
the terms of a Mortgage Loan, the Servicer will be obligated to advance the
entire amount of such payment adjusted in the case of any delinquent interest
payment to the applicable Net Mortgage Rate. This obligation to advance will be
limited to amounts which the Servicer reasonably believes will be recoverable
by it out of liquidation proceeds or otherwise in respect of such Mortgage
Loan. The Servicer will be entitled to reimbursement for any such advance from
related late payments on the Mortgage Loan as to which such advance was made.
Furthermore, the Servicer will be entitled to reimbursement for any such
advance (i) from Liquidation Proceeds or Insurance Proceeds received if such
Mortgage Loan is foreclosed prior to any payment to Certificateholders in
respect of the repossession or foreclosure and (ii) from receipts or recoveries
on all other Mortgage Loans or from any other assets of the Trust Fund, for all
or any portion of such advance which the Servicer determines, in good faith,
may not be ultimately recoverable from such liquidation or insurance proceeds
(a "Nonrecoverable Advance"). Any Nonrecoverable Advance will be reimbursable
out of the assets of the Trust Fund. The amount of any scheduled payment
required to be advanced by the Servicer will not be affected by any agreement
between the Servicer and a borrower providing for the postponement or
modification of the due date or amount of such scheduled payment. If specified
in the Prospectus Supplement, the Trustee for the related series will make
advances of delinquent payments of principal and interest in the event of a
failure by the Servicer to perform such obligation.
Any such obligation to make advances may be limited to amounts due holders
of certain classes of Certificates of the related series or may be limited to
specified periods or otherwise as specified in the Prospectus Supplement.
Servicing and Other Compensation and Payment of Expenses
The Servicer's primary compensation for its servicing activities will come
from the payment to it, with respect to each interest payment on a Mortgage
Loan, of all or a portion of the difference between the Mortgage Rate for such
Mortgage Loan and the related Remittance Rate. In addition to its primary
compensation, the Servicer will retain all assumption fees, late payment
charges and other miscellaneous charges, all to the extent collected from
borrowers. In the event the Servicer is acting as master servicer under an
Agreement, it will receive compensation with respect to the performance of its
activities as master servicer.
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The Servicer generally will be responsible for paying all expenses
incurred in connection with the servicing of the Mortgage Loans (subject to
limited reimbursement as described under "The Pooling and Servicing
Agreement---Payments on Mortgage Loans; Collection Account"), including,
without limitation, payment of any premium for any Advance Guarantee, Deposit
Guarantee, bankruptcy bond, repurchase bond or other guarantee or surety,
payment of the fees and the disbursements of the Trustee and the and
independent accountants, payment of the compensation of any direct servicers of
the Mortgage Loans, payment of all fees and expenses in connection with the
realization upon defaulted Mortgage Loans and payment of expenses incurred in
connection with distributions and reports to Certificateholders. The Servicer
may assign any of its primary servicing compensation in excess of that amount
customarily retained as servicing compensation for similar assets.
Resignation, Succession and Indemnification of the Servicer
The Agreement will provide that the Servicer may not resign from its
obligations and duties as servicer or master servicer thereunder, except upon
determination that its performance of such duties is no longer permissible
under applicable law. No such resignation will become effective until the
Trustee or a successor has assumed the Servicer's servicing obligations and
duties under such Agreement. The Guarantor's obligations under any Advance
Guarantee or Deposit Guarantee will, upon issuance thereof, be irrevocable,
subject to certain limited rights of assignment as described in the Prospectus
Supplement if applicable.
The Agreement will provide that neither the Seller nor the Servicer nor,
if applicable, the Guarantor, nor any of their respective directors, officers,
employees or agents, shall be under any liability to the Trust Fund or the
Certificateholders of the related series for taking any action, or for
refraining from taking any action, in good faith pursuant to such Agreement, or
for errors in judgment; provided, however, that neither the Servicer nor, if
applicable, the Guarantor, nor any such person, will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties thereunder. The Agreement will
also provide that the Seller, the Servicer and, if applicable, the Guarantor
and their respective directors, officers, employees and agents are entitled to
indemnification by the related Trust Fund and will be held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to the Agreement or the Certificates, 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 neither the Seller nor the Servicer nor, if applicable, the
Guarantor is under any obligation to appear in, prosecute or defend any legal
action which is not incidental to the Servicer's servicing responsibilities
under such Agreement or the Guarantor's payment obligations under any Limited
Guarantee, respectively, and which in its respective opinion may involve it in
any expense or liability. Each of the Seller, the Servicer and, if applicable,
the Guarantor may, however, in its respective discretion undertake any such
action which it may deem necessary or desirable in respect of such Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust Fund, and the Seller, the Servicer and, if applicable,
the Guarantor, will be entitled to be reimbursed therefor from amounts
deposited in the Collection Account.
Any corporation into which the Servicer may be merged or consolidated or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party, or any corporation succeeding to the business of the
Servicer, which assumes the obligations of the Servicer, will be the successor
of the Servicer under each Agreement.
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THE POOLING AND SERVICING AGREEMENT
This prospectus summarizes the material provisions of the Agreement. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Agreement applicable to a
particular series of Certificates. Where particular provisions or terms used in
the Agreements are referred to, such provisions or terms are as specified in
the Agreements.
Assignment of Mortgage Loans; Warranties
At the time of issuance of each series of Certificates, the Seller will
cause the Mortgage Loans in the Trust Fund represented by that series of
Certificates to be assigned to the Trustee, together with all principal and
interest due on or with respect to such Mortgage Loans, other than principal
and interest due on or before the Cut-Off Date and prepayments of principal
received before the Cut-Off Date. The Trustee, concurrently with such
assignment, will execute and deliver Certificates evidencing such Trust Fund to
the Seller in exchange for the Mortgage Loans. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the Agreement for that
series (the "Mortgage Loan Schedule"). The Mortgage Loan Schedule will include,
as to each Mortgage Loan, information as to the outstanding principal balance
as of the close of business on the Cut-Off Date, as well as information
respecting the Mortgage Rate, the current scheduled monthly payment, the number
of months remaining until the stated maturity date of each Note and the
location of the related Mortgaged Property.
In addition, the Seller will, as to each Mortgage Loan, deliver to the
Trustee (i) the Note, endorsed to the order of the Trustee by the holder/payee
thereof without recourse; (ii) the "buy-down" agreement (if applicable); (iii)
a Mortgage and Mortgage assignment meeting the requirements of the Agreement;
(iv) all Mortgage assignments from the original holder of the Mortgage Loan,
through any subsequent transferees to the transferee to the Trustee; (v) the
original Lender's Title Insurance Policy, or other evidence of title, or if a
policy has not been issued, a written commitment or interim binder or
preliminary report of title issued by the title insurance or escrow company ;
(vi) as to each Mortgage Loan, an original certificate of Primary Mortgage
Insurance Policy (or copy certified to be true by the originator) to the extent
required under the applicable requirements for the Mortgage Pool; and (vii)
such other documents as may be described in the applicable Prospectus
Supplement. Except as expressly permitted by the Agreement, all documents so
delivered are to be original executed documents; provided, however, that in
instances where the original recorded document has been retained by the
applicable jurisdiction or has not yet been returned from recordation, the
Seller may deliver a photocopy containing a certification of the appropriate
judicial or other governmental authority of the jurisdiction, and the Servicer
shall cause the originals of each Mortgage and Mortgage assignment which is so
unavailable to be delivered to the Trustee as soon as available.
The Trustee will hold such documents for each series of Certificates in
trust for the benefit of all Certificateholders of such series. The Trustee is
obligated to review such documents for each Mortgage Loan within 270 days after
the conveyance of the Mortgage Loan to it. If any document is found by the
Trustee not to have been executed or received or to be unrelated to the
Mortgage Loan identified in the Agreement, the Trustee will promptly notify the
Seller. The Seller, or another party specified in the applicable Prospectus
Supplement, will be required to cure such defect or to repurchase the Mortgage
Loan or to provide a substitute Mortgage Loan. See "Repurchase or Substitution"
below.
In the Agreement for each series, the Seller or another party described in
the Agreement (the "Representing Party") will make certain representations and
warranties with respect to the Mortgage Loans. The representations and
warranties in each Agreement will generally include that (i) the information
set forth in the Mortgage Loan Schedule is true and correct in all material
respects at the date or dates with respect to which such information is
furnished; (ii) each Mortgage constitutes a valid and enforceable first lien on
the Mortgaged Property, including all improvements thereon (subject only to (A)
the lien of current real property taxes and assessments, (B) covenants,
conditions and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such exceptions
appearing of record being acceptable to mortgage lending institutions generally
and specifically referred to in the Lender's Title Insurance Policy delivered
to the originator of the Mortgage Loan and not adversely affecting the value of
the Mortgaged Property and (C) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by such Mortgage); (iii) each Primary Mortgage
Insurance Policy
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is in full force and effect, and (except where noted in the Agreement) each
Mortgage Loan which has a Loan-to-Value Ratio greater than 80% is subject to a
Primary Mortgage Insurance Policy; (iv) at the date of initial issuance of the
Certificates, no Mortgage Loan was more than 30 days delinquent in payment, no
Mortgage Loan had more than one delinquency in excess of 30 days during the
preceding 12-month period; (v) at the time each Mortgage Loan was originated
and, to the best knowledge of the Representing Party, at the date of initial
issuance of the Certificates, there are no delinquent taxes, assessments or
other outstanding charges affecting the Mortgaged Property; (vi) each Mortgage
Loan was originated in compliance with and complied at the time of origination
in all material respects with applicable laws, including usury, equal credit
opportunity and disclosure laws; (vii) each Mortgage Loan is covered by a
lender's title insurance policy insuring the priority of the lien of the
Mortgage in the original principal amount of such Mortgage Loan, and each such
policy is in full force and effect; and (viii) immediately prior to the
assignment to the Trust Fund the Seller had good title to, and was the sole
owner of, each Mortgage Loan free and clear of any lien, claim, charge,
encumbrance or security interest of any kind.
Upon the discovery or notice of a breach of any of such representations or
warranties which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the Seller or the applicable party will
cure the breach or repurchase such Mortgage Loan or will provide a substitute
Mortgage Loan in the manner described under "Repurchase or Substitution" below.
This obligation to repurchase or substitute constitutes the sole remedy
available to the Certificateholders or the Trustee for any such breach of
representations and warranties.
The Agreement for a Series of Certificates may provide that the Servicer
may, at its sole option, purchase from the Trust Fund, at the price specified
in the Agreement, any Mortgage Loan as to which the related Borrower has failed
to make full payments as required under the related Note for three consecutive
months.
Payments on Mortgage Loans; Collection Account
It is expected that the Agreement for each series of Certificates will
provide that the Servicer will establish and maintain a trust account or
accounts (the "Collection Account") in the name of the Trustee for the benefit
of the Certificateholders. The amount at any time credited to the Collection
Account will be fully-insured to the maximum coverage possible or shall be
invested in Permitted Investments, all as described in the applicable
Prospectus Supplement. In addition, a Certificate Account may be established
for the purpose of making distributions to Certificateholders if and as
described in the applicable Prospectus Supplement.
The Servicer will deposit in the Collection Account, as described more
fully in the applicable Prospectus Supplement, amounts representing the
following collections and payments (other than in respect of principal of or
interest on the Mortgage Loans due on or before the Cut-Off Date and
prepayments of principal received before the Cut-Off Date): (i) all
installments of principal and interest on the applicable Mortgage Loans and any
principal and/or interest required to be advanced by the Servicer that were due
on the immediately preceding Due Date, net of servicing fees due the Servicer
and other amounts, if any, specified in the applicable Prospectus Supplement;
(ii) all amounts received in respect of such Mortgage Loans representing late
payments of principal and interest to the extent such amounts were not
previously advanced by the Servicer with respect to such Mortgage Loans, net of
servicing fees due the Servicer; (iii) all principal prepayments (whether full
or partial) on such Mortgage Loans received, together with interest calculated
at the Mortgage Rate (net of servicing fees due the Servicer) to the end of the
calendar month during which such principal prepayment shall have been received
by the Servicer, to the extent received from the mortgagor or advanced by the
Servicer, as described under "Servicing of the Mortgage Loans--Advances"
herein; and (iv) any amounts received by the Servicer as Insurance Proceeds (to
the extent not applied to the repair or restoration of the Mortgaged Property)
or Liquidation Proceeds.
Repurchase or Substitution
The Trustee will review the documents delivered to it with respect to the
assets of the applicable Trust Fund within 270 days after execution and
delivery of the related Agreement. If any document required to be delivered by
the Seller is not delivered or is found to be defective in any material
respect, then within 90 days after notice of such defect, the Seller will (a)
cure such defect, (b) remove the affected Mortgage Loan from the Trust Fund
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and substitute one or more other mortgage loans therefor or (c) repurchase the
Mortgage Loan from the Trustee for a price equal to 100% of its Principal
Balance plus interest thereon at the applicable Remittance Rate from the date
on which interest was last paid to the first day of the month in which such
purchase price is to be distributed to the related Certificateholders. This
repurchase and substitution obligation constitutes the sole remedy available to
Certificateholders or the Trustee on behalf of Certificateholders against the
Seller for a material defect in a document relating to a Mortgage Loan.
The Seller will agree, within 90 days of the earlier of the discovery by
the Seller or receipt by the Seller of notice from the Trustee or the Servicer
of its discovery of any breach of any representation or warranty of the Seller
set forth in the related Agreement with respect to the Mortgage Loans that
materially and adversely affects the interests of the Certificateholders in a
Mortgage Loan (a "Defective Mortgage Loan") or the value of a Mortgage Loan, to
either (a) cure such breach in all material respects, (b) repurchase such
Defective Mortgage Loan at a price equal to 100% of its Principal Balance plus
interest thereon at the applicable Remittance Rate from the date on which
interest was last paid to the first day of the month in which such purchase
price is to be distributed or (c) remove the affected Mortgage Loan from the
Trust Fund and substitute one or more other mortgage loans or contracts
therefor. This repurchase or substitution obligation will constitute the sole
remedy available to Certificateholders or the Trustee on behalf of
Certificateholders for any such breach.
If so specified in the Prospectus Supplement for a series where the Seller
has acquired the related Mortgage Loans, in lieu of agreeing to repurchase or
substitute Mortgage Loans as described above, the Seller may obtain such an
agreement from the entity which sold such mortgage loans, which agreement will
be assigned to the Trustee for the benefit of the holders of the Certificates
of such series. In such event, the Seller will have no obligation to repurchase
or substitute mortgage loans if such entity defaults in its obligation to do
so.
If a mortgage loan is substituted for another Mortgage Loan as described
above, the new mortgage loan will have the following characteristics, or such
other characteristics as may be specified in the Prospectus Supplement: (i) a
Principal Balance (together with any other new mortgage loan so substituted),
as of the first Distribution Date following the month of substitution, after
deduction of all payments due in the month of substitution, not in excess of
the Principal Balance of the removed Mortgage Loan as of such Distribution Date
(the amount of any difference, plus one month's interest thereon at the
applicable Net Mortgage Rate, to be deposited in the Collection Account on the
business day prior to the applicable Distribution Date), (ii) a Mortgage Rate
not less than, and not more than one percentage point greater than, that of the
removed Mortgage Loan, (iii) a remaining term to stated maturity not later
than, and not more than one year less than, the remaining term to stated
maturity of the removed Mortgage Loan, (iv) a Loan-to Value Ratio at
origination not greater than that of the removed Mortgage Loan, and (v) in the
reasonable determination of the Seller, be of the same type, quality and
character (including location of the Mortgaged Property) as the removed
Mortgage Loan (as if the defect or breach giving rise to the substitution had
not occurred) and be, as of the substitution date, in compliance with the
representations and warranties contained in the Agreement.
If a REMIC election is to be made with respect to all or a portion of a
Trust Fund, any such substitution will occur within two years after the initial
issuance of the related Certificates.
Certain Modifications and Refinancings
The Agreement will permit the Servicer to modify any Mortgage Loan upon
the request of the related Mortgagor, and will also permit the Servicer to
solicit such requests by offering Mortgagors the opportunity to refinance their
Mortgage Loans, provided in either case that the Servicer purchases such
Mortgage Loan from the Trust Fund immediately following such modification. Any
such modification may not be made unless the modification includes a change in
the interest rate on the related Mortgage Loan to approximately a prevailing
market rate. Any such purchase will be for a price equal to 100% of the
Principal Balance of such Mortgage Loan, plus accrued and unpaid interest
thereon to the date of purchase at the applicable Remittance Rate, net of any
unreimbursed advances of principal and interest thereon made by the Servicer.
Such purchases may occur when prevailing interest rates are below the interest
rates on the Mortgage Loans and Mortgagors request (and/or the Servicer offers)
modifications as an alternative to refinancings through other mortgage
originators. If a REMIC election is made with respect to all or a portion of
the related Trust Fund, the Servicer will indemnify the REMIC against liability
for any prohibited transactions taxes and any related interest, additions or
penalties imposed on the REMIC as a result of any such modification or
purchase.
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The Agreement will provide that if the Servicer in its individual capacity
agrees to refinance any Mortgage Loan as described above, such Mortgage Loan
will be assigned to the Servicer by the Trustee upon certification that the
Principal Balance of such Mortgage Loan and accrued and unpaid interest thereon
at the Remittance Rate has been deposited in the Collection Account.
Forward Commitments; Pre-Funding
The Trustee of a Trust Fund may enter into a Pre-Funding Agreement for the
transfer of additional Mortgage Loans and Contracts to such Trust following the
date on which such Trust is established and the related Securities are issued.
The Trustee of a Trust may enter into Pre-Funding Agreements to permit the
acquisition of additional Mortgage Loans that could not be delivered by the
Depositor or have not formally completed the origination process, in each case
prior to the Delivery Date. Any Pre-Funding Agreement will require that any
Mortgage Loans so transferred to a Trust conform the requirements specified in
such pre-Funding Agreement. If a Pre-Funding Agreement is to be utilized, the
related Trustee will be required to deposit in the Purchase Account all or a
portion of the proceeds received by the Trustee in connection with the sale of
one or more classes of Securities of the related series; the additional
Mortgage Loans will be transferred to the related Trust in exchange for money
released from the related Pre-Funding Account. Each Pre-Funding Agreement will
set a specified period during which any such transfers must occur. The
Pre-Funding Agreement or the related Agreement will require that, if all moneys
originally deposited to such Pre-Funding Account are not so used by the end of
such specified period, then any remaining moneys will be applied as a mandatory
prepayment of the related class or classes of Securities as specified in the
related Prospectus Supplement. The specified period for the acquisition by a
Trust of additional Mortgage Loans is not expected to exceed three months from
the date such Trust is established.
Evidence as to Compliance
The Agreement will provide that a firm of independent public accountants
will furnish to the Trustee on or before April 15 of each year, beginning with
April 15 in the fiscal year which begins not less than three months after the
date of the initial issue of Certificates, a statement as to compliance by the
Servicer with certain standards relating to the servicing of the Mortgage
Loans.
The Agreement will also provide for delivery to the Trustee on or before
April 15 of each fiscal year, beginning with April 15 in the fiscal year which
begins not less than three months after the date of the initial issue of the
Certificates, a statement signed by an officer of the Servicer to the effect
that, to the best of such officer's knowledge, the Servicer has fulfilled its
obligations under the Agreement throughout the preceding year or, if there has
been a default in the fulfillment of any such obligation, describing each such
default.
The Trustee
Any commercial bank or trust company serving as Trustee may have normal
banking relationships with the Seller and the Servicer. In addition, the Seller
and the Trustee acting jointly will have the power and the responsibility for
appointing co-trustees or separate trustees of all or any part of the Trust
Fund relating to a particular series of Certificates. In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by the Agreement 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 will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the signature and
countersignature of the Trustee on the Certificates) or of any Mortgage Loan or
related document, and will not be accountable for the use or application by the
Seller or Servicer of any funds paid to the Seller or Servicer in respect of
the Certificates or the related assets, or amounts deposited into the
Collection Account. If no Event of Default has occurred, the Trustee will be
required to perform only those duties specifically required of it under the
Agreement. However, upon receipt of the various certificates, reports or other
instruments required to be furnished to it, the Trustee will be required to
examine them to determine whether they conform to the requirements of the
Agreement.
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The Trustee may resign at any time, and the Seller may remove the Trustee
if the Trustee ceases to be eligible to continue as such under the Agreement,
if the Trustee becomes insolvent or in such other instances, if any, as are set
forth in the Agreement. Following any resignation or removal of the Trustee,
the Seller will be obligated to appoint a successor Trustee, any such successor
to be approved by the Guarantor if so specified in the Prospectus Supplement in
the event that the Guarantor has issued any Limited Guarantee with respect to
the Certificates. Any resignation or removal of the Trustee and appointment of
a successor Trustee does not become effective until acceptance of the
appointment by the successor Trustee.
Reports to Certificateholders
On each Distribution Date, the Servicer or the paying agent will mail to
Certificateholders a statement prepared by it and generally setting forth, to
the extent applicable to any series, among other things:
(i) The aggregate amount of the related distribution allocable to
principal, separately identifying the amount allocable to each class;
(ii) The amount of such distribution allocable to interest separately
identifying the amount allocable to each class;
(iii) The amount of servicing compensation received by the Servicer in
respect of the Mortgage Loans during the month preceding the month of the
Distribution Date;
(iv) The aggregate Certificate Principal Balance (or Notional Principal
Balance) of each class of Certificates after giving effect to distributions
and allocations, if any, of losses on the Mortgage Loans on such
Distribution Date;
(v) The aggregate Certificate Principal Balance of any class of Accrual
Certificates after giving effect to any increase in such Certificate
Principal Balance that results from the accrual of interest that is not yet
distributable thereon;
(vi) The aggregate amount of any advances made by the Servicer included
in the amounts distributed to Certificateholders on such Distribution Date;
(vii) If any class of Certificates has priority in the right to receive
Principal Prepayments, the amount of Principal Prepayments in respect of
the Mortgage Loans; and
(viii) The aggregate Principal Balance of Mortgage Loans which were
delinquent as to a total of one, two or three or more installments of
principal and interest or were in foreclosure.
The Servicer will provide Certificateholders which are federally insured
savings and loan associations with certain reports and with access to
information and documentation regarding the Mortgage Loans included in the
Trust Fund sufficient to permit such associations to comply with applicable
regulations of the Office of Thrift Supervision.
Events of Default
Events of Default under the Agreement with respect to a series of
Certificates will consist of: (i) any failure by the Servicer in the
performance of any obligation under the Agreement which causes any payment
required to be made under the terms of the Certificates or the Agreement not to
be timely made, which failure continues unremedied for a period of three
business days after the date upon which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by the
Trustee or the Seller, or to the Servicer, the Seller and the Trustee by
Certificateholders representing not less than 25% of the Voting Rights of any
class of Certificates; (ii) 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 in the Certificates or in the Agreement
which failure continues unremedied for a period of 60 days after the date on
which written notice of such failure, requiring the same to be remedied, shall
have been given to the Servicer by the Trustee, or to the Servicer and the
Trustee by Certificateholders representing not less than 25% of the Voting
Rights of all classes of Certificates; (iii) the entering against the Servicer
of a decree or order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator, receiver or
liquidator in any
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insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings, or for the winding-up or liquidation of its affairs,
provided that any such decree or order shall have remained in force
undischarged or unstayed for a period of 60 days; (iv) the consent by the
Servicer to the appointment of a conservator, receiver, liquidator or
liquidating committee in any insolvency, readjustment of debt, marshalling of
assets and liabilities, voluntary liquidation or similar proceedings of or
relating to the Servicer or of or relating to all or substantially all of its
property; (v) the admission by the Servicer in writing of its inability to pay
its debts generally as they become due, the filing by the Servicer of a
petition to take advantage of any applicable insolvency or reorganization
statute, the making of an assignment for the benefit of its creditors or the
voluntary suspension of the payment of its obligations; and (vi) notice by the
Servicer that it is unable to make an Advance required to be made pursuant to
the Agreement.
Rights Upon Event of Default
As long as an Event of Default under the Agreement remains unremedied by
the Servicer, the Trustee, or holders of Certificates evidencing interests
aggregating more than 50% of such Certificates, may terminate all of the rights
and obligations of the Servicer under the Agreement, whereupon the Trustee will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the Agreement and will be entitled to similar compensation arrangements,
provided that if the Trustee had no obligation under the Agreement to make
advances of delinquent principal and interest on the Mortgage Loans upon the
failure of the Servicer to do so, or if the Trustee had such obligation but is
prohibited by law or regulation from making such advances, the Trustee will not
be required to assume such obligation of the Servicer. The Servicer shall be
entitled to payment of certain amounts payable to it under the Agreement,
notwithstanding the termination of its activities as servicer. No such
termination will affect in any manner the Guarantor's obligations under any
Limited Guarantee, except that the obligation of the Servicer to make advances
of delinquent payments of principal and interest (adjusted to the applicable
Remittance Rate) will become the direct obligations of the Guarantor under the
Advance Guarantee until a new servicer is appointed. In the event that the
Trustee is unwilling or unable so to act, it may appoint, or petition a court
of competent jurisdiction for the appointment of, a housing and home finance
institution with a net worth of at least $15,000,000 and is a FNMA or FHLMC
approved seller/servicer in good standing and, if the Guarantor has issued any
Limited Guarantee with respect to the Certificates, approved by the Guarantor,
to act as successor to the Company, as servicer, under such Agreement. In
addition, if the Guarantor has issued any Limited Guarantee with respect to the
related series of Certificates, the Guarantor will have the right to replace
any successor servicer with an institution meeting the requirements described
in the preceding sentence. 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 Servicer under such Agreement.
No holder of Certificates will have any right under the Agreement to
institute any proceeding with respect to the Agreement, unless such holder
previously has given to the Trustee written notice of default and unless the
holders of Certificates of any class evidencing, in the aggregate, 25% or more
of the interests in such class have made written request to the Trustee to
institute such proceeding in its own name as Trustee thereunder and have
offered to the Trustee reasonable indemnity and the Trustee for 60 days after
receipt of such notice, request and offer of indemnity has neglected or refused
to institute any such proceedings. However, the Trustee is under no obligation
to exercise any of the trusts or powers vested in it by the 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 Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
Amendment
The Agreement may be amended by the Seller, the Servicer and the Trustee,
and if the Guarantor has issued any Limited Guarantee with respect to the
Certificates, with the consent of the Guarantor, but without Certificateholder
consent, to cure any ambiguity, to correct or supplement any provision therein
which may be inconsistent with any other provision therein, to take any action
necessary to maintain REMIC status of any Trust Fund as to which a REMIC
election has been made, to avoid or minimize the risk of the imposition of any
tax on the Trust Fund pursuant to the Code or to make any other provisions with
respect to matters or questions
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arising under the Agreement which are not materially inconsistent with the
provisions of the Agreement; provided that such action will not, as evidenced
by an opinion of counsel satisfactory to the Trustee, adversely affect in any
material respect the interests of any Certificateholders of that series. The
Agreement may also be amended by the Seller, the Servicer and the Trustee with
the consent of holders of Certificates evidencing interests aggregating not
less than 66 2/3% of all interests of each class affected by such amendment,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Agreement or of modifying in any
manner the rights of Certificateholders of that series; provided, however, that
no such amendment may (i) reduce in any manner the amount of, or delay the
timing of, payments received on Mortgage Loans which are required to be
distributed in respect of any Certificate without the consent of the holder of
such Certificate, or (ii) reduce the aforesaid percentage of Certificates, the
holders of which are required to consent to any such amendment, without the
consent of the holders of all Certificates of such affected class then
outstanding.
Termination; Purchase of Mortgage Loans
The obligations of the parties to the Agreement for each Series will
terminate upon (i) the purchase of all the Mortgage Loans, as described in the
applicable Prospectus Supplement or (ii) the later of (a) the distribution to
Certificateholders of that series of final payment with respect to the last
outstanding Mortgage Loan, or (b) the disposition of all property acquired upon
foreclosure or deed-in-lieu of foreclosure with respect to the last outstanding
Mortgage Loan and the remittance to the Certificateholders of all funds due
under the Agreement. In no event, however, will the trust created by an
Agreement continue beyond the expiration of 21 years from the death of the
survivor of the descendants living on the date of the Agreement of a specific
person named in such Agreement. With respect to each series, the Trustee will
give or cause to be given written notice of termination of the Agreement to
each Certificateholder, and the final distribution under the Agreement will be
made only upon surrender and cancellation of the related Certificates at an
office or agency specified in the notice of termination.
As described in the applicable Prospectus Supplement, the Agreement for
each series may permit, but not require, the Seller, the Servicer or another
party to purchase from the Trust Fund for such series all remaining Mortgage
Loans and all property acquired in respect of the Mortgage Loans, at a price
described in the Prospectus Supplement, subject to the condition that the
aggregate outstanding principal balance of the Mortgage Loans for such series
at the time of purchase shall be less than a percentage of the aggregate
principal balance at the Cut-Off Date specified in the Prospectus Supplement.
The exercise of such right will result in the early retirement of the
Certificates of that series.
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MATERIAL LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries of the material legal aspects
of mortgage loans.
General
The Mortgages will be either deeds of trust or mortgages. A mortgage
creates a lien upon the real property encumbered by the mortgage. It is not
prior to the lien for real estate taxes and assessments. Priority between
mortgages depends on their terms and generally on the order of filing with a
state or county office. There are two parties to a mortgage: the mortgagor, who
is the borrower and homeowner or the land trustee or the trustee of an inter
vivos revocable trust (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, there are three
parties because title to the property is held by a land trustee under a land
trust agreement of which the borrower/homeowner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. In the case of an inter vivos revocable
trust, there are three parties because title to the property is held by the
trustee under the trust instrument of which the home occupant is the primary
beneficiary; at origination of a mortgage loan, the primary beneficiary and the
trustee execute a mortgage note and the trustee executes a mortgage or deed of
trust, with the primary beneficiary agreeing to be bound by its terms. Although
a deed of trust is similar to a mortgage, a deed of trust normally has three
parties, the borrower-homeowner called the trustor (similar to a mortgagor), a
lender (similar to a mortgagee) called the beneficiary, and a third-party
grantee called the trustee. Under a deed of trust, the borrower grants the
property, irrevocably until the debt is paid, in trust and generally with a
power of sale, to the trustee to secure payment of the obligation. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by the law of the state in which the real property is
located, as well as by federal law, the express provisions of the deed of trust
or mortgage and, in some cases, the directions of the beneficiary.
Foreclosure
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In some states, the
trustee must record a notice of default and send a copy to the borrower-trustor
and any person who has recorded a request for a copy of a notice of default and
notice of sale. In addition, the trustee must provide notice in some states to
any other individual having an interest in the real property, including any
junior lien holders. The borrower, or any other person having a junior
encumbrance on the real estate, may, during a reinstatement period, cure the
default by paying the entire amount in arrears plus the costs and expenses
incurred in enforcing the obligation. Generally, state law controls the amount
of foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. If the deed of trust is not reinstated, a notice of sale
must be posted in a public place and, in most states, published for a specific
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not protested by
any of the parties defendant. However, 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 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.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages in the event the mortgagor
is in default thereunder. In either event, the amounts expended are added to
the balance due on the junior loan, and the rights of the junior mortgagee may
be subrogated to the rights of the senior mortgagees. In addition, in the event
that the foreclosure of a junior mortgage
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triggers the enforcement of a "due-on-sale" clause, the junior mortgagee may be
required to pay the full amount of the senior mortgages to the senior
mortgagees. Accordingly, with respect to those Mortgage Loans which are junior
mortgage loans, if the lender purchases the property, the lender's title will
be subject to all senior liens and claims and certain governmental liens. The
proceeds received by the referee or trustee from the sale are applied first to
the costs, fees and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeds.
In case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer or by the trustee is a public
sale. However, because of the difficulty a potential buyer at the sale would
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. Rather, 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, accrued and unpaid interest and expenses of
foreclosure. Thereafter, the lender will assume 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. The
lender will commonly obtain the services of a real estate broker and pay the
broker's commission in connection with the sale of the property. Depending upon
market conditions, the ultimate proceeds of the sale of the property may not
equal the lender's investment in the property. Any loss may be reduced by the
receipt of any mortgage insurance proceeds.
In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required that the lenders reinstate loans or
recast payment schedules in order to accommodate borrowers who are suffering
from temporary financial disability. In other cases, courts have limited the
right of a lender to foreclose if the default under the mortgage instrument is
not monetary, such as the borrower's failure to adequately maintain the
property or the borrower's execution of a second mortgage or deed of trust
affecting the property.
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 minimum. 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.
Right of Redemption
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, the right to redeem is an equitable right. The equity of redemption,
which is a non-statutory right that must be exercised prior to a foreclosure
sale, should be distinguished from statutory rights of redemption. In some
states, redemption may occur only upon payment of the entire principal balance
of the loan, accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The rights of redemption
would defeat the title of any purchaser from the lender subsequent to
foreclosure or sale under a deed of trust. Consequently, the practical effect
of the redemption right is to force the lender to retain the property and pay
the expenses of ownership until the redemption period has run.
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Anti-Deficiency Legislation and Other Limitations on Lenders
Anti-Deficiency Statutes
Certain states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. Finally, other statutory provisions limit any deficiency judgment
against the former borrower following a judicial sale to the excess of the
outstanding debt over the fair market value of the property at the time of the
public sale. The purpose of these statutes is generally to prevent a
beneficiary or a mortgagee from obtaining a large deficiency judgment against
the former borrower as a result of low or no bids at the judicial sale.
Bankruptcy Laws
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state
laws affording relief to debtors, may interfere with or affect the ability of
the secured mortgage lender to realize upon collateral and/or enforce a
deficiency judgment. For example, with respect to federal bankruptcy law, the
filing of a petition acts as a stay against the enforcement of remedies in
connection with the collection of a debt. Moreover, a court with federal
bankruptcy jurisdiction may permit a debtor through his or her Chapter 11 or
Chapter 13 plan of reorganization to cure a monetary default in respect of a
mortgage loan on a debtor's residence by paying arrearages within a reasonable
time period and reinstating the original mortgage loan payment schedule even
though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the residence
had yet occurred) prior to the filing of the debtor's petition. Some courts
with federal bankruptcy jurisdiction have approved plans, based on the
particular facts of the reorganization case, that effected the curing of a
mortgage loan default by paying arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified if
the borrower has filed a petition under Chapter 11 or Chapter 13. These courts
have suggested that such modifications may include reducing the amount of each
monthly payment, changing the rate of interest, altering the repayment schedule
and reducing the lender's security interest to the value of the residence, thus
leaving the lender a general unsecured creditor for the difference between the
value of the residence and the outstanding balance of the loan. If the borrower
has filed a petition under Chapter 13, federal bankruptcy law and limited case
law indicate that the foregoing modifications could not be applied to the terms
of a loan secured solely by property that is the principal residence of the
debtor. In all cases, the secured creditor is entitled to the value of its
security plus post-petition interest, attorneys' fees, if specifically provided
for, and costs to the extent the value of the security exceeds the debt.
Tax Liens
The Internal Revenue Code of 1986, as amended, 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 with respect to a
defaulted Mortgage Loan.
Consumer Protection Laws
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. These laws and their implementing
regulations 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, as well as other 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 In particular,
the
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originators' failure to comply with certain requirements of the federal
Truth-in-Lending Act, as implemented by Regulation Z, could subject both
originators and assignees of such obligations to monetary penalties and could
result in obligors rescinding the mortgage loans against either the originators
or assignees.
On March 21, 1994, the United States Court of Appeals for the 11th Circuit
ruled in the case of Rodash v. AIB Mortgage Co. that the federal Truth in
Lending Act requires mortgage lenders to disclose to borrowers the collection
of certain intangible taxes and courier fees as prepaid finance charges. Since
the Rodash decision, class action lawsuits have been brought against numerous
mortgage lending institutions alleging certain violations of the Truth in
Lending Act concerning the improper disclosure of various fees.
For Truth in Lending violations, one of the remedies available to the
borrowers under certain affected non-purchase money mortgage loans is
rescission, which, if elected by the borrower, would serve to cancel the loan
and merely require the borrower to pay the principal balance of the mortgage
loan, less a credit for interest paid, closing costs and prepaid finance
charges.
The Seller or another Representing Party will represent in the Agreement
that all applicable laws, including the Truth in Lending Act, were complied
with in connection with origination of the Mortgage Loans. In the event that
such representation is breached in respect of any Mortgage Loan in a manner
that materially and adversely affects Certificateholders, the Seller or such
Representing Party will be obligated to repurchase the affected Mortgage Loan
at a price equal to the unpaid principal balance thereof plus accrued interest
as provided in the Agreement or to substitute a new mortgage loan in place of
the affected Mortgage Loan.
Enforceability of Due-on-Sale Clauses
Unless the Prospectus Supplement indicates otherwise, all of the Mortgage
Loans will contain due-on-sale clauses. These clauses permit the lender to
accelerate the maturity of a loan if the borrower sells, transfers, or conveys
the property. The enforceability of these clauses was the subject of
legislation or litigation in many states, and in some cases the enforceability
of these clauses was limited or denied. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act") preempts state
constitutional, statutory and case law prohibiting the enforcement of
due-on-sale clauses and permits lenders to enforce these clauses in accordance
with their terms, subject to certain limited exceptions contained in the
Garn-St Germain Act and regulations promulgated by Office of Thrift Supervision
(the "OTS"), as successor to the Federal Home Loan Bank Board. The Garn-St
Germain Act does "encourage" lenders to permit assumption 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.
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 OTS which preempt state law restrictions on the
enforcement of due-on-sale clauses.
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 three years or less and the creation of a junior encumbrance.
Regulations promulgated under the Garn-St Germain Act by the Federal Home Loan
Bank Board as succeeded by the OTS also prohibit the imposition of a prepayment
penalty upon the acceleration of a loan pursuant to a due-on-sale clause. If
interest rates were to rise above the interest rates on the Mortgage Loans,
then any inability of the Servicer to enforce due-on-sale clauses may result in
the Trust Fund including a greater number of loans bearing below-market
interest rates than would otherwise be the case, since a transferee of the
property underlying a Mortgage Loan would have a greater incentive in such
circumstances to assume the transferor's Mortgage Loan. Any inability of the
Servicer to enforce due-on-sale clauses may affect the average life of the
Mortgage Loans and the number of Mortgage Loans that may be outstanding until
maturity.
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. The OTS, as successor
to the Federal Home Loan
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Bank Board, is authorized to issue rules and regulations and to publish
interpretations governing implementation of Title V. 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.
Under the Agreement for each series of Certificates, the Seller will
represent and warrant to the Trustee that the Mortgage Loans have been
originated in compliance in all material respects with applicable state laws,
including usury laws.
Soldiers' and Sailors' Civil Relief Act
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 for such borrower's Mortgage Loan (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
ordered to federal 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 for the Master Servicer to collect full amounts of
interest on certain of the Mortgage Loans. Any shortfalls in interest
collections resulting from the application for the Relief Act will be allocated
on a pro rata basis to the Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the Master Servicers to foreclose
on an affected Mortgage Loan during the borrower's period of active duty
status, and, under certain circumstances, during an additional three month
period thereafter. Thus, in the event that such a Mortgage Loan goes into
default, there may be delays and losses occasioned thereby.
Under the applicable Agreement, the Servicer will not be required to make
deposits to the Collection Account for a series of Certificates in respect of
any Mortgage Loan as to which the Relief Act has limited the amount of interest
the related borrower is required to pay each month, and Certificateholders will
bear such loss.
Late Charges, Default Interest and Limitations on Prepayment
Notes and mortgages may contain provisions that obligate the borrower to
pay a late charge or additional interest if payments are not timely made, and
in some circumstances, may prohibit prepayments for a specified period and/or
condition prepayments upon the borrower's payment of prepayment fees or yield
maintenance penalties. In certain states, there are or may be specific
limitations upon the late charges which a lender may collect from a borrower
for delinquent payments. Certain states also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid. In
addition, the enforceability of provisions that provide for prepayment fees or
penalties upon involuntary prepayment is unclear under the laws of many states.
Most conventional single-family mortgage loans may be prepaid in full or in
part without penalty. The regulations of the Federal Home Loan Bank Board, as
succeeded by the OTS, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher mortgage
rates, may increase the likelihood of refinancing or other early retirements of
the Mortgage Loans.
Environmental Considerations
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
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certain circumstances for the costs of cleaning up hazardous substances
regardless of whether they have contaminated the property. CERCLA imposes
strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the
definition of owners and operators those who, without participating in the
management of a facility, hold indicia of ownership primarily to protect a
security interest in the facility.
The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996
(the "Conservation Act") amended, among other things, the provisions of CERCLA
with respect to lender liability and the secured creditor exemption. The
Conservation Act offers substantial protection to lenders by defining the
activities in which a lender can engage and still have the benefit of the
secured creditor exemption. In order for lender to be deemed to have
participated in the management of a mortgaged property, the lender must
actually participate in the operational affairs of the property of the
borrower. The Conservation Act provides that "merely having the capacity to
influence, or unexercised right to control" operations does not constitute
participation management. A lender will lose the protection of the secured
creditor exemption only if it exercises decision-making control over the
borrower's environmental compliance and hazardous substance handling and
disposal practices, or assumes day-to-day management of all operational
functions of the mortgaged property. The Conservation Act also provides that a
lender will continue to have the benefit of the secured creditor exemption even
if it forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell
the mortgaged property at the earliest practicable commercially reasonable time
on commercially reasonable terms.
Other federal and state laws in certain circumstances may impose liability
on a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property on
which contaminants other than CERCLA hazardous substances are present,
including petroleum, agricultural chemicals, hazardous wastes, asbestos, radon,
and lead-based paint. Such cleanup costs may be substantial. It is possible
that such cleanup costs could become a liability of a Trust Fund and reduce the
amounts otherwise distributable to the holders of the related series of
Certificates. Moreover, certain federal statutes and certain states by statute
impose a lien for any cleanup costs incurred by such state on the property that
is the subject of such cleanup costs (an "Environmental Lien"). All subsequent
liens on such property generally are subordinated to 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.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Neither the Seller nor any
replacement Servicer will be required by any Agreement to undertake any such
evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure.
The Seller does not make any representations or warranties or assume any
liability with respect to the absence or effect of contaminants on any related
real property or any foreclose on related real property or accept a
deed-in-lieu of foreclosure if it knows or reasonably believes that there are
material contaminated conditions on such property. A failure so to foreclose
may reduce the amounts otherwise available to Certificateholders of the related
series.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment or a
very limited environment assessment of the Mortgaged Properties will have been
conducted.
Forfeiture in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984, the
government may seize the property even before conviction. The government must
publish notice of the forfeiture proceeding and may give notice to all parties
"known to have an alleged interest in the property," including the holders of
mortgage loans.
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A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
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LEGAL INVESTMENT MATTERS
The Prospectus Supplement for each series of Certificates will specify,
which, if any, of the classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Marketing
Enhancement Act of 1984, as amended ("SMMEA"). The appropriate characterization
of those Certificates not qualifying as "mortgage related securities"
("Non-SMMEA Certificates") under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase such
Certificates, may be subject to 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 Certificates constitute legal investments for them.
Generally, only classes of Certificates that (i) are rated in one of the
two highest rating categories by one or more nationally recognized statistical
rating organizations and (ii) are part of a series evidencing interests in a
Trust Fund consisting of loans secured by, among other things, a single parcel
of real estate upon which is located a dwelling or mixed residential and
commercial structure, such as certain multifamily loans, originated by certain
types of obligations as specified in SMMEA, will be "mortgage related
securities" for purposes of SMMEA. As "mortgage related securities", such
classes 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" 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
Certificates 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. Section 24 (Seventh), subject in each case to such regulations as the
applicable federal regulatory authority may prescribe. In this connection,
federal credit unions should review the National Credit Union Administration
("NCUA") Letter to Credit Unions No. 96, as modified by Letter to Credit Unions
No. 108, which includes guidelines to assist federal credit unions in making
investment decisions for mortgage related securities. The NCUA has adopted
rules, codified as 12 C.F.R. Sections 703.5(f)-(k) which prohibit federal
credit unions from investing in certain mortgage related securities (including
securities such as certain Series or Classes of Certificates), except under
limited circumstances.
All depositary institutions considering an investment in the Certificates
(whether or not the class of certificates under consideration for purchase
constitutes a "mortgage related security") should review the Federal Financial
Institutions Examination Council's "Supervisory Policy Statement on Securities
Activities" (to the extent adopted by their respective regulators) (the "Policy
Statement"). The Policy Statement, which has been adopted by the Board of
Governors of the Federal Reserve System, the Federal Deposit Insurance
Corporation, the Comptroller of the Currency and the Office of Thrift
Supervision, and by the NCUA (with certain modifications), prohibits depository
institutions from investing in certain "high risk mortgage securities"
(including securities such as certain series or classes of the Certificates),
except under limited circumstances, and sets forth certain investment practices
deemed to be unsuitable for regulated institutions. Under the Policy Statement,
it is the responsibility of each depository institution to determine, prior to
purchase (and at stated intervals thereafter), whether a particular mortgage
derivative product is a "high-risk mortgage security", and whether the purchase
(or retention) of such a product would be consistent with the Policy Statement.
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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
Certificates, as certain series or classes may be deemed to be unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", and with regard to any Certificates issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain Certificates as "mortgage related
securities," no representation is made as to the proper characterization of the
Certificates for legal investment purposes, financial institutions regulatory
purposes, or other purposes, or as to the ability of particular investors to
purchase Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial regulatory characteristics of the
Certificates) may adversely affect the liquidity of the Certificates. Investors
should consult their own legal advisors in determining whether and to what
extent the Certificates constitute legal investments for such investors.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Internal Revenue Code of 1986, as amended, (the "Code") impose
requirements on employee benefit plans (including retirement plans and
arrangements, collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested) subject to ERISA or the Code
(collectively, "Plans") and on persons who are fiduciaries with respect to such
Plans. Among other things, ERISA requires that the assets of a Plan subject to
ERISA be held in trust and that the trustee, or other duly authorized
fiduciary, have exclusive authority and discretion to manage and control the
assets of such Plan. ERISA also imposes certain duties on persons who are
fiduciaries with respect to a Plan. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of
a Plan generally is considered to be a fiduciary of such Plan. In addition to
the imposition by ERISA of general fiduciary standards of investment prudence
and diversification, ERISA and Section 4975 of the Code prohibit a broad range
of transactions involving Plan assets and persons having certain specified
relationships to a Plan ("Parties in Interest") and impose additional
prohibitions where Parties in Interest are fiduciaries with respect to such
Plan.
The United States Department of Labor (the "DOL") has issued regulations
concerning the definition of what constitutes the assets of a Plan (DOL Reg.
Section 2510.3-101). Under this regulation, the underlying assets and
properties of corporations, partnerships and certain other entities in which a
Plan makes an "equity" investment could be deemed for purposes of ERISA and
Section 4975 of the Code to be assets of the investing Plan in certain
circumstances. In such a case, the fiduciary making such an investment for the
Plan could be deemed to have delegated the fiduciary's asset management
responsibility, the underlying assets and properties could be subject to the
reporting and disclosure requirements of ERISA, and transactions involving the
underlying assets and properties could be subject to the fiduciary
responsibility requirements of ERISA and Section 4975 of the Code. Certain
exceptions to the regulation may apply in the case of a Plan's investment in
the Certificates, but it cannot be predicted in advance whether such exceptions
will apply due to the factual nature of the conditions to be met. Accordingly,
because the Mortgage Loans may be deemed Plan assets of each Plan that
purchases Certificates, an investment in the Certificates by a Plan might give
rise to a prohibited transaction under ERISA Sections 406 or 407 and be subject
to an excise tax under Code Section 4975 unless a statutory or administrative
exemption applies.
DOL Prohibited Transaction Class Exemption 83-1 ("PTE 83-1") exempts from
the prohibited transaction rules of ERISA and Section 4975 of the Code certain
transactions relating to the operation of residential mortgage pool investment
trusts and the direct or indirect sale, exchange, transfer and holding of
"mortgage pool pass-through certificates" in the initial issuance of such
certificates. PTE 83-1 permits, subject to certain conditions, transactions
which might otherwise be prohibited between Plans and Parties in Interest with
respect to
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those Plans involving the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by either first or second mortgages,
or deeds of trust on single-family residential property, and the acquisition
and holding of certain mortgage pool pass-through certificates representing an
interest in such mortgage pools by Plans.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying certificateholders against reductions
in pass-through payments due to property damage or defaults in loan payments in
an amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled mortgage loans or the principal balance of the
largest covered pooled mortgage loan; (ii) the existence of a pool trustee who
is not an affiliate of the pool sponsor (other than generally in the event of a
default by the pool sponsor which causes the pool trustee to assume duties of
the sponsor); and (iii) a limitation on the amount of the payments retained by
the pool sponsor, together with other funds inuring to its benefit, to not more
than adequate consideration for selling the mortgage loans plus reasonable
compensation for services provided by the pool sponsor to the mortgage pool.
Although the Trustee for any series of Certificates will be unaffiliated
with the Servicer, there can be no assurance that the first or third conditions
of PRE 83-1 referred to above will be satisfied with respect to any
Certificates. In addition, the nature of a trust fund's assets or the
characteristics of one or more classes of the related series of Certificates
may not be included within the scope of PTE 83-1 or any other class exemption
under ERISA.
Several underwriters of mortgage-backed securities have applied for and
obtained individual prohibited transaction exemptions which are in some
respects broader than PTE 83-1. Such exemptions only apply to mortgage-backed
securities which, in addition to satisfying other conditions, are sold in an
offering with respect to which such underwriter serves as the sole or a
managing underwriter, or as a selling or placement agent. If such an exemption
might be applicable to a series of Certificates, the related Prospectus
Supplement will refer to such possibility. In addition, there may also be other
class exemptions that are available to provide relief from the prohibited
transaction provisions of ERISA and the Code.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Certificates must make
its own determination as to whether the general and the specific conditions of
PTE 83-1 have been satisfied, or as to the availability of any other prohibited
transaction exemptions. Each Plan fiduciary should also determine whether,
under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Any Plan proposing to invest in Certificates should consult with its
counsel to confirm that such investment will not result in a prohibited
transaction and will satisfy the other requirements of ERISA and the Code. The
sale of Certificates to a Plan is in no respect a representation by any party
that this investment meets all relevant legal requirements with respect to
investments by Plans generally or by any particular Plan, or that this
investment is appropriate for Plans generally or for any particular Plan.
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FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion represents the opinion of Morgan, Lewis & Bockius
LLP as to the material federal income tax consequences of purchasing, owning
and disposing of Certificates. It does not address special rules which may
apply to particular types of investors. The authorities on which this
discussion is based are subject to change or differing interpretations, and any
such change or interpretation could apply retroactively. It is recommended that
investors consult their own tax advisors regarding the Certificates.
For purposes of this discussion, unless otherwise specified, the term
"Owner" will refer to the beneficial owner of a Certificate.
REMIC Elections
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election may be made to treat the Trust Fund related to each Series of
Certificates (or segregated pools of assets within the Trust Fund) as a "real
estate mortgage investment conduit" ("REMIC") within the meaning of Section
860D(a) of the Code. If one or more REMIC elections are made, the Certificates
of any class will be either "regular interests" in a REMIC within the meaning
of Section 860G(a)(1) of the Code ("Regular Certificates") or "residual
interests" in a REMIC within the meaning of Section 860G(a)(2) of the Code
("Residual Certificates"). The Prospectus Supplement for each Series of
Certificates will indicate whether an election will be made to treat the Trust
Fund as one or more REMICs, and if so, which Certificates will be Regular
Certificates and which will be Residual Certificates.
If a REMIC election is made, the Trust Fund, or each portion thereof that
is treated as a separate REMIC, will be referred to as a "REMIC Pool". If the
Trust Fund is comprised of two REMIC Pools, one will be an "Upper-Tier REMIC"
and one a "Lower-Tier REMIC". The assets of the Lower-Tier REMIC will consist
of the Mortgage Loans and related Trust Fund assets. The assets of the
Upper-Tier REMIC will consist of all of the regular interests issued by the
Lower-Tier REMIC.
The discussion below under the heading "REMIC Certificates" considers
Series for which a REMIC election will be made. Series for which no such
election will be made are addressed under "Non-REMIC Certificates".
REMIC Certificates
The discussion in this section applies only to a Series of Certificates
for which a REMIC election is made.
Tax Opinion.
Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each Series of Certificates for which a REMIC
election is made, Morgan, Lewis & Bockius LLP, counsel to the Seller, will
deliver an additional opinion, dated as of the date of such issuance, that with
respect to each such Series of Certificates, under then existing law and
assuming compliance by the Seller, the Servicer and the Trustee for such Series
with all of the provisions of the related Agreement (and such other agreements
and representations as may be referred to in such opinion), each REMIC Pool
will be a REMIC, and the Certificates of such Series will be treated as either
Regular Certificates or Residual Certificates.
Status of Certificates.
The Certificates will be:
o assets described in Code Section 7701(a)(19)(C) (relating to the
qualification of certain corporations, trusts, or associations as real
estate investment trusts); and
o "real estate assets" under Code Section 856(c)(5)(B) (relating to real
estate interests, interests in real estate mortgages, and shares or
certificates of beneficial interests in real estate investment trusts), to
the extent the assets of the related REMIC Pool are so treated. Interest
on the Regular Certificates will be
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"interest on obligations secured by mortgages on real property or on
interests in real property" within the meaning of Code Section
856(c)(3)(B) in the same proportion that the income of the REMIC Pool is
so treated. If at all times 95% or more of the assets or income of the
REMIC Pool qualifies under the foregoing Code sections, the Certificates
(and income thereon) will so qualify in their entirety.
The rules described in the two preceding paragraphs will be applied to a
Trust Fund consisting of two REMIC Pools as if the Trust Fund were a single
REMIC holding the assets of the Lower-Tier REMIC.
Income from Regular Certificates.
General. Except as otherwise provided in this tax discussion, Regular
Certificates will be taxed as newly originated debt instruments for federal
income tax purposes. Interest, original issue discount and market discount
accrued on a Regular Certificate will be ordinary income to the Owner. All
Owners must account for interest income under the accrual method of accounting,
which may result in the inclusion of amounts in income that are not currently
distributed in cash.
Except as otherwise noted, the discussion below is based upon regulations
adopted by the Internal Revenue Service applying the original issue discount
rules of the Code ("the OID Regulations").
Original Issue Discount. Certain Regular Certificates may have "original
issue discount." An Owner must include original issue discount in income as it
accrues, without regard to the timing of payments.
The total amount of original issue discount on a Regular Certificate is
the excess of its "stated redemption price at maturity" over its "issue price."
The issue price for any Regular Certificate is the price (including any accrued
interest) at which a substantial portion of the class of Certificates including
such Regular Certificate are first sold to the public. In general, the stated
redemption price at maturity is the sum of all payments made on the Regular
Certificate, other than payments of interest that (i) are actually payable at
least annually over the entire life of the Certificates and (ii) are based on a
single fixed rate or variable rate (or certain combinations of fixed and
variable rates). The stated redemption price at maturity of a Regular
Certificate always includes its original principal amount, but generally does
not include distributions of stated interest, except in the case of Accrual
Certificates, and, as discussed below, Interest Only Certificates. An "Interest
Only Certificate" is a Certificate entitled to receive distributions of some or
all of the interest on the Mortgage Loans or other assets in a REMIC Pool and
that has either a notional or nominal principal amount. Special rules for
Regular Certificates that provide for interest based on a variable rate are
discussed below in "Income from Regular Certificates -- Variable Rate Regular
Certificates".
With respect to an Interest Only Certificate, the stated redemption price
at maturity is likely to be the sum of all payments thereon, determined in
accordance with the Prepayment Assumption (as defined below). In that event,
Interest Only Certificates would always have original issue discount.
Alternatively, in the case of an Interest Only Certificate with some principal
amount, the stated redemption price at maturity might be determined under the
general rules described in the preceding paragraph. If, applying those rules,
the stated redemption price at maturity were considered to equal the principal
amount of such Certificate, then the rules described below under "Premium"
would apply. The Prepayment Assumption is the assumed rate of prepayment of the
Mortgage Loans used in pricing the Regular Certificates. The Prepayment
Assumption will be set forth in the related Supplement.
Under a de minimis rule, original issue discount on a Regular Certificate
will be considered zero if it is less than 0.25% of the Certificate's stated
redemption price at maturity multiplied by the Certificate's weighted average
maturity. The weighted average maturity of a Regular Certificate is computed
based on the number of full years (i.e., rounding down partial years) each
distribution of principal (or other amount included in the stated redemption
price at maturity) is scheduled to be outstanding. The schedule of such
distributions should be determined in accordance with the Prepayment
Assumption.
The Owner of a Regular Certificate must include in income the original
issue discount that accrues for each day on which the Owner holds such
Certificate, including the date of purchase, but excluding the date of
disposition. The original issue discount accruing in any period equals:
PV End + Dist - PV Beg
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Where:
PV End = present value of all remaining distributions to be made as of the end
of the period;
Dist = distributions made during the period includible in the stated redemption
price at maturity; and
PV Beg = present value of all remaining distributions as of the beginning of
the period.
The present value of the remaining distributions is calculated based on
(i) the original yield to maturity of the Regular Certificate, (ii) events
(including actual prepayments) that have occurred prior to the end of the
period and (iii) the Prepayment Assumption. For these purposes, the original
yield to maturity of a Regular Certificate will be calculated based on its
issue price, assuming that the Certificate will be prepaid in all periods in
accordance with the Prepayment Assumption, and with compounding at the end of
each accrual period used in the formula.
Assuming the Regular Certificates have monthly Distribution Dates,
discount would be computed under the formula generally for the one-month
periods (or shorter initial period) ending on each Distribution Date. The
original issue discount accruing during any accrual period is divided by the
number of days in the period to determine the daily portion of original issue
discount for each day.
The daily portions of original issue discount will increase if prepayments
on the underlying Mortgage Loans exceed the Prepayment Assumption and decrease
if prepayments are slower than the Prepayment Assumption (changes in the rate
of prepayments having the opposite effect in the case of an Interest Only
Certificate). If the relative principal payment priorities of the classes of
Regular Certificates of a Series change, any increase or decrease in the
present value of the remaining payments to be made on any such class will
affect the computation of original issue discount for the period in which the
change in payment priority occurs.
If original issue discount computed as described above is negative for any
period, the Owner generally will not be allowed a current deduction for the
negative amount but instead will be entitled to offset such amount only against
future positive original issue discount from such Certificate.
Acquisition Premium. If an Owner of a Regular Certificate acquires such
Certificate at a price greater than its "adjusted issue price," but less than
its remaining stated redemption price at maturity, the daily portion for any
day (as computed above) is reduced by an amount equal to the product of (i)
such daily portion and (ii) a fraction, the numerator of which is the amount by
which the price exceeds the adjusted issue price and the denominator of which
is the sum of the daily portions for such Regular Certificate for all days on
and after the date of purchase. The adjusted issue price of a Regular
Certificate on any given day is its issue price, increased by all original
issue discount that has accrued on such Certificate and reduced by the amount
of all previous distributions on such Certificate of amounts included in its
stated redemption price at maturity.
Market Discount. A Regular Certificate may have market discount (as
defined in the Code). Market discount equals the excess of the adjusted issue
price of a Certificate over the Owner's adjusted basis in the Certificate. The
Owner of a Certificate with market discount must report ordinary interest
income, as the Owner receives distributions on the Certificate of principal or
other amounts included in its stated redemption price at maturity, equal to the
lesser of (a) the excess of the amount of those distributions over the amount,
if any, of accrued original issue discount on the Certificate or (b) the
portion of the market discount that has accrued and not previously been
included in income. Also, such Owner must treat gain from the disposition of
the Certificate as ordinary income to the extent of any accrued, but
unrecognized, market discount. Alternatively, an Owner may elect in any taxable
year to include market discount in income currently as it accrues on all market
discount instruments acquired by the Owner in that year or thereafter. An Owner
may revoke such an election only with the consent of the Internal Revenue
Service.
In general terms, market discount on a Regular Certificate may be treated,
at the Owner's election, as accruing either (a) on the basis of a constant
yield (similar to the method described above for accruing original issue
discount) or (b) alternatively, either (i) in the case of a Regular Certificate
issued without original issue discount, in the ratio of stated interest
distributable in the relevant period to the total stated interest remaining to
be distributed from the beginning of such period (computed taking into account
the Prepayment Assumption)
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or (ii) in the case of a Regular Certificate issued with original issue
discount, in the ratio of the amount of original issue discount accruing in the
relevant period to the total remaining original issue discount at the beginning
of such period. An election to accrue market discount on a Regular Certificate
on a constant yield basis is irrevocable with respect to that Certificate.
An Owner may be required to defer a portion of the deduction for interest
expense on any indebtedness that the Owner incurs or maintains in order to
purchase or carry a Regular Certificate that has market discount. The deferred
amount would not exceed the market discount that has accrued but not been taken
into income. 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.
Market discount with respect to a Regular Certificate will be considered
to be zero if such market discount is de minimis under a rule similar to that
described above in the fourth paragraph under "Original Issue Discount". Owners
should consult their own tax advisors regarding the application of the market
discount rules as well as the advisability of making any election with respect
to market discount.
Discount on a Regular Certificate that is neither original issue discount
nor market discount, as defined above, must be allocated ratably among the
principal payments on the Certificate and included in income (as gain from the
sale or exchange of the Certificate) as the related principal payments are made
(whether as scheduled payments or prepayments).
Premium. A Regular Certificate, other than an Accrual Certificate or, as
discussed above under "Original Issue Discount", an Interest Only Certificate,
purchased at a cost (net of accrued interest) greater than its principal amount
is considered to be purchased at a premium. The Owner may elect under Code
Section 171 to amortize such premium under the constant yield method, using the
Prepayment Assumption. To the extent the amortized premium is allocable to
interest income from the Regular Certificate, it is treated as an offset to
such interest rather than as a separate deduction. An election made by an Owner
would apply to all its debt instruments and may not be revoked without the
consent of the Internal Revenue Service.
Special Election to Apply OID Rules. In lieu of the rules described above
with respect to de minimis discount, acquisition premium, market discount and
premium, an Owner of a Regular Certificate may elect to accrue such discount,
or adjust for such premium, by applying the principles of the OID rules
described above. An election made by a taxpayer with respect to one obligation
can affect other obligations it holds. Owners should consult with their tax
advisors regarding the merits of making this election.
Retail Regular Certificates. For purposes of the original issue and market
discount rules, a repayment in full of a Retail Certificate that is subject to
payment in units or other increments, rather than on a pro rata basis with
other Retail Certificates, will be treated in the same manner as any other
prepayment.
Variable Rate Regular Certificates. The Regular Certificates may provide
for interest that varies based on an interest rate index. The OID Regulations
provide special rules for calculating income from certain "variable rate debt
instruments" or "VRDIs." A debt instrument must meet certain technical
requirements to qualify as a VRDI, which are outlined in the next paragraph.
Under the regulations, income on a VRDI is calculated by (1) creating a
hypothetical debt instrument that pays fixed interest at rates equivalent to
the variable interest, (2) applying the original issue discount rules of the
Code to that fixed rate instrument, and (3) adjusting the income accruing in
any accrual period by the difference between the assumed fixed interest amount
and the actual amount for the period. In general, where a variable rate on a
debt instrument is based on an interest rate index (such as LIBOR), a fixed
rate equivalent to a variable rate is determined based on the value of the
index as of the issue date of the debt instrument. In cases where rates are
reset at different intervals over the life of a VRDI, adjustments are made to
ensure that the equivalent fixed rate for each accrual period is based on the
same reset interval.
A debt instrument must meet a number of requirements in order to qualify
as a VRDI. A VRDI cannot be issued at a premium above its principal amount that
exceeds a specified percentage of its principal amount (15% or if less, 1.5%
times its weighted average life). As a result, Interest Only Certificates will
never be VRDIs. Also, a debt instrument that pays interest based on a multiple
of an interest rate index is not a VRDI if the multiple is less than or equal
to 0.65 or greater than 1.35, unless, in general, interest is paid based on a
single formula
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that lasts over the life of the instrument. A debt instrument is not a VRDI if
it is subject to caps and floors, unless they remain the same over the life of
the instrument or are not expected to change significantly the yield on the
instrument. Variable rate Regular Certificates other than Interest Only
Certificates may or may not qualify as VRDIs depending on their terms.
In a case where a variable rate Regular Certificate does not qualify as a
VRDI, it will be treated under the OID Regulations as a contingent payment debt
instrument. The Internal Revenue Service has issued final regulations
addressing contingent payment debt instruments, but such regulations are not
applicable by their terms to REMIC regular interests. Until further guidance is
forthcoming, one method of calculating income on such a Regular Certificate
that appears to be reasonable would be to apply the principles governing VRDIs
outlined above.
Subordinated Certificates. Certain Series of Certificates may contain one
or more classes of subordinated Certificates. In the event there are defaults
or delinquencies on the related Mortgage Loans, amounts that otherwise would be
distributed on a class of subordinated Certificates may instead be distributed
on other more senior classes of Certificates. Since Owners of Regular
Certificates are required to report income under an accrual method, Owners of
subordinated Certificates will be required to report income without giving
effect to delays and reductions in distributions on such Certificates
attributable to defaults or delinquencies on the Mortgage Loans, except to the
extent that it can be established that amounts are uncollectible. As a result,
the amount of income reported by an Owner of a subordinated Certificate in any
period could significantly exceed the amount of cash distributed to such Owner
in that period. The Owner will eventually be allowed a loss (or be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the subordinated Certificate is reduced as a result of
defaults and delinquencies on the Mortgage Loans. Such a loss could in some
circumstances be a capital loss. Also, the timing and amount of such losses or
reductions in income are uncertain. Owners of subordinated Certificates should
consult their tax advisors on these points.
Income from Residual Certificates.
Taxation of REMIC Income. Owners of Residual Certificates in a REMIC Pool
("Residual Owners") must report ordinary income or loss equal to their pro rata
shares (based on the portion of all Residual Certificates they own) of the
taxable income or net loss of the REMIC. Such income must be reported
regardless of the timing or amounts of distributions on the Residual
Certificates.
The taxable income of a REMIC Pool is determined under the accrual method
of accounting in the same manner as the taxable income of an individual
taxpayer. Taxable income is generally gross income, including interest and
original issue discount income, if any, on the assets of the REMIC Pool and
income from the amortization of any premium on Regular Certificates, minus
deductions. Market discount (as defined in the Code) with respect to Mortgage
Loans held by a REMIC Pool is recognized in the same fashion as if it were
original issue discount. Deductions include interest and original issue
discount expense on the Regular Certificates, reasonable servicing fees
attributable to the REMIC Pool, other administrative expenses and amortization
of any premium on assets of the REMIC Pool. As previously discussed, the timing
of recognition of "negative original issue discount," if any, on a Regular
Certificate is uncertain; as a result, the timing of recognition of the
corresponding income to the REMIC Pool is also uncertain.
If the Trust Fund consists of an Upper-Tier REMIC and a Lower-Tier REMIC,
the OID Regulations provide that the regular interests issued by the Lower-Tier
REMIC to the Upper- Tier REMIC will be treated as a single debt instrument for
purposes of the original issue discount provisions. A determination that these
regular interests are not treated as a single debt instrument would have a
material adverse effect on the Owners of Residual Certificates issued by the
Lower-Tier REMIC.
A Residual Owner may not amortize the cost of its Residual Certificate.
Taxable income of the REMIC Pool, however, will not include cash received by
the REMIC Pool that represents a recovery of the REMIC Pool's initial basis in
its assets, and such basis will include the issue price of the Residual
Certificates (assuming the issue price is positive). Such recovery of basis by
the REMIC Pool will have the effect of amortization of the issue price of the
Residual Certificate over its life. The period of time over which such issue
price is
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effectively amortized, however, may be longer than the economic life of the
Residual Certificate. The issue price of a Residual Certificate is the price at
which a substantial portion of the class of Certificates including the Residual
Certificate are first sold to the public (or if the Residual Certificate is not
publicly offered, the price paid by the first buyer).
A subsequent Residual Owner must report the same amounts of taxable income
or net loss attributable to the REMIC Pool as an original Owner. No adjustments
are made to reflect the purchase price.
Losses. A Residual Owner that is allocated a net loss of the REMIC Pool
may not deduct such loss currently to the extent it exceeds the Owner's
adjusted basis (as defined in "Sale or Exchange of Certificates" below) in its
Residual Certificate. A Residual Owner that is a U.S. person (as defined below
in "Taxation of Certain Foreign Investors"), however, may carry over any
disallowed loss to offset any taxable income generated by the same REMIC Pool.
Excess Inclusions. A portion of the taxable income allocated to a Residual
Certificate is subject to special tax rules. That portion, referred to as an
"excess inclusion," is calculated for each calendar quarter and equals the
excess of such taxable income for the quarter over the daily accruals for the
quarter. The daily accruals equal the product of (i) 120% of the federal
long-term rate under Code Section 1274(d) for the month which includes the
Closing Date (determined on the basis of quarterly compounding and properly
adjusted for the length of the quarter) and (ii) the adjusted issue price of
the Certificate at the beginning of such quarter. The adjusted issue price of a
Residual Certificate at the beginning of a quarter is the issue price of the
Certificate, plus the amount of daily accruals on the Certificate for all prior
quarters, decreased (but not below zero) by any prior distributions on the
Certificate. If the aggregate value of the Residual Certificates is not
considered to be "significant," then to the extent provided in Treasury
regulations, a Residual Owner's entire share of REMIC taxable income will be
treated as an excess inclusion. The regulations that have been adopted under
Code Sections 860A through 86OG (the "REMIC Regulations") do not contain such a
rule.
Excess inclusions generally may not be offset by unrelated losses or loss
carryforwards or carrybacks of a Residual Owner. In addition, for all taxable
years beginning after August 20, 1996, and unless a Residual Owner elects
otherwise for all other taxable years, the alternate minimum taxable income of
a Residual Owner for a taxable year may not be less than the Residual Owner's
excess inclusions for the taxable year and excess inclusions are disregarded
when calculating a Residual Owner's alternate minimum tax operating loss
deduction.
Excess inclusions are treated as unrelated business taxable income for an
organization subject to the tax on unrelated business income. In addition,
under Treasury regulations yet to be issued, if a real estate investment trust,
regulated investment company or certain other pass-through entities are
Residual Owners, a portion of the distributions made by such entities may be
treated as excess inclusions.
Distributions. Distributions on a Residual Certificate (whether at their
scheduled times or as a result of prepayments) generally will not result in any
taxable income or loss to the Residual Owner. If the amount of any distribution
exceeds a Residual Owner's adjusted basis in its Residual Certificate, however,
the Residual Owner will recognize gain (treated as gain from the sale or
exchange of its Residual Certificate) to the extent of such excess. See "Sale
or Exchange of Certificates" below.
Prohibited Transactions; Special Taxes. Net income recognized by a REMIC
Pool from "prohibited transactions" is subject to a 100% tax and is disregarded
in calculating the REMIC Pool's taxable income. In addition, a REMIC Pool is
subject to federal income tax at the highest corporate rate on "net income from
foreclosure property." A 100% tax also applies to certain contributions to a
REMIC Pool made after it is formed. It is not anticipated that any REMIC Pool
will (i) engage in prohibited transactions in which it recognizes a significant
amount of net income, (ii) receive contributions of property that are subject
to tax, or (iii) derive a significant amount of net income from foreclosure
property that is subject to tax.
Negative Value Residual Certificates. The federal income tax treatment of
any consideration paid to a transferee on a transfer of a Residual Certificate
is unclear. Such a transferee should consult its tax advisor. The preamble to
the REMIC Regulations indicates that the Internal Revenue Service may issue
future guidance on the tax treatment of such payments.
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In addition, on December 23, 1996, the Internal Revenue Service released
final regulations under Code Section 475 relating to the requirement that a
dealer mark certain securities to market. These regulations provide that a
REMIC residual interest that is acquired on or after January 4, 1995 is not a
"security" for the purposes of Section 475 of the Code, and thus is not subject
to the mark to market rules.
The method of taxation of Residual Certificates described in this section
can produce a significantly less favorable after-tax return for a Residual
Certificate than would be the case if the Certificate were taxable as a debt
instrument. Also, a Residual Owner's return may be adversely affected by the
excess inclusions rules described above. In certain periods, taxable income and
the resulting tax liability for a Residual Owner may exceed any distributions
it receives. In addition, a substantial tax may be imposed on certain
transferors of a Residual Certificate and certain Residual Owners that are
"pass-thru" entities. See "Transfers of Residual Certificates" below. Investors
should consult their tax advisors before purchasing a Residual Certificate.
Sale or Exchange of Certificates.
An Owner will recognize gain or loss upon sale or exchange of a Regular or
Residual Certificate equal to the difference between the amount realized and
the Owner's adjusted basis in the Certificate. The adjusted basis in a
Certificate will equal the cost of the Certificate, increased by income
previously recognized, and reduced (but not below zero) by previous
distributions, and by any amortized premium in the case of a Regular
Certificate, or net losses allowed as a deduction in the case of a Residual
Certificate.
Except as described below, any gain or loss on the sale or exchange of a
Certificate held as a capital asset will be capital gain or loss and will be
long-term or short-term depending on whether the Certificate has been held for
more than one year or one year or less. Such gain or loss will be ordinary
income or loss (i) for a bank or thrift institution, and (ii) in the case of a
Regular Certificate, (a) to the extent of any accrued, but unrecognized, market
discount, or (b) to the extent income recognized by the Owner is less than the
income that would have been recognized if the yield on such Certificate were
110% of the applicable federal rate under Code Section 1274(d).
A Residual Owner should be allowed a loss upon termination of the REMIC
Pool equal to the amount of the Owner's remaining adjusted basis in its
Residual Certificates. Whether the termination will be treated as a sale or
exchange (resulting in a capital loss) is unclear.
Except as provided in Treasury regulations, the wash sale rules of Code
Section 1091 (relating to the disallowance of losses on the sale or disposition
of certain stock or securities) will apply to dispositions of a Residual
Certificate where the seller of the interest, during the period beginning six
months before the sale or disposition of the interest and ending six months
after such sale or disposition, acquires (or enters into any other transaction
that results in the application of Code Section 1091) any REMIC residual
interest, or any interest in a "taxable mortgage pool" (such as a non-REMIC
owner trust) that is economically comparable to a residual interest.
Taxation of Certain Foreign Investors.
Regular Certificates. A Regular Certificate held by an Owner that is a
non-U.S. person (as defined below), and that has no connection with the United
States other than owning the Certificate, will not be subject to U.S.
withholding or income tax with respect to the Certificate provided such Owner
(i) is not a "10-percent shareholder", related to the issuer, within the
meaning of Code Section 871(h)(3)(B) or a controlled foreign corporation,
related to the issuer, described in Code Section 881(c)(3)(C), and (ii)
provides an appropriate statement, signed under penalties of perjury,
identifying the Owner and stating, among other things, that the Owner is a
non-U.S. person. If these conditions are not met, a 30% withholding tax will
apply to interest (including original issue discount) unless an income tax
treaty reduces or eliminates such tax or unless the interest is effectively
connected with the conduct of a trade or business within the United States by
such Owner. In the latter case, such Owner will be subject to United States
federal income tax with respect to all income from the Certificate at regular
rates then applicable to U.S. taxpayers (and in the case of a corporation,
possibly also the "branch profits tax").
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The term "non-U.S. person" means any person other than a U.S. person. A
U.S. person is a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, any 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 fiduciaries have the
authority to control all substantial decisions of the trust, or an estate that
is subject to U.S. federal income tax regardless of the source of its income.
Residual Certificates. A Residual Owner that is a non-U.S. person, and
that has no connection with the United States other than owning a Residual
Certificate, will not be subject to U.S. withholding or income tax with respect
to the Certificate (other than with respect to excess inclusions) provided that
(i) the conditions described in the second preceding paragraph with respect to
Regular Certificates are met and (ii) in the case of a Residual Certificate in
a REMIC Pool holding Mortgage Loans, the Mortgage Loans were originated after
July 18, 1984. Excess inclusions are subject to a 30% withholding tax in all
events (notwithstanding any contrary tax treaty provisions) when distributed to
the Residual Owner (or when the Residual Certificate is disposed of). The Code
grants the Treasury Department authority to issue regulations requiring excess
inclusions to be taken into account earlier if necessary to prevent avoidance
of tax. The REMIC Regulations do not contain such a rule. The preamble thereto
states that the Internal Revenue Service is considering issuing regulations
concerning withholding on distributions to foreign holders of residual
interests to satisfy accrued tax liability due to excess inclusions.
With respect to a Residual Certificate that has been held at any time by a
non-U.S. person, the Trustee (or its agent) will be entitled to withhold (and
to pay to the Internal Revenue Service) any portion of any payment on such
Residual Certificate that the Trustee reasonably determines is required to be
withheld. If the Trustee (or its agent) reasonably determines that a more
accurate determination of the amount required to be withheld from a
distribution can be made within a reasonable period after the scheduled date
for such distribution, it may hold such distribution in trust for the Residual
Owner until such determination can be made.
Special tax rules and restrictions that apply to transfers of Residual
Certificates to and from non-U.S. persons are discussed in the next section.
Transfers of Residual Certificates.
Special tax rules and restrictions apply to transfers of Residual
Certificates to disqualified organizations or foreign investors, and to
transfers of noneconomic Residual Certificates.
Disqualified Organizations. In order to comply with the REMIC rules of the
Code, the Agreement will provide that no legal or beneficial interest in a
Residual Certificate may be transferred to, or registered in the name of, any
person unless (i) the proposed purchaser provides to the Trustee an "affidavit"
(within the meaning of the REMIC Regulations) to the effect that, among other
items, such transferee is not a "disqualified organization" (as defined below),
is not purchasing a Residual Certificate as an agent for a disqualified
organization (i.e., as a broker, nominee, or other middleman) and is not an
entity that holds REMIC residual securities as nominee to facilitate the
clearance and settlement of such securities through electronic book-entry
changes in accounts of participating organizations (a "Book-Entry Nominee") and
(ii) the transferor states in writing to the Trustee that it has no actual
knowledge that such affidavit is false.
If, despite these restrictions, a Residual Certificate is transferred to a
disqualified organization, the transfer may result in a tax equal to the
product of (i) the present value of the total anticipated future excess
inclusions with respect to such Certificate and (ii) the highest corporate
marginal federal income tax rate. Such a tax generally is imposed on the
transferor, except that if the transfer is through an agent for a disqualified
organization, the agent is liable for the tax. A transferor is not liable for
such tax if the transferee furnishes to the transferor an affidavit that the
transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that the affidavit is
false.
A disqualified organization may hold an interest in a REMIC Certificate
through a "pass-thru entity" (as defined below). In that event, the pass-thru
entity is subject to tax (at the highest corporate marginal federal income tax
rate) on excess inclusions allocable to the disqualified organization. However,
such tax will not apply
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to the extent the pass-thru entity receives affidavits from record holders of
interests in the entity stating that they are not disqualified organizations
and the entity does not have actual knowledge that the affidavits are false;
provided that all partners of an "electing large partnership" (as defined in
the Code) are deemed to be disqualified organizations for purposes of such
tax.
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, certain organizations that are exempt from taxation under the Code
(including tax on excess inclusions) and certain corporations operating on a
cooperative basis, and (ii) "pass-thru 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-thru entity as a nominee for another will, with respect to that interest,
be treated as a pass-thru entity.
Foreign Investors. Under the REMIC Regulations, a transfer of a Residual
Certificate to a non-U.S. person that will not hold the Certificate in
connection with a U.S. trade or business will be disregarded for all federal
tax purposes if the Certificate has "tax avoidance potential." A Residual
Certificate has tax avoidance potential unless, at the time of transfer, the
transferor reasonably expects that:
(i) for each excess inclusion, the REMIC will distribute to the transferee
residual interest holder an amount that will equal at least 30 percent of the
excess inclusion, and
(ii) each such amount will be distributed at or after the time at which
the excess inclusion accrues and not later than the close of the calendar year
following the calendar year of accrual.
A transferor has such reasonable expectation if the above test would be
met assuming that the REMIC's Mortgage Loans will prepay at each rate between
50 percent and 200 percent of the Prepayment Assumption.
The REMIC Regulations also provide that a transfer of a Residual
Certificate from a non-U.S. person to a U.S. person (or to a non-U.S. person
that will hold the Certificate in connection with a U.S. trade or business) is
disregarded if the transfer has "the effect of allowing the transferor to avoid
tax on accrued excess inclusions."
In light of these provisions, the Agreement provides that a Residual
Certificate may not be purchased by or transferred to any person that is not a
U.S. person, unless (i) such person holds the Certificate in connection with
the conduct of a trade or business within the United States and furnishes the
transferor and the Trustee with an effective Internal Revenue Service Form
4224, or (ii) the transferee delivers to both the transferor and the Trustee an
opinion of nationally recognized tax counsel to the effect that such transfer
is in accordance with the requirements of the Code and the regulations
promulgated thereunder and that such transfer will not be disregarded for
federal income tax purposes.
Noneconomic Residual Certificates. Under the REMIC Regulations, a transfer
of a "noneconomic" Residual Certificate will be disregarded for all federal
income tax purposes if a significant purpose of the transfer is to impede the
assessment or collection of tax. Such a purpose 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 transferor is presumed to lack such knowledge 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 had historically paid its debts as they came due and found no
significant evidence to indicate that the transferee will not continue to pay
its debts as they become due, and
(ii) the transferee represents to the transferor that it understands that,
as the holder of the noneconomic residual interest, it may incur tax
liabilities in excess of any cash flows generated by the interest and that it
intends to pay taxes associated with holding the residual interest as they
become due.
A Residual Certificate (including a Certificate with significant value at
issuance) is noneconomic unless, at the time of the transfer, (i) the present
value of the expected future distributions on the Certificate 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 on the Certificate, at or after the time at which taxes
accrue, in an amount sufficient to pay the taxes.
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The Agreement will provide that no legal or beneficial interest in a
Residual Certificate may be transferred to, or registered in the name of, any
person unless the transferor represents to the Trustee that it has conducted
the investigation of the transferee, and made the findings, described in the
preceding paragraph, and the proposed transferee provides to the Trustee the
transferee representations described in the preceding paragraph, and agrees
that it will not transfer the Certificate to any person unless that person
agrees to comply with the same restrictions on future transfers.
Servicing Compensation and Other REMIC Pool Expenses.
Under Code Section 67, an individual, estate or trust is allowed certain
itemized deductions only to the extent that such deductions, in the aggregate,
exceed 2% of the Owner's adjusted gross income, and such a person is not
allowed such deductions to any extent in computing its alternative minimum tax
liability. Under Treasury regulations, if such a person is an Owner of a REMIC
Certificate, the REMIC Pool is required to allocate to such a person its share
of the servicing fees and administrative expenses paid by a REMIC together with
an equal amount of income. Those fees and expenses are deductible as an offset
to the additional income, but subject to the 2% floor.
In the case of a REMIC Pool that has multiple classes of Regular
Certificates with staggered maturities, fees and expenses of the REMIC Pool
would be allocated entirely to the Owners of Residual Certificates. However, if
the REMIC Pool were a "single-class REMIC" as defined in applicable Treasury
regulations, such deductions would be allocated proportionately among the
Regular and Residual Certificates.
Reporting and Administrative Matters.
Annual reports will be made to the Internal Revenue Service, and to
Holders of record of Regular Certificates, and Owners of Regular Certificates
holding through a broker, nominee or other middleman, that are not excepted
from the reporting requirements, of accrued interest, original issue discount,
information necessary to compute accruals of market discount, information
regarding the percentage of the REMIC Pool's assets meeting the qualified
assets tests described above under "Status of Certificates" and, where
relevant, allocated amounts of servicing fees and other Code Section 67
expenses. Holders not receiving such reports may obtain such information from
the related REMIC by contacting the person designated in IRS Publication 938.
Quarterly reports will be made to Residual Holders showing their allocable
shares of income or loss from the REMIC Pool, excess inclusions, and Code
Section 67 expenses.
The Trustee will sign and file federal income tax returns for each REMIC
Pool. To the extent allowable, the Trustee will act as the tax matters person
for each REMIC Pool. Each Owner of a Residual Certificate, by the acceptance of
its Residual Certificate, agrees that the Trustee will act as the Owner's agent
in the performance of any duties required of the Owner in the event that the
Owner is the tax matters person.
An Owner of a Residual Certificate is required to treat items on its
federal income tax return consistently with the treatment of the items on the
REMIC Pool's return, unless the Owner owns 100% of the Residual Certificate for
the entire calendar year or the Owner either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC Pool. The Internal Revenue Service may
assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC
level. Any person that holds a Residual Certificate as a nominee for another
person may be required to furnish the REMIC Pool, in a manner to be provided in
Treasury regulations, the name and address of such other person and other
information.
Non-REMIC Certificates
The discussion in this Section applies only to a series of Certificates
for which no REMIC election is made.
Trust Fund as Grantor Trust.
Upon issuance of each series of Certificates, Morgan, Lewis & Bockius LLP,
counsel to the Seller, will deliver an additional opinion, dated as of the date
of such issuance, to the effect that, under then current law,
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assuming compliance by the Seller, the Servicer and the Trustee with all the
provisions of the Agreement (and such other agreements and representations as
may be referred to in the opinion), the Trust Fund will be classified for
federal income tax purposes as a grantor trust and not as an association
taxable as a corporation.
Under the grantor trust rules of the Code, each Owner of a Certificate
will be treated for federal income tax purposes as the owner of an undivided
interest in the Mortgage Loans (and any related assets) included in the Trust
Fund. The Owner will include in its gross income, gross income from the portion
of the Mortgage Loans allocable to the Certificate, and may deduct its share of
the expenses paid by the Trust Fund that are allocable to the Certificate, at
the same time and to the same extent as if it had directly purchased and held
such interest in the Mortgage Loans and had directly received payments thereon
and paid such expenses. If an Owner is an individual, trust or estate, the
Owner will be allowed deductions for its share of Trust Fund expenses
(including reasonable servicing fees) only to the extent that the sum of those
expenses and the Owner's other miscellaneous itemized deductions exceeds 2% of
adjusted gross income, and will not be allowed to deduct such expenses for
purposes of the alternative minimum tax. Distributions on a Certificate will
not be taxable to the Owner, and the timing or amount of distributions will not
affect the timing or amount of income or deductions relating to a Certificate.
Status of the Certificates.
The Certificates, other than Interest Only Certificates, will be:
o "real estate assets" under Code Section 856(c)(5)(B) (relating to the
qualification of certain corporations, trusts, or associations as real
estate investment trusts); and
o assets described in Section 7701(a)(19)(B) of the Code (relating to real
estate interests, interests in real estate mortgages, and shares or
certificates of beneficial interests in real estate investment trusts),
to the extent the assets of the Trust Fund are so treated. Interest income from
such Certificates will be "interest on obligations secured by mortgages on real
property" under Code Section 856(c)(3)(B) to the extent the income of the Trust
Fund qualifies under that section. An "Interest Only Certificate" is a
Certificate which is entitled to receive distributions of some or all of the
interest on the Mortgage Loans or other assets in a REMIC Pool and that has
either a notional or nominal principal amount. Although it is not certain,
Certificates that are Interest Only Certificates should qualify under the
foregoing Code sections to the same extent as other Certificates.
Possible Application of Stripped Bond Rules.
In general, the provisions of Section 1286 of the Code (the "Stripped Bond
Rules") apply to all or a portion of those Certificates where there has been a
separation of the ownership of the rights to receive some or all of the
principal payments on a Mortgage Loan from the right to receive some or all of
the related interest payments. Certain Non-REMIC Certificates may be subject to
these rules either because they represent specifically the right to receive
designated portions of the interest or principal paid on the Mortgage Loans, or
because the Servicing Fee is determined to be excessive (each, a "Stripped
Certificate").
Each Stripped Certificate will be considered to have been issued with
original issue discount for federal income tax purposes. Original issue
discount with respect to a Stripped Certificate must be included in ordinary
income as it accrues, which may be prior to the receipt of the cash
attributable to such income. For these purposes, under original issue discount
regulations, each Stripped Certificate should be treated as a single
installment obligation for purposes of calculating original issue discount and
gain or loss on disposition. The Internal Revenue Service has indicated that
with respect to certain mortgage loans, original issue discount would be
considered zero either if (i) the original issue discount did not exceed an
amount that would be eligible for the de minimis rule described above under
"REMIC Certificates -- Income From Regular Certificates -- Original Issue
Discount", or (ii) the annual stated rate of interest on the mortgage loan was
not more than 100 basis points lower than on the loan prior to its being
stripped. In either such case the rules described above under "REMIC
Certificates--Income From Regular Certificates--Market Discount" (including the
applicable de minimis rule) would apply with respect to the mortgage loan.
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Taxation of Certificates if Stripped Bond Rules Do Not Apply.
If the stripped bond rules do not apply to a Certificate, then the Owner
will be required to include in income its share of the interest payments on the
Mortgage Loans held by the Trust Fund in accordance with its tax accounting
method. The Owner must also account for discount or premium on the Mortgage
Loans if it is considered to have purchased its interest in the Mortgage Loans
at a discount or premium. An Owner will be considered to have purchased an
interest in each Mortgage Loan at a price determined by allocating its purchase
price for the Certificate among the Mortgage Loans in proportion to their fair
market values at the time of purchase. It is likely that discount would be
considered to accrue and premium would be amortized, as described below, based
on an assumption that there will be no future prepayments of the Mortgage
Loans, and not based on a reasonable prepayment assumption. Legislative
proposals which are currently pending would, however, generally require a
reasonable prepayment assumption.
Discount. The treatment of any discount relating to a Mortgage Loan will
depend on whether the discount is original issue discount or market discount.
Discount at which a Mortgage Loan is purchased will be original issue discount
only if the Mortgage Loan itself has original issue discount; the issuance of
Certificates is not considered a new issuance of a debt instrument that can
give rise to original issue discount. A Mortgage Loan will be considered to
have original issue discount if the greater of the amount of points charged to
the borrower, or the amount of any interest foregone during any initial teaser
period, exceeds 0.25% of the stated redemption price at maturity times the
number of full years to maturity, or if interest is not paid at a fixed rate or
a single variable rate (disregarding any initial teaser rate) over the life of
the Mortgage Loan. It is not anticipated that the amount of original issue
discount, if any, accruing on the Mortgage Loans in each month will be
significant relative to the interest paid currently on the Mortgage Loans, but
there can be no assurance that this will be the case.
In the case of a Mortgage Loan that is considered to have been purchased
with market discount that exceeds a de minimis amount (generally, 0.25% of the
stated redemption price at maturity times the number of whole years to maturity
remaining at the time of purchase), the Owner will be required to include in
income in each month the amount of such discount that has accrued through such
month and not previously been included in income, but limited to the amount of
principal on the Mortgage Loan that is received by the Trust Fund in that
month. Because the Mortgage Loans will provide for monthly principal payments,
such discount may be required to be included in income at a rate that is not
significantly slower than the rate at which such discount accrues. Any market
discount that has not previously been included in income will be recognized as
ordinary income if and when the Mortgage Loan is prepaid in full. For a more
detailed discussion of the market discount rules of the Code, see "REMIC
Certificates -- Income from Regular Certificates -- Market Discount" above.
In the case of market discount that does not exceed a de minimis amount,
the Owner will be required to allocate ratably the portion of such discount
that is allocable to a Mortgage Loan among the principal payments on the
Mortgage Loan and to include the discount in ordinary income as the related
principal payments are made (whether as scheduled payments or prepayments).
Premium. In the event that a Mortgage Loan is purchased at a premium, the
Owner may elect under Section 171 of the Code to amortize such premium under a
constant yield method based on the yield of the Mortgage Loan to such Owner,
provided that such Mortgage Loan was originated after September 27, 1985.
Premium allocable to a Mortgage Loan originated on or before that date should
be allocated among the principal payments on the Mortgage Loan and allowed as
an ordinary deduction as principal payments are made (whether as scheduled
payments or prepayments).
Taxation of Certificates if Stripped Bond Rules Apply.
If the stripped bond rules apply to a Certificate, income on the
Certificate will be treated as original issue discount and will be included in
income as it accrues under a constant yield method. More specifically, for
purposes of applying the original issue discount rules of the Code, the Owner
will likely be taxed as if it had purchased a newly issued, single debt
instrument providing for payments equal to the payments on the interests in the
Mortgage Loans allocable to the Certificate, and having original issue discount
equal to the excess of the sum of such payments over the Owner's purchase price
for the Certificate (which would be treated as the issue
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price). The amount of original issue discount income accruing in any taxable
year will be computed as described above under "REMIC Certificates -- Income
from Regular Certificates -- Original Issue Discount". It is possible, however,
that the calculation must be made using as the Prepayment Assumption an
assumption of zero prepayments. If the calculation is made assuming no future
prepayments, then the Owner would be allowed to deduct currently any negative
amount of original issue discount produced by the accrual formula.
Different approaches could be applied in calculating income under the
stripped bond rules. For example, a Certificate could be viewed as a collection
of separate debt instruments (one for each payment allocable to the
Certificate) rather than a single debt instrument. Also, in the case of an
Interest-Only Certificate, it could be argued that certain proposed regulations
governing contingent payment debt obligations apply. It is recommended that
Owners consult their own tax advisors regarding the calculation of income under
the stripped bond rules.
Sales of Certificates.
A Certificateholder that sells a Certificate will recognize gain or loss
equal to the difference between the amount realized in the sale and its
adjusted tax basis in the Certificate. In general, such adjusted basis will
equal the Certificateholder's cost for the Certificate, increased by the amount
of any income previously reported with respect to the Certificate and decreased
(but not below zero) by the amount of any distributions received thereon, the
amount of any losses previously allowable to such Owner with respect to such
Certificate and any premium amortization thereon. Any such gain or loss would
be capital gain or loss if the Certificate was held as a capital asset, subject
to the potential treatment of gain as ordinary income to the extent of any
accrued but unrecognized market discount under the market discount rules of the
Code, if applicable.
Foreign Investors.
Except as described in the following paragraph, an Owner that is not a
U.S. person (as defined under "REMIC Certificates -- Taxation of Foreign
Investors" above) and that is not subject to federal income tax as a result of
any direct or indirect connection to the United States in addition to its
ownership of a Certificate will not be subject to United States income or
withholding tax in respect of a Certificate (assuming the underlying Mortgage
Loans were originated after July 18, 1984), if the Owner provides an
appropriate statement, signed under penalties of perjury, identifying the Owner
and stating, among other things, that the Owner is not a U.S. person. If these
conditions are not met, a 30% withholding tax will apply to interest (including
original issue discount) unless an income tax treaty reduces or eliminates such
tax or unless the interest is effectively connected with the conduct of a trade
or business within the United States by such Owner. Income effectively
connected with a U.S. trade or business will be subject to United States
federal income tax at regular rates then applicable to U.S. taxpayers (and in
the case of a corporation, possibly also the branch profits tax).
In the event the Trust Fund acquires ownership of real property located in
the United States in connection with a default on a Mortgage Loan, then any
rental income from such property allocable to an Owner that is not a U.S.
person generally will be subject to a 30% withholding tax. In addition, any
gain from the disposition of such real property allocable to an Owner that is
not a U.S. person may be treated as income that is effectively connected with a
U.S. trade or business under special rules governing United States real
property interests. The Trust Fund may be required to withhold tax on gain
realized upon a disposition of such real property by the Trust Fund at a 35%
rate.
Reporting
Tax information will be reported annually to the Internal Revenue Service
and to Holders of Certificates that are not excluded from the reporting
requirements.
Backup Withholding
Distributions made on a Certificate and proceeds from the sale of a
Certificate to or through certain brokers may be subject to a "backup"
withholding tax of 31% unless, in general, the Owner of the Certificate
complies with certain procedures or is a corporation or other person exempt
from such withholding. Any amounts so withheld from distributions on the
Certificates would be refunded by the Internal Revenue Service or allowed as a
credit against the Owner's federal income tax.
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PLAN OF DISTRIBUTION
The Seller may sell Certificates of each series to or through underwriters
(the "Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters, and also may sell and place Certificates
directly to other purchasers or through agents. The Seller intends that
Certificates will be offered through such various methods from time to time and
that offerings may be made concurrently through more than one of these methods
or that an offering of a particular series of Certificates may be made through
a combination of such methods.
The distribution of the Certificates may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a series of
Certificates, the Seller or any affiliate thereof may purchase some or all of
one or more classes of Certificates of such series from the Underwriter or
Underwriters at a price specified in such Prospectus Supplement. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may
be restricted in the manner specified in such Prospectus Supplement and may be
effected from time to time in one or more transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices.
In connection with the sale of the Certificates, Underwriters may receive
compensation from the Seller or from the purchasers of Certificates for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the Certificates of a series to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the Certificates of a series may be deemed to be
Underwriters and any discounts or commissions received by them from the Seller
and any profit on the resale of the Certificates by them may be deemed to be
underwriting discounts and commissions, under the Securities Act of 1933, as
amended (the "Act"). Any such Underwriters or agents will be identified, and
any such compensation received from the Seller will be described, in the
applicable Prospectus Supplement.
It is anticipated that the underwriting agreement pertaining to the sale
of any series or class of Certificates will provide that the obligations of the
underwriters will be subject to certain conditions precedent and that the
underwriters will be obligated to purchase all such Certificates if any are
purchased.
Under agreements which may be entered into by the Seller, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Seller against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Seller will authorize
Underwriters or other persons acting as the Seller's agents to solicit offers
by certain institutions to purchase the Certificates from the Seller pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational
charitable institutions and others, but in all cases such institutions must be
approved by the Seller. The obligation of any purchaser under any such contract
will be subject to the condition that the purchaser of the offered Certificates
shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject from purchasing such
Certificates. The Underwriters and such other agents will not have
responsibility in respect of the validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and
there is no assurance that any market, if established, will continue.
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USE OF PROCEEDS
Substantially all of the net proceeds from the sale of each series of
Certificates will be applied by the Seller to the purchase price of the
Mortgage Loans underlying the Certificates of such Series.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby,
including certain federal income tax matters, will be passed upon for the
Seller by Morgan, Lewis & Bockius LLP, New York, New York.
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INDEX OF PROSPECTUS DEFINITIONS
Defined Term Page
- ------------ ------
Accrual Certificates ........................... 11
Act ............................................ 66
Advance Guarantee .............................. 4
Agreement ...................................... 1
ARM Loans ...................................... 3
ARMs ........................................... 3
Book-Entry Nominee ............................. 51
Buy-Down Fund .................................. 13
Buy-Down Mortgage Loans ........................ 3
Buy-Down Reserve ............................... 13
Cash-Out Refinance Loans ....................... 13
Certificates ................................... Cover
Certificate Guaranty Insurance Policy .......... 5
Certificate Issurer ............................ 5
Certificate Rate ............................... 11
CERCLA ......................................... 38
Chase Manhattan Mortgage ....................... 1
Code ........................................... 6
Collection Account ............................. 12
Commission ..................................... ii
Compensating Interest Payment .................. 21
Conservation Act ............................... 39
Cooperative Loans .............................. Cover
Current Report ................................. 14
Cut-Off Date ................................... 11
Defective Mortgage Loan ........................ 29
Delivery Date .................................. 10
Denomination ................................... 10
Deposit Guarantee .............................. 4
Distribution Date .............................. 11
DOL ............................................ 42
Environmental Lien ............................. 39
ERISA .......................................... 6
Exchange Act ................................... ii
Garn-St. Germain Act ........................... 37
GIC ............................................ 19
Guarantor ...................................... 4
Insurance Proceeds ............................. 14
Interest Accrual Period ........................ 12
Interest Only Certificate ...................... 54
Limited Guarantee .............................. 4
Liquidation Proceeds ........................... 14
Mortgage ....................................... 13
Mortgage Loan Schedule ......................... 27
Mortgage Loans ................................. cover
Mortgage Pool .................................. 1
Mortgage Rate .................................. 13
Mortgage Pool Insurance Policy ................. 5
Mortgaged Properties ........................... 13
NCUA ........................................... 41
Nonrecoverable Advance ......................... 25
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Defined Term Page
- ------------ ------
Non-SMMEA Certificates .................... 41
Non-U.S. Person ........................... 51
Note ...................................... 13
OID Regulations ........................... 45
OTS ....................................... 37
Parties in Interest ....................... 42
Paying Agent .............................. 12
Plans ..................................... 42
Policy Statement .......................... 41
Pre-Funding Account ....................... 6
Pre-Funding Agreement ..................... 6
Primary Mortgage Insurance Policy ......... 13
Principal Prepayments ..................... 12
Prospectus Supplement ..................... Cover
PTE 83-1 .................................. 42
PUD ....................................... 13
Record Date ............................... 11
Regular Certificates ...................... 44
Relief Act ................................ 38
REMIC ..................................... Cover
REMIC Regulations ......................... 49
Remittance Rate ........................... 2
Representing Party ........................ 27
Reserve Account ........................... 16
Residual Certificates ..................... 44
Residual Owners ........................... 48
RICO ...................................... 39
Seller .................................... Cover
Senior Certificates ....................... 15
Servicer .................................. 1
SMMEA ..................................... 7
Special Hazard Insurance Policy ........... 6
Stripped Bond Rules ....................... 54
Stripped Certificate ...................... 54
Subordinated Certificates ................. 15
Title V ................................... 37
Trustee ................................... 10
Trust Fund ................................ Cover
Underwriters .............................. 57
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$575,000,000 (Approximate)
Chase Funding
Mortgage Loan Asset-Backed Certificates, Series 1998-2
[GRAPHIC OMITTED]
Chase Funding, Inc.
Depositor
Advanta Mortgage Corp. USA
Subservicer
Chase Manhattan Mortgage Corporation
Seller and Master Servicer
------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------
Chase Securities Inc.
Prudential Securities Incorporated
(Joint Book Lead)
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.
We represent the accuracy of the information in this prospectus supplement and
the attached prospectus only as of the dates stated on their respective covers.
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 March
18, 1999.
December 16, 1998
